SFB:
Monetizing the “wholly-owneds†or MDA (particularly to maximum value) inherently contradicts any strategy to further reduce operating costs through restructure of the rj operating agreements. The less stable and potentially lower the revenue stream from US Airways to any of the regionals,
The less valuable they would be to any acquiror. If US Airways wants to lower its RJ operating agreements for additional operating cost savings (and, like United, it clearly ought to), then any recovery upon monetization of its ownership of the “wholly-owneds†will be reduced.
On the other hand, USAir's recovery could be materially enhanced if it were willing to "look beyond" any efforts to wring cost savings out of the RJ agreements and sell off the “wholly-owneds†complete with their current "sweet deals" in place.
In regard to the ATSB agreement, management fully understands your point since they wrote part of the agreement and then signed the documment.
But, let me ask you this. Has the ATSB ever changed their agreement with US Airways and could they do it in the future? Let me tell you this again -- senior management has personally told me the “wholly owneds†and MDA could be sold to boost US Airways’ liquidity.
Moreover, the news media has seemed to pick up on this too.
On February 27, the Pittsburgh Post-Gazette said, some observers believe that US Airways, in its search for more investors, will look to its other affiliate carriers -- some of which are independent and some of which it owns -- that carry US Airways passengers to smaller cities and receive fees in return.
Williman Lauer, a local airline analyst, believes that US Airways could sell the carriers it owns -- PSA Airlines or Piedmont Airlines -- to raise cash. Or, it could ask other regional carriers with feeder contracts, such as Mesa or Chautauqua, to invest in US Airways as Air Wisconsin did and receive guaranteed service in return.
"In the quest for exit financing," Lauer said, US Airways "has zoned in on this whole area of the regional contracts." Chief executives at Phoenix-based Mesa and Indianapolis-based Chautauqua could not be reached for comment.
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In regard to an affiliate carrier buying a “wholly owned†or MDA, the current "Fee for Service" contracts provide cost plus 8%, but are too rich in today’s environment. If US Airways fails, the affiliate carrier will be in immediate trouble and have a beneficial interest in US Airways’ survival. Thus the incentive to reach a mutually acceptable solution such as cost plus 4%. If the affiliate carrier and US Airways reach new “Fee for Service†contracts, since US Airways has not affirmed the current agreements, then the only way for the affiliate carrier to grow gross profits is to have a larger operation. How do you do this? By expanding ASM’s through internal growth or an acquisition, which is currently being discussed by a number of business entities and US Airways.
I agree with your point that United now has renewed interest in keeping Air Wisconsin in the United Express network, but that agreement does not have to preclude Air Wisconsin flying for US Airways or replacing an affiliate carrier. For example, the US Airways –Air Wisconsin agreement provides for the Wisconsin-based airline to fly 90-seat RJs. Moreover, it appears management has already planned for this because LOA 93 specifically permits both the EMB-190 and CRJ-900 to be flown at an affiliate carrier. One obstacle: J4J, but ALPA is already looking into this too.
Another option being evaluated is could US Airways reject the current affiliate carrier contract and then sign a month-to-month agreement, a la like the ACAA deal over the Pittsburgh airport, and incrementally replace an affiliate carrier with new Air Wisconsin service?
Another reason adding Air Wisconsin to the network and removing an EMB-145 operator is that the CRJ-200 has a more comfortable cabin, a greater passenger acceptance rating, and better economics than the EMB-145.
In regard to US Airways emerging before United and losing its leverage, management understands this and has planned according. Ron Stanley knows exactly what he is doing and is a significant improvement over both Neal Cohen and Dave Davis. US Airways and Air Wisconsin both recognize this and US Airways is using every tool it can to upgrade service and lower unit costs.
In conclusion, there is a lot of conversation going on in the “executive suite†regarding selling the “wholly owneds†and/or MDA, rejecting or affirming the current affiliate carrier contracts, requiring current affiliate carriers to provide US Airways with equity in exchange for keeping their “Fee for Service†contract, lowering the current affiliate carrier fee, an expanded Air Wisconsin role in US Airways Express, the ATSB, LOA 93 implications, and J4J.
The whole situation is very complex and at this point, even US Airways management does not know the final result pending final negotiations because it has a number of good options, but US Airways holds a lot of cards and management will make the best deal possible for the Arlington-based airline.
One other point that needs to be emphasized is the importance of US Airways obtaining DIP financing. Bruce Lakefield commented on this in his weekly code-a-phone message that can be heard at 800-US-DAILY and then selecting prompt 4.
The Pittsburgh Post-Gazette reported on this yesterday and wrote, US Airways Chief Executive Officer Bruce Lakefield, in his weekly telephone message to employees, said the company had enough cash on hand last week to exceed the $325 million needed to keep its bankruptcy financing intact, but the $75 million it received last Tuesday from an investment group led by Air Wisconsin Airlines gave it an "
ample cushion." Early March is typically the airline's lowest point for cash. Air Wisconsin's investment, which will eventually total $125 million, "cannot be underestimated," he said. It is "a cornerstone from which we can attract additional financing." US Airways needs at least $250 million to exit bankruptcy comfortably.
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Best regards,
USA320Pilot
