Regional carriers emerged as the surprise backers of US Airways, giving it much of the support it needs to exit bankruptcy reorganisation.

Air Wisconsin affiliate Eastshore Aviation and regional-airline operator Republic Airways Holdings each arranged $125 million investments that US Airways would convert to an equity stake of about 20% each after it emerges from Chapter 11 protection. This is set for 30 June. In return, US Airways will accept up to 70 regional jets from Air Wisconsin if it needs them. It would also keep its contract with Republic's Chautauqua unit and start a new pact with sister subsidiary Republic Airlines to fly larger Embraer 170/190s as US Airways Express.

US Airways could also raise another $110 million in a sale/leaseback with Republic of some of its own regional jets, flight simulators and landing slots in Washington and New York. MergeGlobal director George Hamlin says that, "this is a real in-out reversal, with the little guys shaping the direction of the big guy. But the regionals preserved their cash, US Airways needs it, and it needs smaller planes as well."

The Eastshore financing deal gives US Airways immediate access to $75 million, which it will need to meet cash covenants under Air Transportation Stabilisation Board financing. The airline went through about $195 million in cash in January alone. Republic and its majority owner, Wexford Capital, said their investment depends on US Airways raising another $100 million in new cash from other sources.

Another potential investor is believed to be the Mesa Air Group although Mesa chief Jonathan Ornstein declined to address the issue specifically. With $250 million in liquidity, Mesa has made bids for US Airways in its first bankruptcy in 2002-3, for Atlantic Coast in late 2003, and for America West in one of its 1990s bankruptcies. Mesa gets about 35% of its revenue from US Airways Express, for which it flies 59 of its 130 regional jets.

Air Wisconsin, a privately held carrier, flies as a United Express feeder, but United, in a cost-cutting move, has put the Air Wisconsin routes up for bid. Hamlin says: "For AirWis, the move hedges its bets, making sure it has a major partner if United does not bring it back into the fold." For Republic, notes Merrill Lynch analyst Mike Linenberg, the deal may lower the rate its Chautauqua unit receives for US Airways Express flying but gives it access to more of the coveted larger regional jets.


Source: Airline Business