A US judge has settled a bankruptcy dispute between Republic Airways Holdings and aircraft lessor Residco, a move that brings Republic one step closer to exiting bankruptcy protection.

The decision, which related to seven formerly leased Embraer ERJ-145s, also exposes the degree to which small regional jet values have declined in recent years.

Judge Sean Lane of the US Bankruptcy Court of the Southern District of New York upheld Indianapolis-based Republic's bankruptcy reorganisation plan against an objection by Residco, a company composed of Wells Fargo Bank Northwest and ALF VI.

Though the move brings Republic closer to exiting bankruptcy protection, the company does not respond to a request from FlightGlobal for an updated timeline.

Republic, which filed for bankruptcy protection in February 2016, had said it planned to exit bankruptcy in the first quarter of 2017.

The dispute involved seven ERJ-145s (registration numbers N259JQ, N286SK, N287SK, N288SK, N561RP, N562RP and N563RP) that Residco until recently had leased to former Republic subsidiary Shuttle America, court papers show.

Republic, which had guaranteed the lease agreements, discontinued Shuttle America on 31 January, merging it into another subsidiary, Republic Airline.

Between April and October 2016, Republic broke leases on the seven ERJs and returned them – part of a strategy to transition to a fleet of larger regional jets.

The company then filed its bankruptcy reorganisation plan. The plan sought to free parent company Republic from overarching guarantees it had made to pay subsidiaries' obligations.

Residco, which had filed claims for damages against both Shuttle America and Republic, took issue with that provision.

The lessor called Republic's pledge stronger, saying it is worth up to $50 million more than claims against Shuttle America.

Judge Lane did issue a "carve out" order granting Residco some relief, though it still opposed the move, court documents show.

While the decision moves Republic closer to exiting bankruptcy protection, the dispute reflects the extent to which small regional jet prices have declined in recent years.

That's because the Republic-Residco lease contract specified that damages for breaking the agreement would increase if the sales value of the ERJs declined, which they did.

The aircraft were worth between $7 million and $8 million when Republic signed the leases between 2001 and 2003, but are now worth "not more than $800,000" each, Residco argued in court papers.

"The… liquidated damages provisions turn out to be important," say court documents.

Those aircraft have declined in favour recently amid a broad shortage of qualified pilots and amid greater demand for more efficient, larger two-cabin regional aircraft.

Source: Cirium Dashboard