US Airways investment hopes rising
Financial Times
By Caroline Daniel in Chicago
Published: March 16 2005 02:00 | Last updated: March 16 2005 02:00

US Airways' hopes of exiting bankruptcy this year took a step forward after Republic Airways and Wexford Capital agreed to invest $125m in the airline, taking it closer to its goal of raising $350m in financing.

The announcement from Republic, which operates Chautauqua Airlines and Republic Airlines, comes two weeks after a bankruptcy court approved a $125m financing package from Eastshore Aviation, an investment group owned by Air Wisconsin Airlines. US Airways has already drawn down $75m of this financing.

The agreement with Republic is dependent on US Airways finding an additional $100m. Confidence that US Airways may be able to make it out of bankruptcy is likely to frustrate rival airlines that had hoped it would be forced into liquidation and capacity would finally be reduced in the challenging US domestic market.

Robert Ashcroft, analyst at UBS, in a note published yesterday said: "How do RJET customers American, United, Delta feel about their RJET payments supporting US Air?"

The financing deals confirm a growing trend in the airline industry towards cash being provided by suppliers, who have the most to lose from a liquidation, including credit card companies such as American Express, which extended financing to Delta and General Electric's aircraft leasing arm, which has significant exposure to the US industry.

The announcement also reflects a change in the balance of power of regional carriers. In the past, these airlines were seen as the smaller partners, providing contract services to larger network carriers. Now, they are some of the only airlines with stronger balance sheets to help prop up the carriers on which they depend.

For example, the agreement also includes a commitment by US Airways to amend and restate its existing jet service agreement with Chautauqua and to enter into a new jet service agreement with Republic for regional jet feed using the Embraer aircraft.

US Airways also has the right to gain a further $110m from Republic from the sale of assets including ten Embraer aircraft, 113 commuter slots at Ronald Reagan Washington National Airport and 24 commuter slots at New York's LaGuardia airport. These would be leased back to US Airways, and "US Airways will have the right to repurchase the LaGuardia and Washington slots at a predetermined price," it said.

US Airways is expected to file reorganisation plans by April 15.