In a move that could impact Air Wisconsin Airlines' partnership with US Airways, creditors of bankrupt United Airlines want the commuter carrier to pay back money it received when flying for United.
The dispute, currently playing out before U.S. Bankruptcy Judge Eugene Wedoff in Chicago, hinges on $90 million in bonuses Air Wisconsin received over the last 18 months for commuter service it provided to the nation's No. 2 carrier.
United's unsecured creditors have filed a motion asking Wedoff to bar Air Wisconsin from using the money if United rejects its air services partnership with the Appleton, Wis.-based carrier -- a move United has indicated it might take.
The creditors' objection is yet another wrinkle in Air Wisconsin's agreement last month to prop up US Airways with a loan that can be converted into equity once US Airways emerges from bankruptcy.
US Airways received $75 million on Feb. 28, hours after a U.S. bankruptcy judge approved an agreement that also allows Air Wisconsin to fly planes as part of the US Airways Express commuter network. Two additional $25 million installments are to be made later.
The infusion has been critical to US Airways' survival: The $75 million allowed the nation's seventh-largest carrier to end February with $405 million in cash, well above the $325 million minimum set by the federal government for the airline to continue to qualify for existing loan guarantees. US Airways lost $119 million in the month, as it battled high fuel prices, low fares and a lackluster travel season.
The new relationship between US Airways and the much smaller Air Wisconsin quickly came under scrutiny from United, which asked US Airways to reveal the details so it could determine if United's contract carrier agreement with Air Wisconsin had been violated.
US Airways and Air Wisconsin balked at United's request, saying in court that United's goal was simply to gain "negotiating leverage."
The two major airlines agreed last week to turn the disclosure argument over to a mediator, James White, who now must determine if United's agreement was breached.
That still leaves the issue of the $90 million that Air Wisconsin received from United -- money United creditors maintain was transferred to US Airways. Wedoff has scheduled a hearing on the matter for April 22.
Most intriguing to observers of both airlines is the possibility that "United inadvertently financed the propping up of US Airways," said bankruptcy attorney Darryl Laddin, chairman of the bankruptcy group at the Atlanta law firm Arnall Golden Gregory.
United's creditors do not explain how they know the money received by US Airways came from United.
"I think it is unlikely Air Wisconsin would have disclosed precisely where it is getting the money from," said Laddin, who has represented a United creditor. "Probably what happened is the United committee put two and two together," calling it a "reasonable inference."
Air Wisconsin declined comment yesterday and a United spokesman could not be reached.
Air Wisconsin's investment was seen by analysts as a way for Air Wisconsin to protect itself in case it lost an exclusive feeder contract with United, which has asked other regional carriers to bid for Air Wisconsin's business.
But the creditors committee in the United case claimed that it was Air Wisconsin that "unilaterally terminated" talks with United to announce the new deal with US Airways. The committee claimed that the loan to US Airways was funded "in large part" by the $90 million in bonus payments received from United over the last 18 months.
United first agreed to pay Air Wisconsin $5 million per month in bonuses in September 2003, as a way to keep the feeder contract going in bankruptcy. But United never expected to be in bankruptcy this long, according to the creditors, and thus they argue that Air Wisconsin should not be allowed to keep the $90 million if its contract is rejected.
A lawyer for the creditors committee could not be reached for comment yesterday.
One outstanding question is whether the dispute could jeopardize any of the financing US Airways is receiving from Air Wisconsin. It is certainly "not helpful," said local airline analyst Bill Lauer.
But Laddin, the Atlanta bankruptcy attorney, said US Airways will have most of the money from Air Wisconsin in hand by the time the bankruptcy judge makes a decision on the matter.
"The risk to US Airways is not as great as the risk to Air Wisconsin," he said.
http://www.post-gazette.com/pg/05090/480273.stm
The dispute, currently playing out before U.S. Bankruptcy Judge Eugene Wedoff in Chicago, hinges on $90 million in bonuses Air Wisconsin received over the last 18 months for commuter service it provided to the nation's No. 2 carrier.
United's unsecured creditors have filed a motion asking Wedoff to bar Air Wisconsin from using the money if United rejects its air services partnership with the Appleton, Wis.-based carrier -- a move United has indicated it might take.
The creditors' objection is yet another wrinkle in Air Wisconsin's agreement last month to prop up US Airways with a loan that can be converted into equity once US Airways emerges from bankruptcy.
US Airways received $75 million on Feb. 28, hours after a U.S. bankruptcy judge approved an agreement that also allows Air Wisconsin to fly planes as part of the US Airways Express commuter network. Two additional $25 million installments are to be made later.
The infusion has been critical to US Airways' survival: The $75 million allowed the nation's seventh-largest carrier to end February with $405 million in cash, well above the $325 million minimum set by the federal government for the airline to continue to qualify for existing loan guarantees. US Airways lost $119 million in the month, as it battled high fuel prices, low fares and a lackluster travel season.
The new relationship between US Airways and the much smaller Air Wisconsin quickly came under scrutiny from United, which asked US Airways to reveal the details so it could determine if United's contract carrier agreement with Air Wisconsin had been violated.
US Airways and Air Wisconsin balked at United's request, saying in court that United's goal was simply to gain "negotiating leverage."
The two major airlines agreed last week to turn the disclosure argument over to a mediator, James White, who now must determine if United's agreement was breached.
That still leaves the issue of the $90 million that Air Wisconsin received from United -- money United creditors maintain was transferred to US Airways. Wedoff has scheduled a hearing on the matter for April 22.
Most intriguing to observers of both airlines is the possibility that "United inadvertently financed the propping up of US Airways," said bankruptcy attorney Darryl Laddin, chairman of the bankruptcy group at the Atlanta law firm Arnall Golden Gregory.
United's creditors do not explain how they know the money received by US Airways came from United.
"I think it is unlikely Air Wisconsin would have disclosed precisely where it is getting the money from," said Laddin, who has represented a United creditor. "Probably what happened is the United committee put two and two together," calling it a "reasonable inference."
Air Wisconsin declined comment yesterday and a United spokesman could not be reached.
Air Wisconsin's investment was seen by analysts as a way for Air Wisconsin to protect itself in case it lost an exclusive feeder contract with United, which has asked other regional carriers to bid for Air Wisconsin's business.
But the creditors committee in the United case claimed that it was Air Wisconsin that "unilaterally terminated" talks with United to announce the new deal with US Airways. The committee claimed that the loan to US Airways was funded "in large part" by the $90 million in bonus payments received from United over the last 18 months.
United first agreed to pay Air Wisconsin $5 million per month in bonuses in September 2003, as a way to keep the feeder contract going in bankruptcy. But United never expected to be in bankruptcy this long, according to the creditors, and thus they argue that Air Wisconsin should not be allowed to keep the $90 million if its contract is rejected.
A lawyer for the creditors committee could not be reached for comment yesterday.
One outstanding question is whether the dispute could jeopardize any of the financing US Airways is receiving from Air Wisconsin. It is certainly "not helpful," said local airline analyst Bill Lauer.
But Laddin, the Atlanta bankruptcy attorney, said US Airways will have most of the money from Air Wisconsin in hand by the time the bankruptcy judge makes a decision on the matter.
"The risk to US Airways is not as great as the risk to Air Wisconsin," he said.
http://www.post-gazette.com/pg/05090/480273.stm
It must be Air Whiskey's fault. That $90 million is obviously the difference between their current condition and profitability.
