The Air Wis Agreement

[BoeingBoy]

OK, gang, it's on the web site with all the other filings. Actually, there's 3 docket #'s with a couple having multiple parts, so here's the links to the actual documents:

Motion to Approve AWAC agreement

DIP Agreement

Jet Services Agreement

Now for the "Cliff Notes" version....

DIP Loan -

As previously reported in the media and elsewhere, $125 million divided into 3 draws.

Interest at LIBOR + 6.5%.

Unrestricted cash equal to or greater than ATSB minimum + percentage of that already drawn from DIP facility.

Jet Services Agreement -

US agrees to accept up to 70 CRJ-200's when and if notified by AWAC of their availability (some allowence for substituting CRJ-900's)

10 year term

All the really interesting tidbits (the dollars and cents) are redacted, and the split of what are called Form 41 DOT classification costs are pretty straight forward (AWAC pays the cost of the airplanes, crews, and maintenance and US pays pretty much everything else.

Not having seen another fee for departure agreement in this much detail, there are some interesting tidbits - but that doesn't mean they're not standard.

- US pays the extra cost if trips have more than a single overnight or what we call an "all nighter".

- US pays the costs due to relocation of maintenance or crew bases.

- As in the Mesa agreement, US pays for fuel.

- US provides all station facilities, personnel and equipment.

- US pays "certain direct costs" (insurance and aircraft ownership costs are the two mentioned outside the redacted "Pricing Model") for their entire fleet, not just the planes in US service.

- US pays all TSA & other government fees (like landing fees??).

- And finally, US shall pay a fixed profit per actual ASM flown under the agreement. (That's why the larger fee for departure operators are able to make WN's profit margins look small).

Jim

 

[autofixer]

Geez, AWAC ought to recoup the $125 mil. in short order!

 

[BoeingBoy]

- US pays "certain direct costs" (insurance and aircraft ownership costs are the two mentioned outside the redacted "Pricing Model") for their entire fleet, not just the planes in US service.

[post="249978"][/post]​

The more I ponder it, the more I don't think I did this part justice.....

The "Pricing Model", which is redacted, breaks costs down into two catagories - direct costs and pass through costs, both of which are paid by US either directly or thru billings from AWAC:

Direct costs are further broken down into:

- "Per Aircraft Costs" which are paid for the entire 70 CRJ fleet, once a redacted threshold count is reached (this is where aircraft ownership and insurance are given as examples)

- "Per Scheduled Aircraft Costs" which are paid for the planes flying in US colors (with allowance for spares)

- "Per Revenue Block Hour Costs" which are paid for block hours actually flown in US colors.

- "Per Departure Costs" which are paid for revenue departures flown in US colors.

 

[ringmaruf]

I'd add two more comments:

The motion states that the Air Wisconsin flying will cost the same or less than the other contract RJ flying.

If Air Wisconsin adds more than the 70 CRJs to its US Express fleet, the additional flying will be subject to Jets for Jobs.

 

[justaumechanic]

I'd add two more comments:

The motion states that the Air Wisconsin flying will cost the same or less than the other contract RJ flying.

If Air Wisconsin adds more than the 70 CRJs to its US Express fleet, the additional flying will be subject to Jets for Jobs.

[post="249995"][/post]​

This is an asset sale.. Don't be blinded by some "Jets for Jobs" crap.

Air Wis see's an opportunity here to grab some choice assets.. Don't be fooled.

This is a land grab..

 

[mweiss]

Interest at LIBOR + 6.5%.

[post="249978"][/post]​

See, this is why it never makes sense to voluntarily enter into bankruptcy. I doubt WN would pay more than 2% over LIBOR.

 

[BoeingBoy]

I'd add two more comments:

The motion states that the Air Wisconsin flying will cost the same or less than the other contract RJ flying.

If Air Wisconsin adds more than the 70 CRJs to its US Express fleet, the additional flying will be subject to Jets for Jobs.

[post="249995"][/post]​

Both very valid points, ringmaruf.

I didn't mention the J4J's because that is mainly of interest to pilots, and may not come to fruition soon.

As for the cost, I omited the company's claim because there's no way (at least for me) to verify it from the agreement.

Jim

 

[Winglet]

Air Whiskey is probably afraid of what UAL might bring and sees an opportunity to bleed U until it augers in.

 

[FWAAA]

See, this is why it never makes sense to voluntarily enter into bankruptcy. I doubt WN would pay more than 2% over LIBOR.

[post="250009"][/post]​

No kidding. Reminds me of Gary Coleman's recent ads for CashCall (loansharks for people out of stuff to pawn). He admits "Sure, the interest rate is high, but the monthly payments are very affordable."

Yikes.

 

[FWAAA]

More news on the agreement:

http://biz.yahoo.com/ap/050223/us_air_air_wisconsin_2.html

 

[justaumechanic]

The article has an error.. It says that this is exit money.. It is not exit money. It is DIP money which will be cleared if the company exits ch 11..

 

[FWAAA]

I agree, but most news outlets have hopelessly confused the two.

I agree with your take on it, this is nothing more than an attempt to buy the slots (LGA and DCA) and gates for a song, and I'm betting it will attract other bidders. AirWhisky is betting that USAir folds, the ATSB gets all the cash, and the slots and gates come cheap.

 

[sfb]

I agree, but most news outlets have hopelessly confused the two.

Well, technically it's not exit financing, but the DIP loan converts into an equity stake when/if the company does exit from bankruptcy. So, it's a loan that becomes exit financing if the company manages to reorganize successfully -- or it stays a loan if US Airways Group finds better exit financing offers.

I agree with your take on it, this is nothing more than an attempt to buy the slots (LGA and DCA) and gates for a song, and I'm betting it will attract other bidders. AirWhisky is betting that USAir folds, the ATSB gets all the cash, and the slots and gates come cheap.

It doesn't quite work that way, though. AWAC gets a lien on UAIRQ assets that is subordinate to the ATSB lien. If the company shuts down, the assets are sold or liquidated in order to recover funds to satisfy the liens (and distribute the remainder to creditors).

Again, AWAC's motivation is to give itself an exit strategy in case United chooses to give the United Express flying currently performed by AWAC to another/lower bidder -- and it may give them leverage in negotiations which are undoubtedly occurring with UAL management. If US fails to reorganize successfully, AWAC gets its money back from the estate. If UAL takes away their UAX flying, they can replace some or all of the flying done for US by Mesa, Chautauqua, or Trans States. The worst case scenario is if US emerges and then goes insolvent in short order again -- in which case AWAC loses its investment and its guaranteed flying/profit margin.

 

[BoeingBoy]

sfb,

Just to play devil's advocate for a minute.....

One of the things that struck me about the agreement is the provision that US would pay certain "direct costs" for AWAC's entire fleet (presumably just the CRJ's, but that isn't spelled out) once a threshold number of jets are flying in US colors.

Hopefully, that threshold number is high enough to include most of AWAC's fleet, but for the sake of argument let's postulate that the number is 20. So AWAC could put 20 CRJ's over here, leaving 50 available to fly for UA (plus the Bae146's). But US is then paying such things as a/c ownership costs and hull insurance for the full 70 airplanes. AWAC could theoritically use this "cost advantage" to be the low bidder on the UA flying, at least the flying they could do with the 50 CRJ's and 16-18 Bae146's.

Just speculation....

Jim

 

[Rico]

Jim,

I was thinking about this today as I washed the car, and it struck me that people might be missing the true intent of this agreement.

IMO this is a savvy move on AWAC's part to position itself well no matter what happens with UAL, but not just that. Although I agree that they have protected themselves quite well, whatever the outcome of our Bankruptcy It is very interesting that the AWAC management mentioned growth opportunities with U as a main reason behind this. One line out of what you posted Jim, that caught my attention, is that the 50 seaters can be optioned out instead for 90 seaters. I am wondering if what you also mentioned regarding certain "direct costs", might have to do with what would be involved in doing just that...

If memory serves, the recent ALPA agreement allows additonal CRJ-900s to be added, under the JFJ protocals, I believe to a max of 60. But correct me if I am wrong. It was a fuzzy paragraph, and I still am not 100% sure of what it means.

IMO there is a niche market that 50 seat CRJ's are still profitable in and worthwhile for, but it is not large anymore. On the otherhand it is obvious that the company has had a strong desire to get into larger "RJ's", and this agreement might actually be the basis for such.

Anyways, just thought I would throw this idea out. I know that everyone assumes that this whole affair is meant only to find a home for their current fleet, but I have a feeling that beyond AWAC being able to replace the current affiliates if need be, that this agreement is actually set up more towards bringing AWAC 90 seaters on the property after BK...

Just my read, what is your opinion Jim...?