In December US Airways negotiated an exit financing MOU with Matlin Patterson a private equity firm . After the “operational meltdown†and the introduction of Delta’s SimpliFares (that has been proven to be a colossal mistake and failure, which will likely drive the Atlanta-based carrier into bankruptcy) that Matlin Patterson pulled out of its US Airways agreement. After researching their principal executive David Matlin’s financial experience, I believe it may not have been in US Airways’ best interest for this firm who deals with distressed companies to become US Airways’ equity investor.
Without private equity, US Airways’ senior management team began looking at alternate sources of equity and began to think out of the box. I believe a real key in this evolution was the appointment of Ron Stanley as the chief financial officer and Bruce Ashby, the executive vice president of marketing and planning. Stanley’s financial background and Ashby’s previous position of senior vice president of corporate development and alliances; as well as president of express, gave the company a unique team to come up with an alternative plan that has never been accomplished in the industry. That plan was to create “shared risk†and “equity participation†between mutually dependent companies, e.g. mainline and affiliate express carrier’s, which would boost US Airways’ liquidity position and be the final major piece of company’s “formal reorganizationâ€.
The decision to move in this direction began with the Air Wisconsin agreement, which not only permits the Appleton-based airline to hedge its position with United Airlines, but gives US Airways enormous leverage to negotiate new “fee for service†and equity investment agreements with either Mesa, Chatauqua, and Trans States Airlines.
Information first became public on this subject when Pittsburgh Post-Gazette staff writer Dan Fitzpatrick broke this news with Allegheny Capital airline analyst Bill Lauer on February 28.
Some observers believe that US Airways, in its search for more investors, will look to its other affiliate carriers -- some of which are independent and some of which it owns -- that carry US Airways passengers to smaller cities and receive fees in return.
Lauer, the local analyst, believes that US Airways could sell the carriers it owns -- PSA Airlines or Piedmont Airlines -- to raise cash. Or, it could ask other regional carriers with feeder contracts, such as Mesa or Chautauqua, to invest in US Airways as Air Wisconsin did and receive guaranteed service in return.
"In the quest for exit financing," Lauer said, US Airways "has zoned in on this whole area of the regional contracts." Chief executives at Phoenix-based Mesa and Indianapolis-based Chautauqua could not be reached for comment.
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Since that time sources on Wall Street and IB’s have begun discussing the unfolding scenario where US Airways senior management is thinking “out of the boxâ€, with very little if any traditional airline financing available, during the ongoing airline financial crisis. This is why US Airways’ chief executive officer Bruce Lakefield told the ALPA MEC yesterday that the Air Wisconsin deal has the “industry spinning†and has United Airlines “confusedâ€.
Here are some key points to consider:
US Airways has not yet affirmed an affiliate carrier RJ contract.
US Airway’s 3-affiliate carriers are being squeezed by the company to provide an equity investment and/or a dramatic decrease in the cost plus 8% fee for service contract.
An affiliate carrier equity investment with its mainline partner would set an industry precedent, would make the company’s mutually dependent upon one another, and increase the motivation of the affiliate carrier to cut their own costs and improve service & performance.
According to a column in today’s Pittsburgh Post-Gazette, US Airways said in bankruptcy documents it expected to attract as many as two other investors and an additional $100 million to $275 million beyond Air Wisconsin's $125 million DIP investment that could be turned into and equity investment. Lakefield emphasized that US Airways was still talking with a number of interested parties. “The list is long,†he said.
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The Air Wisconsin and other exit financing transactions could boost the company’s liquidity to a total of $225 to $375 million. It is my understanding US Airways is seeking deals that will provide the highest equity infusion possible, to help it management the short-term financial pressure created by increased energy costs.
It is my understanding that the complex equity investor and exit financing discussions are complex and involve a number of different options. It is my understanding potential suitors include Mesa, Chatauqua, and Trans States Airlines, GE, private equity firms, hedge funds, and retirement funds, which could include RSA.
With a number of options and on-going detailed discussions that occur every day between Lakefield, Stanley, and interested parties, I suspect the company, GE, and the bankruptcy court will agree to extend the exclusive period for the airline to file a plan of reorganization.
Earlier today US Airways spokesman David Castevetler indicated that could occur in the Pittsburgh Tribune-Review.
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It’s unclear how the developing exit financing discussions will unfold because of the number of parties interested in participating in the company’s restructuring. US Airways could end up with three equity investors that could include Air Wisconsin, one or more of the three current RJ affiliate carrier’s, or another investor possibly RSA who could remain in control of the Board and the airline. In addition, another complex issue will be governance, with employees entitled to stock, RSA’s interest, Air Wisconsin holding about 25% of airline, union shares – with ALPA entitled to 8.5%, and other investors. Percentage ownership will be determined by the amount of equity provided to US Airways.
Meanwhile, with the likelihood US Airways could raise its liquidity by nearly $400 million, in an environment where access to capital is virtually non-existent, I understand the potential to sell MDA assets, PSA, and Piedmont has been reduced for two reasons. US Airways may no longer need to sell assets to raise cash and thus would not have to negotiate terms with the ATSB. In addition, potential companies who may be interested in buying these assets may be forced to use their funds to provide US Airways with financing or they could have their Express flying rejected and according to Lakefield replaced by Air Wisconsin, regardless of the Appleton-based airlines relationship with United.
I believe it is important to note that Lakefield told the ALPA MEC that the company’s financial partners “want the company to survive.†These partners include the ATSB, GECAS, Air Wisconsin, the affiliate carriers, Airbus, EDS, and others. In my opinion, without creditor/investor support and the difficult sacrifices US Airways would not be flying today.
Finally, it is my understanding senior management now believes US Airways will survive, the industry will consolidate, and the Arlington-based airline will participate in the pending integration(s). In my opinion, with Delta and possibly Continental closer to bankruptcy (which is not good for US Airways), coupled with the breathtaking rate of industry change, it is now unclear how the developing changes/consolidation will unfold.
Regards,
USA320Pilot
Without private equity, US Airways’ senior management team began looking at alternate sources of equity and began to think out of the box. I believe a real key in this evolution was the appointment of Ron Stanley as the chief financial officer and Bruce Ashby, the executive vice president of marketing and planning. Stanley’s financial background and Ashby’s previous position of senior vice president of corporate development and alliances; as well as president of express, gave the company a unique team to come up with an alternative plan that has never been accomplished in the industry. That plan was to create “shared risk†and “equity participation†between mutually dependent companies, e.g. mainline and affiliate express carrier’s, which would boost US Airways’ liquidity position and be the final major piece of company’s “formal reorganizationâ€.
The decision to move in this direction began with the Air Wisconsin agreement, which not only permits the Appleton-based airline to hedge its position with United Airlines, but gives US Airways enormous leverage to negotiate new “fee for service†and equity investment agreements with either Mesa, Chatauqua, and Trans States Airlines.
Information first became public on this subject when Pittsburgh Post-Gazette staff writer Dan Fitzpatrick broke this news with Allegheny Capital airline analyst Bill Lauer on February 28.
Some observers believe that US Airways, in its search for more investors, will look to its other affiliate carriers -- some of which are independent and some of which it owns -- that carry US Airways passengers to smaller cities and receive fees in return.
Lauer, the local analyst, believes that US Airways could sell the carriers it owns -- PSA Airlines or Piedmont Airlines -- to raise cash. Or, it could ask other regional carriers with feeder contracts, such as Mesa or Chautauqua, to invest in US Airways as Air Wisconsin did and receive guaranteed service in return.
"In the quest for exit financing," Lauer said, US Airways "has zoned in on this whole area of the regional contracts." Chief executives at Phoenix-based Mesa and Indianapolis-based Chautauqua could not be reached for comment.
See Story
Since that time sources on Wall Street and IB’s have begun discussing the unfolding scenario where US Airways senior management is thinking “out of the boxâ€, with very little if any traditional airline financing available, during the ongoing airline financial crisis. This is why US Airways’ chief executive officer Bruce Lakefield told the ALPA MEC yesterday that the Air Wisconsin deal has the “industry spinning†and has United Airlines “confusedâ€.
Here are some key points to consider:
US Airways has not yet affirmed an affiliate carrier RJ contract.
US Airway’s 3-affiliate carriers are being squeezed by the company to provide an equity investment and/or a dramatic decrease in the cost plus 8% fee for service contract.
An affiliate carrier equity investment with its mainline partner would set an industry precedent, would make the company’s mutually dependent upon one another, and increase the motivation of the affiliate carrier to cut their own costs and improve service & performance.
According to a column in today’s Pittsburgh Post-Gazette, US Airways said in bankruptcy documents it expected to attract as many as two other investors and an additional $100 million to $275 million beyond Air Wisconsin's $125 million DIP investment that could be turned into and equity investment. Lakefield emphasized that US Airways was still talking with a number of interested parties. “The list is long,†he said.
See Story
The Air Wisconsin and other exit financing transactions could boost the company’s liquidity to a total of $225 to $375 million. It is my understanding US Airways is seeking deals that will provide the highest equity infusion possible, to help it management the short-term financial pressure created by increased energy costs.
It is my understanding that the complex equity investor and exit financing discussions are complex and involve a number of different options. It is my understanding potential suitors include Mesa, Chatauqua, and Trans States Airlines, GE, private equity firms, hedge funds, and retirement funds, which could include RSA.
With a number of options and on-going detailed discussions that occur every day between Lakefield, Stanley, and interested parties, I suspect the company, GE, and the bankruptcy court will agree to extend the exclusive period for the airline to file a plan of reorganization.
Earlier today US Airways spokesman David Castevetler indicated that could occur in the Pittsburgh Tribune-Review.
See Story
It’s unclear how the developing exit financing discussions will unfold because of the number of parties interested in participating in the company’s restructuring. US Airways could end up with three equity investors that could include Air Wisconsin, one or more of the three current RJ affiliate carrier’s, or another investor possibly RSA who could remain in control of the Board and the airline. In addition, another complex issue will be governance, with employees entitled to stock, RSA’s interest, Air Wisconsin holding about 25% of airline, union shares – with ALPA entitled to 8.5%, and other investors. Percentage ownership will be determined by the amount of equity provided to US Airways.
Meanwhile, with the likelihood US Airways could raise its liquidity by nearly $400 million, in an environment where access to capital is virtually non-existent, I understand the potential to sell MDA assets, PSA, and Piedmont has been reduced for two reasons. US Airways may no longer need to sell assets to raise cash and thus would not have to negotiate terms with the ATSB. In addition, potential companies who may be interested in buying these assets may be forced to use their funds to provide US Airways with financing or they could have their Express flying rejected and according to Lakefield replaced by Air Wisconsin, regardless of the Appleton-based airlines relationship with United.
I believe it is important to note that Lakefield told the ALPA MEC that the company’s financial partners “want the company to survive.†These partners include the ATSB, GECAS, Air Wisconsin, the affiliate carriers, Airbus, EDS, and others. In my opinion, without creditor/investor support and the difficult sacrifices US Airways would not be flying today.
Finally, it is my understanding senior management now believes US Airways will survive, the industry will consolidate, and the Arlington-based airline will participate in the pending integration(s). In my opinion, with Delta and possibly Continental closer to bankruptcy (which is not good for US Airways), coupled with the breathtaking rate of industry change, it is now unclear how the developing changes/consolidation will unfold.
Regards,
USA320Pilot
