Both United Airlines and US Airways in recent weeks secured revised financing terms meant to help each complete bankruptcy proceedings, though neither officially submitted a new business plan. Meanwhile, US Airways and Independence Air, another struggling airline, each announced plans to trim fleet sizes.
The bankruptcy court overseeing United parent UAL Corp.'s Chapter 11 restructuring last month allowed amendments to financing agreements in place with four key lenders. The revised terms provide UAL more flexibility, notably a three-month extension to Sept. 30 for completing bankruptcy proceedings. Should United emerge from court protection by that date, the company's restructuring would have lasted just short of three years.
"The willingness of lenders to participate in the amended [debtor-in-possession financing facility] is reflective of our solid business plan," said UAL CFO Jake Brace. UAL must either submit that plan by April 30 or request yet another extension
(BTN, Feb. 7).In a message to employees last week, UAL chairman and CEO Glenn Tilton said the airline had reduced unit costs 17 percent since 2002, excluding aviation fuel, and improved revenue performance versus competitors during 2004, owing to improved revenue management. "We are moving steadily toward the exit, we are nearing the end of our work," he said. "When we exit, we will continue to transform the airline."
The company still must resolve the contentious issue of employee pension programs, secure long-term agreements with holdout unions and find billions of dollars in exit financing. UAL claims to have proposals in place with unidentified investment banks. The company last month reported January statistics to the bankruptcy court, including a $326 million net loss, bringing its total net losses since late 2000 to more than $10 billion.
US Airways last month also worked out a new financial arrangement that helps position it for emergence from bankruptcy protection, but also announced service cuts. The carrier in May will return 11 Boeing 737 aircraft to lessors but said the mainline fleet reduction would be offset by regional jet operations and higher aircraft utilization, resulting in only 14 fewer daily systemwide flights than originally planned.
Changes include fewer frequencies on a handful of routes from US Airways hubs and service suspensions to certain leisure destinations. For example, the airline will cut flights in Fort Lauderdale, Fla.—a station characterized a few weeks ago as its new gateway to the Caribbean and Latin America—and end all service to Panama City, Panama and San Salvador. Nevertheless, US Airways said May capacity still would be up as much as 6 percent from last year.
Meanwhile, US Airways recently secured a $125 million commitment from Eastshore Aviation, owned by Appleton, Wis.-based Air Wisconsin Airlines Corp., which would take an equity stake in US Airways upon completion of Chapter 11 proceedings. Air Wisconsin also may provide regional jet service within the US Airways Express network, a particular benefit for Air Wisconsin should it lose business as a United Express carrier
(BTNonline, Nov. 11, 2004)."What a difference a few years make," said J.P. Morgan Securities analyst Jamie Baker. "It used to be that legacy carriers fell over one another seeking access to 50-seat regional aircraft—$125 million seems like a hefty cover charge to join a competing legacy express party, but so be it."
US Airways still must find additional financing before it can complete its reorganization. Last month, creditors allowed the airline to extend to March 15 the deadline for filing a reorganization plan with the bankruptcy court
(BTNonline, Feb. 15).Avoiding its own Chapter 11 bankruptcy filing, Independence Air last month said it had "successfully completed its financial restructuring" by striking deals with creditors that will see the Washington Dulles-based low-fare carrier return 24 50-seat CRJ aircraft by mid-year. Independence Air will be left with 58 CRJs as it focuses on adding more 132-seat Airbus A319 jets, concentrating activities as Dulles and expanding into longer-haul markets. By June, Independence Air plans to operate 12 A319s, with 16 more on order. By May 1, the airline plans to offer nonstop service from Dulles to Los Angeles, San Diego, San Francisco, San Jose and Seattle. Service to Las Vegas started March 1.
Meanwhile, under terms of the newest deal with GE Capital Aviation Services, a primary financial backer, Independence Air could be forced to return as many as eight additional CRJs unless it meets certain financial milestones.
Nevertheless, the airline is optimistic about the remainder of 2005 as it continues to lower costs, increase aircraft utilization rates and load factors, and alter CRJ operations. "We see light at end of tunnel," said chairman and CEO Kerry Skeen in a conference call last month with analysts. "A lot of people wrote us off before the Airbus aircraft even got here."
Skeen also pointed to stronger booking trends within global distribution systems and third-party Web sites Orbitz and Travelocity, all of which the carrier initially eschewed when launching last summer. "We are experiencing an 8-point to 10-point load factor improvement associated with moving into the GDSs," he said.
"Fewer RJs and more Airbuses represent a step in the right direction for this company, as in only the latter do we have reasonable confidence," said J.P. Morgan's Baker in a research note last month. "While we believe the company's recent decision to participate in GDSs will allow it to achieve something closer to industry standard loads, achieving fares consistent with industry averages may prove impossible in light of significant Dulles-based competition."
Standard & Poor's Ratings Services revised Independence Air's credit implications from developing to negative, saying prospects for a successful transformation from feeder operator Atlantic Coast Airlines into a low-cost competitor remain uncertain. "The company's financial condition remains precarious," said Standard & Poor's credit analyst Betsy Snyder.
Looking ahead, Independence Air claimed it will become the first U.S. carrier to use the newest version of Navitaire's Open Skies reservations system, which Skeen said would improve the carrier's pricing and yield management. Independence Air also expects to select an inflight entertainment system by mid-year, after its initial choice proved too costly to implement.