canyonblue
Everyone loves Southwest
- Joined
- Nov 26, 2001
- Posts
- 2,314
US Airways finds its saviors in smaller airlines
Regional carriers will play much bigger role
Wednesday, March 16, 2005
By Dan Fitzpatrick, Pittsburgh Post-Gazette
At US Airways, the parasites are devouring the host -- at the host's invitation.
The nation's seventh-largest airline, in a desperate search for enough new investment capital, has turned twice to the smaller but more profitable regional operators that derive all their revenue from flying for it and other mainline carriers.
The recently announced partnerships US Airways has made with Appleton, Wis.-based Air Wisconsin Airlines and Indianapolis-based Republic Airways makes the little known commuter carriers major players in the future of Pittsburgh's dominant airline as it seeks to emerge from its second bout this decade of Chapter 11 bankruptcy.
By pledging $250 million collectively, Republican and Air Wisconsin will likely end up with large stakes in US Airways -- the agreements give each carrier the right to own 19 to 25 percent of US Airways stock -- and three seats each on the board of directors.
As the Arlington, Va.-based company continues to look for another $100 million in outside financing, the pair could be joined by a third commuter operator, Phoenix-based Mesa Air, which relies on US Airways for 33 percent of its revenue.
Local airline analyst Bill Lauer considers the turn to commuter carriers two or three times smaller than US Airways to be a "brilliant" tactical move by the bigger airline.
It appeals to the "enlightened self interest" of the smaller carriers, who need US Airways as much as US Airways needs them. "If US Airways goes down, the loss of revenue may be so great for [regional carriers] that they are imperiled, as well," he said.
US Airways has contracts with several commuter carriers -- including Mesa, Republic, Manassas, Va.-based Colgan Air and St. Louis-based Trans States Airlines -- to operate smaller aircraft on its behalf.
Their job is to ferry US Airways passengers to and from small cities under the US Airways Express banner. US Airways covers all operating costs, including crew and fuel, plus a fixed margin above that as profit.
It's a great deal for the regional operators. They collect the money whether the planes are full or not, while US Airways assumes all the risk.
"The only real risk" for Republic, which relies on US Airways for as much as 43 percent of its revenue, is the "failure of US Airways," Lauer said. "That is what has been identified as a pressure point by [US Airways Chief Executive Officer] Bruce Lakefield & Co."
But there is a danger in the strategy as well. By giving the small airlines so much control over their host, US Airways "is not going to ever be operated in its own best interest."
Lauer is also worried that in its zeal to raise new money, US Airways is awarding new jet service agreements to Air Wisconsin and Republic that will not represent enough of a discount from previous agreements to lower US Airways' costs substantially. Using the power of bankruptcy court to redo the contracts might have saved more than is being achieved under the new agreements, he said.
US Airways is not the only troubled carrier turning to smaller regional operators in a time of trouble.
Delta Air Lines is considering the sale of a regional operator and United Airlines, another large airline in bankruptcy, is putting the contract flying done by Air Wisconsin out for bid -- a big reason why Air Wisconsin agreed to invest $125 million in exchange for the right to fly as many as 70 jets for US Airways. United currently is Air Wisconsin's sole source of revenue.
In fact, the Air Wisconsin deal has touched off a spat between United and US Airways, with United asking for the details of the agreement to be made public so that it does not violate Air Wisconsin's relationship with United. US Airways is arguing that the details should remain confidential and that United is trying to gain an "unfair advantage."
If Air Wisconsin is dropped by United and triggers its option to place 70 jets within the US Airways Express network, other contract carriers may not have much room to operate.
Republic, by locking up an agreement to fly US Airways' jets and buy some of its assets for as much as $110 million, bought itself a guaranteed spot in the US Airways network.
Republic could also end up running MidAtlantic Airways, the unit US Airways created in 2002 to operate a new fleet of regional jets. The headquarters of that operation is still based in Pittsburgh, part of a strategy conceived during US Airways' first bankruptcy to return the carrier to profitability by flying routes that could not be served by larger mainline planes.
Republic could purchase all 28 of US Airways Embraer 170s -- the MidAtlantic fleet -- and fly them under the US Airways Express label. It also could build a heavy maintenance facility for MidAtlantic -- a facility that local officials hope to have built in Pittsburgh.
With Republic playing a more prominent role, where does that leave the other carriers that feed into the US Airways network?
"We are watching with careful interest the recent developments," said Bill Mishk, spokesman for US Airways Express affiliate Trans States Airlines.
Mesa's chief executive officer could not be reached for comment, but UBS airline analyst Robert Ashcroft said in a research note that Republic's new agreement could "displace Mesa." He also hinted that Mesa could look to United if opportunities dry up at US Airways.
When addressing the question of reduced flying for other regional partners, US Airways said this week that "we cannot predict the final outcome of our negotiations with our regional partners."
Regional carriers will play much bigger role
Wednesday, March 16, 2005
By Dan Fitzpatrick, Pittsburgh Post-Gazette
At US Airways, the parasites are devouring the host -- at the host's invitation.
The nation's seventh-largest airline, in a desperate search for enough new investment capital, has turned twice to the smaller but more profitable regional operators that derive all their revenue from flying for it and other mainline carriers.
The recently announced partnerships US Airways has made with Appleton, Wis.-based Air Wisconsin Airlines and Indianapolis-based Republic Airways makes the little known commuter carriers major players in the future of Pittsburgh's dominant airline as it seeks to emerge from its second bout this decade of Chapter 11 bankruptcy.
By pledging $250 million collectively, Republican and Air Wisconsin will likely end up with large stakes in US Airways -- the agreements give each carrier the right to own 19 to 25 percent of US Airways stock -- and three seats each on the board of directors.
As the Arlington, Va.-based company continues to look for another $100 million in outside financing, the pair could be joined by a third commuter operator, Phoenix-based Mesa Air, which relies on US Airways for 33 percent of its revenue.
Local airline analyst Bill Lauer considers the turn to commuter carriers two or three times smaller than US Airways to be a "brilliant" tactical move by the bigger airline.
It appeals to the "enlightened self interest" of the smaller carriers, who need US Airways as much as US Airways needs them. "If US Airways goes down, the loss of revenue may be so great for [regional carriers] that they are imperiled, as well," he said.
US Airways has contracts with several commuter carriers -- including Mesa, Republic, Manassas, Va.-based Colgan Air and St. Louis-based Trans States Airlines -- to operate smaller aircraft on its behalf.
Their job is to ferry US Airways passengers to and from small cities under the US Airways Express banner. US Airways covers all operating costs, including crew and fuel, plus a fixed margin above that as profit.
It's a great deal for the regional operators. They collect the money whether the planes are full or not, while US Airways assumes all the risk.
"The only real risk" for Republic, which relies on US Airways for as much as 43 percent of its revenue, is the "failure of US Airways," Lauer said. "That is what has been identified as a pressure point by [US Airways Chief Executive Officer] Bruce Lakefield & Co."
But there is a danger in the strategy as well. By giving the small airlines so much control over their host, US Airways "is not going to ever be operated in its own best interest."
Lauer is also worried that in its zeal to raise new money, US Airways is awarding new jet service agreements to Air Wisconsin and Republic that will not represent enough of a discount from previous agreements to lower US Airways' costs substantially. Using the power of bankruptcy court to redo the contracts might have saved more than is being achieved under the new agreements, he said.
US Airways is not the only troubled carrier turning to smaller regional operators in a time of trouble.
Delta Air Lines is considering the sale of a regional operator and United Airlines, another large airline in bankruptcy, is putting the contract flying done by Air Wisconsin out for bid -- a big reason why Air Wisconsin agreed to invest $125 million in exchange for the right to fly as many as 70 jets for US Airways. United currently is Air Wisconsin's sole source of revenue.
In fact, the Air Wisconsin deal has touched off a spat between United and US Airways, with United asking for the details of the agreement to be made public so that it does not violate Air Wisconsin's relationship with United. US Airways is arguing that the details should remain confidential and that United is trying to gain an "unfair advantage."
If Air Wisconsin is dropped by United and triggers its option to place 70 jets within the US Airways Express network, other contract carriers may not have much room to operate.
Republic, by locking up an agreement to fly US Airways' jets and buy some of its assets for as much as $110 million, bought itself a guaranteed spot in the US Airways network.
Republic could also end up running MidAtlantic Airways, the unit US Airways created in 2002 to operate a new fleet of regional jets. The headquarters of that operation is still based in Pittsburgh, part of a strategy conceived during US Airways' first bankruptcy to return the carrier to profitability by flying routes that could not be served by larger mainline planes.
Republic could purchase all 28 of US Airways Embraer 170s -- the MidAtlantic fleet -- and fly them under the US Airways Express label. It also could build a heavy maintenance facility for MidAtlantic -- a facility that local officials hope to have built in Pittsburgh.
With Republic playing a more prominent role, where does that leave the other carriers that feed into the US Airways network?
"We are watching with careful interest the recent developments," said Bill Mishk, spokesman for US Airways Express affiliate Trans States Airlines.
Mesa's chief executive officer could not be reached for comment, but UBS airline analyst Robert Ashcroft said in a research note that Republic's new agreement could "displace Mesa." He also hinted that Mesa could look to United if opportunities dry up at US Airways.
When addressing the question of reduced flying for other regional partners, US Airways said this week that "we cannot predict the final outcome of our negotiations with our regional partners."
