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From: Leesburg Today (www.leesburg2day.com)
ACA To United: Where Do We Stand? Sterling-Based Airline Needs To Know By Feb. 28
Roger Smith
Jan 23, 2003 -- Atlantic Coast Airlines, one of the great business success stories in Loudoun County, has been thrown into danger by the Chapter 11 bankruptcy of United Airlines.
Some 85% of Atlantic Coast’s revenues—and the fundamental basis of its business—comes from United under an arrangement to operate regional routes under the United Express banner. With United, the world’s second-largest airline, struggling to reorganize itself out of massive losses of as much as $20 million a day, Dulles-based Atlantic Coast is afraid that it will lose its main patron.
When United filed for bankruptcy last month, it owed Atlantic Coast about $10 million. Offset by money Atlantic Coast owes United, the net exposure for the smaller airline is about $6 million.
Atlantic Coast must know almost immediately whether United intends to continue the United Express arrangement, and maintain its agreed-upon payments to the regional airline, or to drop the agreements. If it is the latter, Atlantic Coast might look for a deal with another airline, industry observers suggest. Just as important, it can make fast arrangements to head off huge debt obligations it has with Canadian aircraft manufacturer Bombardier for the several Canadair Regional Jet airplanes it has on order.
Atlantic Coast employs 5,100 people, of which 65%, or over 3,300 people, live in or are based in Northern Virginia. United Airlines employs some 5,750 people in the region, bringing the total number of jobs affected by United’s bankruptcy and its direct impact on Atlantic Coast to about 9,000.
Atlantic Coast’s dilemma is laid out in a motion it filed last week with the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division, which is handling the United Chapter 11 bankruptcy. The motion requests bankruptcy Judge Eugene R. Wedoff to compel United to assume or reject the United Express agreements no later than Feb. 28 and confirm that service performed under the agreement will be compensated at the contract rate.
Wedoff said he will rule on the motion at a Feb. 6 hearing, if the airlines do not reach an agreement by then. A United spokesman would not comment on the Atlantic Coast motion, other than to say that United is in discussions on the United Express agreements with Atlantic Coast and two other airlines with which it has the same arrangement: Air Wisconsin Airlines Corp. and SkyWest Airlines, Inc.
“Time is of the essence,” says the motion filed by Atlantic Coast Airlines and Atlantic Coast Airlines Holdings, Inc. against UAL Corp., United Airlines’ parent. “It is essential that United make its decision to assume or reject the United Express agreements as soon as possible, but in no event later than February 28, 2003,” says the motion. “If the decision is to assume, Atlantic Coast must be provided with prompt long-term assurance of United’s commitment and ability to honor its obligations under the United Express Agreements. If United is unable or unwilling to perform its obligations under the United Express Agreements, Atlantic Coast must be promptly released from its remaining obligations under the United Express Agreements and allowed to mitigate its damages and/or pursue other alternatives as soon as possible. Mitigating damages would entail pursuing potential remedies under its purchase agreement with Bombardier and seeking alternative uses for the regional jets and turboprop aircraft currently operated by Atlantic Coast for United.”
In the absence of a United decision, “Atlantic Coast faces an impossible dilemma,” the motion complains. In order to carry out the United Express agreements, the smaller airline needs to make advance financial and other commitments and incur advance costs that will not be necessary if the agreements are rejected. If Atlantic Coast does not make the commitments and incur the costs, it may not be in a position to perform under the agreements either before or after they are assumed, the motion states.
Even if Atlantic Coast seeks to perform its obligations, it believes “that it will be virtually impossible to obtain the additional financing necessary to fund the regional jet expansion program” required by the agreements unless they are assumed by Feb. 28, says the motion. Atlantic Coast provides high-frequency, short-haul scheduled passenger and cargo service to 84 cities in the eastern and Midwestern United States and Canada and carried more than 6 million passengers in 2002. Some 60% of these passengers annually connect to United mainline flights through its hubs at Dulles International Airport and Chicago’s O’Hare International Airport. Atlantic Coast operates a fleet of 107 regional jets and 29 turboprops.
The agreements with United require that Atlantic Coast substantially expand its regional-jet fleet and accelerate the retirement of its older turboprops. The pace of turboprop retirement is among the most aggressive in the industry, according to the motion. The agreements require Atlantic Coast to acquire an additional 47 CRJ 50-seat aircraft at a cost of about $20 million each and to early retire 30 turboprop aircraft from its fleet, beginning in April and being completed by April 30, 2004. Some of these airplanes have lease obligations extending through 2010. If the United Express agreements were rejected by United, Atlantic Coast would be relieved of the obligation to retire the turboprops and “. . . ultimately might be able to effect the retirements on more favorable economic terms or use the aircraft for an alternative carrier under a new code share agreement,” the motion says.
The cash available to Atlantic Coast is not sufficient to finance more than a very small portion of the remaining deliveries beyond Feb. 28 and after that “Atlantic Coast could have its own financial crisis and will need to take steps to protect its own interests. . . ,” the motion states.
An Atlantic Coast spokesman would not comment on the options open to his company but others in the industry say the three United Express carriers could very likely make code-sharing agreements with other major airlines. Atlantic Coast already has a code-share arrangement with Delta Air Lines. Air Wisconsin has such an arrangement with AirTran Airways and SkyWest is finalizing a deal with Delta. Utah based SkyWest has not filed a motion with the bankruptcy court to force United to make a decision about the United Express agreements. It prefers to get an answer through the currently ongoing discussions, said Michael J. Kraupp, the airline’s vice president of finance. “We believe it is their intent to continue doing business with us,” he told Leesburg Today. SkyWest hopes to have the issue settled by the end of February. Its net exposure to the United bankruptcy is $9.4 million. “Even if United were liquidated, we have had other airlines call us and say they are very interested in a franchise. We would probably connect with someone else,” the source said.
Could Atlantic Coast continue on its own if United decides to drop its United Express agreements with it? Deborah McElroy, president of the Regional Airline Association, an industry trade group, noted that Atlantic Coast already has an arrangement with Delta but pointed out that to become entirely independent, Atlantic Coast would have to establish a marketing department, with a reservations system, and would have to negotiate facilities leases with all of the airports that it serves.
ACA To United: Where Do We Stand? Sterling-Based Airline Needs To Know By Feb. 28
Roger Smith
Jan 23, 2003 -- Atlantic Coast Airlines, one of the great business success stories in Loudoun County, has been thrown into danger by the Chapter 11 bankruptcy of United Airlines.
Some 85% of Atlantic Coast’s revenues—and the fundamental basis of its business—comes from United under an arrangement to operate regional routes under the United Express banner. With United, the world’s second-largest airline, struggling to reorganize itself out of massive losses of as much as $20 million a day, Dulles-based Atlantic Coast is afraid that it will lose its main patron.
When United filed for bankruptcy last month, it owed Atlantic Coast about $10 million. Offset by money Atlantic Coast owes United, the net exposure for the smaller airline is about $6 million.
Atlantic Coast must know almost immediately whether United intends to continue the United Express arrangement, and maintain its agreed-upon payments to the regional airline, or to drop the agreements. If it is the latter, Atlantic Coast might look for a deal with another airline, industry observers suggest. Just as important, it can make fast arrangements to head off huge debt obligations it has with Canadian aircraft manufacturer Bombardier for the several Canadair Regional Jet airplanes it has on order.
Atlantic Coast employs 5,100 people, of which 65%, or over 3,300 people, live in or are based in Northern Virginia. United Airlines employs some 5,750 people in the region, bringing the total number of jobs affected by United’s bankruptcy and its direct impact on Atlantic Coast to about 9,000.
Atlantic Coast’s dilemma is laid out in a motion it filed last week with the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division, which is handling the United Chapter 11 bankruptcy. The motion requests bankruptcy Judge Eugene R. Wedoff to compel United to assume or reject the United Express agreements no later than Feb. 28 and confirm that service performed under the agreement will be compensated at the contract rate.
Wedoff said he will rule on the motion at a Feb. 6 hearing, if the airlines do not reach an agreement by then. A United spokesman would not comment on the Atlantic Coast motion, other than to say that United is in discussions on the United Express agreements with Atlantic Coast and two other airlines with which it has the same arrangement: Air Wisconsin Airlines Corp. and SkyWest Airlines, Inc.
“Time is of the essence,” says the motion filed by Atlantic Coast Airlines and Atlantic Coast Airlines Holdings, Inc. against UAL Corp., United Airlines’ parent. “It is essential that United make its decision to assume or reject the United Express agreements as soon as possible, but in no event later than February 28, 2003,” says the motion. “If the decision is to assume, Atlantic Coast must be provided with prompt long-term assurance of United’s commitment and ability to honor its obligations under the United Express Agreements. If United is unable or unwilling to perform its obligations under the United Express Agreements, Atlantic Coast must be promptly released from its remaining obligations under the United Express Agreements and allowed to mitigate its damages and/or pursue other alternatives as soon as possible. Mitigating damages would entail pursuing potential remedies under its purchase agreement with Bombardier and seeking alternative uses for the regional jets and turboprop aircraft currently operated by Atlantic Coast for United.”
In the absence of a United decision, “Atlantic Coast faces an impossible dilemma,” the motion complains. In order to carry out the United Express agreements, the smaller airline needs to make advance financial and other commitments and incur advance costs that will not be necessary if the agreements are rejected. If Atlantic Coast does not make the commitments and incur the costs, it may not be in a position to perform under the agreements either before or after they are assumed, the motion states.
Even if Atlantic Coast seeks to perform its obligations, it believes “that it will be virtually impossible to obtain the additional financing necessary to fund the regional jet expansion program” required by the agreements unless they are assumed by Feb. 28, says the motion. Atlantic Coast provides high-frequency, short-haul scheduled passenger and cargo service to 84 cities in the eastern and Midwestern United States and Canada and carried more than 6 million passengers in 2002. Some 60% of these passengers annually connect to United mainline flights through its hubs at Dulles International Airport and Chicago’s O’Hare International Airport. Atlantic Coast operates a fleet of 107 regional jets and 29 turboprops.
The agreements with United require that Atlantic Coast substantially expand its regional-jet fleet and accelerate the retirement of its older turboprops. The pace of turboprop retirement is among the most aggressive in the industry, according to the motion. The agreements require Atlantic Coast to acquire an additional 47 CRJ 50-seat aircraft at a cost of about $20 million each and to early retire 30 turboprop aircraft from its fleet, beginning in April and being completed by April 30, 2004. Some of these airplanes have lease obligations extending through 2010. If the United Express agreements were rejected by United, Atlantic Coast would be relieved of the obligation to retire the turboprops and “. . . ultimately might be able to effect the retirements on more favorable economic terms or use the aircraft for an alternative carrier under a new code share agreement,” the motion says.
The cash available to Atlantic Coast is not sufficient to finance more than a very small portion of the remaining deliveries beyond Feb. 28 and after that “Atlantic Coast could have its own financial crisis and will need to take steps to protect its own interests. . . ,” the motion states.
An Atlantic Coast spokesman would not comment on the options open to his company but others in the industry say the three United Express carriers could very likely make code-sharing agreements with other major airlines. Atlantic Coast already has a code-share arrangement with Delta Air Lines. Air Wisconsin has such an arrangement with AirTran Airways and SkyWest is finalizing a deal with Delta. Utah based SkyWest has not filed a motion with the bankruptcy court to force United to make a decision about the United Express agreements. It prefers to get an answer through the currently ongoing discussions, said Michael J. Kraupp, the airline’s vice president of finance. “We believe it is their intent to continue doing business with us,” he told Leesburg Today. SkyWest hopes to have the issue settled by the end of February. Its net exposure to the United bankruptcy is $9.4 million. “Even if United were liquidated, we have had other airlines call us and say they are very interested in a franchise. We would probably connect with someone else,” the source said.
Could Atlantic Coast continue on its own if United decides to drop its United Express agreements with it? Deborah McElroy, president of the Regional Airline Association, an industry trade group, noted that Atlantic Coast already has an arrangement with Delta but pointed out that to become entirely independent, Atlantic Coast would have to establish a marketing department, with a reservations system, and would have to negotiate facilities leases with all of the airports that it serves.
