Atlantic Coast Airlines (ACA) has filed a motion in the U.S. Bankruptcy Court to determine whether United Airlines plans to continue paying it as a United Express carrier. The motion was filed Dec. 27 with a hearing date set for Jan. 16.

Under terms of U.S. bankruptcy laws, United does not have to make a decision on whether it will honor its contracts until the end of the bankruptcy case. However, by filing the motion, ACA is asking Bankruptcy Judge Eugene Wedoff to require United to either assume the contract and continue under its present terms, or reject it. In the filing, ACA stated that 85 percent of its revenues come from United Express operations, and that it is being required to expand its fleet by adding 47 additional Bombardier CRJ regional jets to meet its obligations.

ACA said that as a result of its requirements under the United Express agreements, it was required to enter into contracts with Bombardier in order to purchase those aircraft. A prolonged delay in the decision by United to accept or reject the United Express agreement "will make it virtually impossible ... to meet its obligations to purchase the aircraft pursuant to the Bombardier agreements." The airline also stated that in addition, "a prolonged delay will force [ACA] to incur significant upfront costs and commitments to train crews, procure spare parts, establish infrastructure and retire turboprop aircraft that would be unnecessary if the United Express agreements are rejected."

If the judge agrees to set a deadline for United to respond, United can either assume or reject the contract. However, as a practical matter, what normally happens in these cases is that the threat of rejection is often used as leverage for a renegotiation of the contract, according to David Dykhouse, a bankruptcy specialist and senior partner with the New York City-based law firm of Patterson, Belknap, Webb & Tyler. "United doesn't have the power to cut the price of the contract and ACA doesn't have to agree to any [renegotiation] offer. They could just say no. But then United could exercise the threat and reject the contract, so ACA has to make a business decision as to what is best for them."

If ACA does refuse to renegotiate and United rejects the contract, then ACA will have a non-priority claim for payment as a creditor "and ACA would be paid cents on the dollar for it," Dykhouse said.

An ACA spokesperson told C/R News that it is now in the hands of the court and that the company was unable to comment beyond what was listed in the court filing. Joe Hopkins, a spokesperson for United, said that the airline is currently in discussions with ACA. The motion was filed in the U.S. Bankruptcy Court, Northern District of Illinois, Eastern Division.

>>Contact: David W. Dykhouse, telephone: 212-336-2850 e-mail: dwdykhouse@pbwt.com<<