After being shut out of the new jet market because of its September bankruptcy filing, US Airways [UAIRQ] is now slated to get 31 new RJs.

In a late November deal, GE Capital Aviation Services (GECAS) agreed to provide US Airways with $140 million in new funds and deferred payments over the next six months. It has also agreed take back 25 mainline aircraft over the next three years and lease the carrier 31 new 70- and 90-seat RJs.

The deal is full of contingencies. First it must be blessed by the bankruptcy court; second US Airways must obtain the labor cost savings it has been seeking either through the courts or negotiations; and the carrier must exit bankruptcy by June 30, 2005. Over the course of the next seven months, US Airways will be permitted to make weekly draws against a $55.5 million bridge loan and it must meet undisclosed benchmarks for earnings and liquidity.

According to the terms of the GECAS deal, US Airways will obtain six Bombardier [BBD] CRJ 700s between Jan. 18 and Feb. 28. However, a timetable for the leasing of the remaining 25 RJs has not been worked out, said David Castelveter, the carrier's spokesman.

US Airways had unfulfilled orders for 108 RJs with both Bombardier and Embraer [ERJ] when it went into bankruptcy. "We stopped taking delivery because we lost financing. What this does is re-establish financing for us to get to take some of those orders," Castelveter told Regional Aviation News. In September, US Airways had taken delivery of 22 of the 85 Embraer 170s it had ordered. It owes Embraer $1.4 billion (CRAN, Sept. 20).

Bombardier had delivered 40 of the 85 RJs that the carrier had been ordered. US Airways owes Bombardier $947.9 million, according to its initial bankruptcy filing. Bombardier has two CRJ 200s and 43 CRJ 700s still to be delivered.

Castelveter said that GECAS and the carrier still need to work out with each airframe manufacturer which planes in the production sequence are covered in the deal. While US Airways had positions in the production order, GECAS also had its own positions for possible speculative deals. It could be that GECAS will be assuming some of US Airways' positions, he said.

The carrier has not worked out a schedule for the six planes, which will be arriving early next year, he said. "Naturally we want to get them into the schedule as soon as we can. The 70-seat and 90-seat are a very large part of the company's revenue plan under the transformation plan. Everyday we don't have those planes to fly is a revenue shortfall," Castelveter said.

One of the carrier's regional units, PSA, is flying the CRJ 700s.

The same agreement calls for US Airways to give back 10 Airbus 319s next year and 15 older Boeing [BA] 737-300s in 2006 and 2007. Currently, US Airways has 281 mainline aircraft.

"There are more mainline aircraft in their fleet than they need," said Kevin Schorr, research director at Campbell-Hill Aviation Group, a consulting firm. "They definitely need more RJs because there are a number of cities in their network that don't need the larger capacity. There are more markets that are better served by the 70- or 90-seat RJ than a 120- or 130-seat A319 or B737. There are also markets probably better served by the RJ than the 37 or 50-seat turboprop."

Schorr said US Airways needs the new RJs at a faster pace than the three years spelled out in the GECAS deal.

"I think one of the good things they are doing is adding RJ flights to major business markets from [Washington] Reagan. It used to be a big turnoff because you had to connect before getting to major business destinations. This makes them more important to the business travelers in the D.C. area," Schorr told Regional Aviation News.

Additional route and fleet adjustments will be needed, said George Novak, the lead researcher at George Washington University's Aviation Institute. The carrier will continue to examine how viable its current fleet is compared to new route combinations.

The deal is just one step that US Airways is taking to avoid liquidation. "This is one step, but it is not enough. It is a key step," Novak told Regional Aviation News. "By this spring we will know if they can emerge from bankruptcy. A lot has to do with their labor contracts."

Novak gives the company a 50-50 chance of exiting bankruptcy.

In fact, the labor situation may very well be the deciding factor. At the carrier's request, the court has imposed a temporary 21 percent pay cut on all unionized employees. The airline and the Air Line Pilots Association (ALPA) have agreed to a new contract with substantial pay cuts. However, the flight attendants and ground crews have not been able to come to terms with the carrier.

Last week, the carrier asked the court to void its old labor contracts in an effort to save $750 million in annual payroll costs. The move extends the 21 percent pay cut beyond its court-determined February termination.

If the labor contracts are nullified, the flight attendants are threatening to strike. The employees contend the bankruptcy court's actions will effectively throw out the lengthy mediation/arbitration/cool down period process contained within the Railway Labor Act, the labor law governing the airlines. Even though both sides admit the law is not clear in this situation, the flight attendants are threatening an immediate strike if the contract is voided.

"A strike may very well be the last straw for US Airways. They would be in a very tenuous position if they cannot provide people to staff the aircraft," Novak said. "It could be the death knell for US Airways."

The labor situation is the "story line that will mold what will happen over the next several months," Schorr said. "There is no question that people have already started booking away from US Airways. The talk of strikes will continue to push people away."

Should the labor situation be resolved, Schorr and others said it unrealistic to expect US Airways to exit bankruptcy by next June as GECAS has stipulated. The irony of the situation is that the carrier has been criticized for not completing its restructuring in its first bankruptcy because it spent just eight months under the protective wings of the court in its first Chapter 11.

The June 30 exit goal "is not realistic," Schorr said, "considering everything going on in the industry right now and all that is going on within US Airways."

>>Contact: David Castelveter, US Airways, (703) 872-5100; Kevin Schorr, Campbell-Hill, (703) 836-1283; George Novak, George Washington University, (703) 726- 8351.<<