US Airways has reached an agreement with Eastshore Aviation which is owned by Air Wisconsin Airlines to provide a substantial portion of the equity funding for a plan of reorganization (POR).
The $125 million facility will be made in the form of a debtor-in- possession (DIP) term loan, to be drawn in the amount of $75 million (immediately upon approval by the U.S. Bankruptcy Court) and two subsequent $25 million increments. This loan would be second only to the Air Transportation Stabilization Board (ATSB) loan with regard to the company’s assets that are pledged as collateral. Upon emergence from Chapter 11, the $125 million financing package would then convert to equity in the reorganized US Airways.
“This agreement has a number of benefits that are consistent with our restructuring efforts,” said Bruce R. Lakefield, US Airways president and chief executive officer. “As an initial investor, Eastshore is providing us with short-term liquidity and also is demonstrating support for our restructuring and interest in a longer-term relationship with US Airways. Air Wisconsin is a top-notch airline that has had its own success in completing a turnaround, so we see tremendous upside from building a business and financial relationship.”
Air Wisconsin, based in Appleton, Wis., is the nation’s largest privately held regional airline. In 2004, its 87 all-jet fleet generated approximately $700 million in revenue and flew more than 7 million passengers under the United Express brand. As part of this agreement, US Airways and Air Wisconsin will enter into an air services agreement under which Air Wisconsin may, but is not required to, provide regional jet service under the US Airways Express brand. Air Wisconsin’s arrangements with United Airlines are unaffected by this agreement with US Airways.
“US Airways has done a remarkable job in its restructuring efforts and has built a solid foundation from which to grow. We and Air Wisconsin look forward to the opportunity to be part of its success,” said Eastshore principal Richard Bartlett.
Terms of the agreement will be filed with the U.S. Bankruptcy Court for the eastern district of Virginia, where the US Airways case is being heard. The DIP facility, which is subject to Bankruptcy Court approval, will be secured by liens and security interests in the same package of US Airways assets that are pledged as collateral to the ATSB, with the ATSB in the first priority position, and Eastshore in the second position. In addition to the DIP financing facility, the agreement provides for the conversion of the DIP into equity, in the form of new common stock, that will be issued in conjunction with US Airways’ emergence from Chapter 11.
“This agreement with Eastshore Aviation provides the cornerstone from which we can obtain additional financing and construct a plan of reorganization,” said Lakefield. “While we have more work to do, this is another positive signal to the marketplace.”
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