Judge OKs More Investment in US Airways

A bankruptcy judge on Thursday approved plans by a second regional airline to invest $125 million in bankrupt US Airways, moving the carrier closer to obtaining the financing it needs to emerge from Chapter 11 protection.


ALEXANDRIA, Va. (AP) -- A bankruptcy judge on Thursday approved plans by a second regional airline to invest $125 million in bankrupt US Airways, moving the carrier closer to obtaining the financing it needs to emerge from Chapter 11 protection.

The court also extended until May 31 a deadline for US Airways to file a reorganization plan.

Under the terms of a deal announced Tuesday, Republic Airways Holding Inc., which operates regional carriers Chautauqua and Republic airlines, would get at least a 19 percent share in the reorganized company in return for its investment.

The transaction also ensures that US Airways would use Republic for some of its regional flights under the US Airways Express banner.

US Airways can also obtain an additional $110 million under the deal by selling some of its regional jets to Republic and by selling flight slots - 113 at Reagan National Airport near Washington, D.C., and 24 at New York's LaGuardia Airport.

But US Airways would reserve the right to lease those slots back from Republic, and also has the option to buy them back at a later date.

US Airways reached a similar deal in February with an affiliate of regional carrier Air Wisconsin Airlines, in which US Airways received $125 million in return for a promise to use Air Wisconsin as a regional carrier.

When US Airways filed for bankruptcy last year - its second filing in a span of two years - it had estimated it would need $250 million in new financing to successfully emerge.

The company now estimates it will need $350 million, and its deal with Republic is contingent on finding another investor to provide the remaining $100 million.

Higher fuel costs are the reason more money is needed. Fuel costs for 2005 will be $500 million more than budgeted, and CEO Bruce Lakefield warned a few weeks ago that fuel costs will eclipse labor costs in 2005 if prices remain high.

The airline's vice president of corporate affairs, Christopher Chiames, said US Airways is talking to several interested parties about investing; he declined to say whether he expects the investment would come from another regional carrier.

Chiames said the fact that the two investors thus far are regional carriers that could stand to lose business if US Airways goes under does not diminish the significance of their willingness to invest.

''No one's twisting their arm. These are smart business people and they make investment decisions based on what's good for them. We're not a charity case,'' Chiames said.

Lowell Peterson, a New York-based bankruptcy attorney with Meyer, Suozzi, English and Klein, said it's not unusual for companies with a vested stake in the debtor to be the ones that step forward with a new investment.

Such companies are often preferable, he said, to the other common form of bankruptcy investor: so-called vulture funds seeking a short-term profit.

''This is clearly not a speculative investment,'' Peterson said of the Republic-US Airways deal. ''This is an investment by someone who wants to see the reorganization be successful in the long term.''

Also Thursday, the judge extended from March 31 until May 31 US Airways' exclusive rights to file a plan of reorganization. The airline's lawyer, Brian Leitch, said an extension was warranted because of the significant progress it has made in its restructuring.

The airline currently has a deal with one of its major creditors to file a reorganization plan by April 15, though that could be extended by mutual agreement.

The airline had initially hoped to emerge from bankruptcy by June 30, but has now set Aug. 31 as its target.

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