GECAS’ RJ ultimatum backs pilots into corner

Aviation International News » May 2004
October 4, 2007, 9:58 AM

GE Capital Aviation Services has amplified threats to withdraw its regional jet financing deals with US Airways if pilots do not accept a revised letter of agreement (LOA 91) to loosen restrictions on RJ placement outside the airline’s wholly owned subsidiaries. Earlier this month a negotiating committee established by ALPA ratified a new resolution on LOA 91, details of which ALPA’s US Airways Master Executive Council (MEC) read during an April 8 meeting in Pittsburgh. The union scheduled a series of road shows to explain the deal with the rank-and-file. It expects to distribute ballots and announce a decision within the next few weeks.

The new deal, the latest in a series of contract revisions US Airways has negotiated with the union, could spell good news for independent US Airways Express affiliates Mesa Air Group, Chautauqua Airlines and Trans States Airlines, all of which stand to add a significant number of regional jets to those they already fly for the Arlington, Va.-based major airline. Under previously negotiated union deals, US Airways agreed to place 85 Embraer 170s with Pittsburgh-based MidAtlantic Airways and at least 60 Bombardier CRJ200s and 25 CRJ700s with wholly owned subsidiary PSA Airlines.

However, GE Capital reserves the right to pull out of the financing deals it signed for 30 of the Embraer jets and 36 CRJs if US Airways fails to meet certain financial and credit conditions.

Citing weak financial performance, Moody’s Investors Service downgraded about $3.2 billion in US Airways aircraft-backed debt earlier this month. In a statement, Moody’s said the downgrades reflected US Airways’ need to further cut costs and the generally depressed state of the aircraft resale market, which could increase risk to US Airways’ debt holders. US Airways claims the lowered debt rating will not affect its ability to meet covenants attached to its ATSB loan guarantee, however.

Nevertheless, GECAS evidently wants assurances that other parties could assume US Airways’ leases if it defaults on the ATSB covenants. As if to reinforce its position, GECAS president Henry Hubschman joined negotiating-committee meetings via a conference call on April 8. A day later US Airways’ pilots replaced the chairman and vice chairman of its 12-man bargaining team with members considered to be tougher negotiators.

In February Standard & Poor’s downgraded its credit rating on some of US Airways’ debt to a B-minus, from a B. According to GECAS, one more downgrade will trigger its withdrawal from the financing deals.   

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