Soft landing for US Airways and America West partners

 - October 10, 2006, 4:30 AM

Now that US Airways and America West Airlines have officially announced their intention to merge, the question of what will happen with the various regional airlines that fly under those airlines’ codes seems a logical one. But to answer it requires insight into any changes in store for the two majors’ own route structures, details of which remain sketchy. Nevertheless, all indications from the principals seem to point to a relatively soft landing for most of the regionals involved.

While issuing an overview of the financial structure of the merger during an analysts’ conference in late May, America West COO Jeffrey McClelland and CEO Doug Parker, slated to become the chief executive of the new US Airways, alluded to some of the changes in store for the network as well. Although they said they plan to remove 15 percent of the new company’s mainline fleet, resulting in a 10-percent cut in seat-mile capacity, it appears the regional fleet will escape the cuts relatively unscathed.

All told, the new management team expects to cut 58 Airbus A320s and Boeing 737s from the mainline, while the regional system will operate with 17 fewer 50-seat jets than serve the system today, leaving a combination of 143 CRJs and Embraer ERJ 145s. All the remaining 38 CRJ900s will stay, as will the 39 seventy-seaters, composed of 14 CRJ700s and 22 Embraer 170s. US Airways expects to take just three more Embraer 170s by the time the bankruptcy courts approve the deal. As a result of US Airways’ bankruptcy, the new company will bear no further delivery obligations.

Big Plans for 90-seaters

Other changes will involve the 86-seat CRJ900s Mesa Air Group flies as America West Express. McClelland said plans call for moving 18 of those airplanes from Phoenix and Las Vegas to the East Coast, perhaps a harbinger of bigger plans to come for 90-seat jets within the US Airways system. “There are many more routes on the East Coast that are more appropriate for that aircraft,” said McClelland. “It creates a lot of value to downgrade low-load-factor 737 flying to CRJ900s.”

The current US Airways will ask a bankruptcy court for permissionto void its code-share contract with Mesa, allowing the Phoenix-based regional to move 23 Bombardier CRJs and 36 Embraer ERJ 145sto its United and Delta Air Linesregional systems.

Meanwhile, Air Wisconsin sits poised to add CRJs to the US Airways system under a deal that will see the Appleton, Wis.-based regional’s financing arm, Eastshore Aviation, take a $125 million equity stake in the new company. For the time being a United Express carrier, Air Wisconsin refused UAL’s demands for contract concessions early this year, a decision that resulted in the loss of its code-share deal. Luckily for Air Wisconsin, US Airways offered an alternative, although perhaps not as extensive as its United Express network.

Questions remain about whereexactly in the US Airways systemAir Wisconsin will fly, however.It will certainly help backfill theservice abandoned by Mesa Air Group after its expected divorce from US Airways.

But US Airways’ plan to cut 17 fifty-seaters from the system leaves room for only 42 airplanes. Even if all 17 come from other regional partners’ systems, and assuming Air Wisconsin gets responsibility for all of Mesa’s flying, the latest US Airways Express partner would still have at least 11 surplus 50-seat CRJs and 16 BAe 146 quad-jets, homes for which might not prove so easy to find. At May’s Regional Airline Association Convention in Cincinnati, Air Wisconsin CEO Geoff Crowley declined to comment on the implications.

Another big change will probably involve wholly owned subsidiary MidAtlantic Airways, operator of US Airways’ 25 Embraer 170s. Accordingto McClelland, the new management plans to transfer all those airplanes to current US Airways Express partner Republic Airways, in effect spelling the end of MidAtlantic. As part of a conditional deal signed in March, US Airways would receive $110 million by selling 10 Embraer 170s and related assets and lease the rest.

Another option centers on aproposed sale-leaseback deal involving commuter slots at Ronald Reagan Washington National and La Guardia Airports. If US Airways decides not to exercise the option, Republic could buy or assume the leases on all of MidAtlantic’s Embraer 170s. At press time Republic did not account for any of the $350 million in equity pledged by four separate groups, even though in April it signed a conditional agreement to contribute $125 million.

Although larger regional jets will no doubt play a big part in the new management’s strategy, near-term plans still include the 57 Bombardier Dash 8 turboprops flown by US Airways’ Piedmont Airlines subsidiary. “[The Dash 8s] actually create some fleet flexibility because those are owned aircraft or very-low-lease-rate aircraft on short-term leases, [so] those are aircraft we could get out of pretty quickly going forward if we want to,” said McClelland. “They’re also aircraft that are currently profitable and do well.”