Air Wisconsin prepares for life outside the United fold

 - November 1, 2006, 10:54 AM

Last month’s decision by United Airlines to cut loose Air Wisconsin Airline Corp. (AWAC) from its stable of regional affiliates might not have come as a surprise to Geoff Crowley and company, but the drawn-out divorce will no doubt leave a wound that might take more than the comfort of a new partner to fully heal. After all, to be cast off after 12 years of a relatively peaceful relationship would unsettle anyone, much less a management team that has prided itself on its record of stability since buying the company in 1993.

“This is traumatic, certainly for somebody like Air Wisconsin,” said Velocity Group partner Doug Abbey.

Nevertheless, the “Air Wisky” brain trust certainly knew this could happen after watching United send Atlantic Coast Airlines packing when the Sterling, Va.-based regional refused to yield to UAL’s new contract demands. Air Wisconsin stood as the last of United’s partners not to fold under the pressure, and with SkyWest and Chautauqua Airlines willing to accept lower rates, its choice seemed clear–agree to United’s demands or find another partner.

US Airways Bound

Luckily for Air Wisconsin, US Airways happened to be fishing for investors to help it out of Chapter 11. In March a bankruptcy court judge approved a $125 million loan to US Airways from Air Wisconsin’s investment arm, Eastshore Aviation, that will convert to equity after the Arlington, Va.-based major emerges from bankruptcy. The deal will allow Air Wisconsin to fly all of its 70 Bombardier CRJs as US Airways Express.

Of course, the new arrangement did not sit well with United, which complained to the Federal Mediation Board that AWAC might use United Express code-share revenues to help finance US Airways. Only days after a mediator found in favor of Air Wisconsin, United and AWAC agreed to part company. Under the separation agreement, Air Wisconsin will continue to perform ground handling for United at still unidentified stations.    

By all accounts, Air Wisconsin did its level best to find some common ground with its long-time partner. Not known for its loyalty or patience, however, United didn’t dispel its reputation for ruthlessness earned during previous run-ins with Mesa Air Group, Atlantic Coast, the “original” Air Wisconsin and others. All have felt United’s wrath at some point over the past 20 years.  

Never in want of regional partners willing to do more flying, United has already moved to replace Air Wisconsin’s Chicago, Denver and Washington Dulles service with CRJs flown by SkyWest and GoJet, a new division of Trans States Holdings expected to open in August. United said it would allocate AWAC flying to other United Express carriers as well, most likely Republic Airways and Mesa Air Group.  
But the real question remains, where will Air Wisconsin fly for US Airways, and at whose expense?

“I see Mesa as the loser in this,” said Abbey. “[It] didn’t come to the table with the investment.” Of US Airways’ three biggest code-share partners, only Mesa hadn’t agreed to participate in the bankrupt airline’s refinancing effort by the time AIN went to press. Weeks after Air Wisconsin inked its deal with US Airways, Republic Airways pledged another $125 million in equity and up to $110 million in asset-related financing.

Whether or not Air Wisconsin becomes a loser itself depends on a number of variables. It seems clear that AWAC’s fleet of 14 British Aerospace 146s won’t fit within the US Airways system, so it already stands to lose a large portion of ASMs out of Chicago and Denver. Of course, a US Airways liquidation could spell disaster–or an opportunity. Republic’s deal specifically addresses equipment and slot transfers in the event of a US Airways Chapter 7 filing. No one outside Air Wisconsin and US Airways knows exactly what their contract says.

“I would want to know as a third party what sort of successorship guarantees are there,” said Abbey. “Republic I think sort of set the high water mark in that regard.”