US Air, GE Agree on Deal for Loan, Leases
US Airways Group Inc., operating under bankruptcy protection, reached an agreement Friday with General Electric Co., its largest creditor, that provides the airline with $140 million through a loan and deferred lease payments.
The deal with the GE Capital Aviation Services and GE Engine Services units will save $80 million a year and provide more regional jets for lease, Arlington, Va.-based US Airways said in a statement. US Airways also must exit Chapter 11 bankruptcy protection by June 30. There was no previous target date.
US Airways, the No. 7 U.S. airline, is trying to cut annual costs by $1.5 billion, including $959 million in labor expenses, to emerge from Chapter 11, stem losses and compete with low-fare rivals.
The agreement with GE, which has US Airways leases and loans worth $2.8 billion, requires that the airline achieve unspecified cost reductions by Jan. 14.
The agreement is “a short-term positive, but from our perspective we’re more concerned with whether this is a viable entity,” said Sean Egan, managing director at Egan Jones Ratings Co., an independent credit-rating company in Haverford, Pa. “We have yet to see evidence of that.”
Shares of U.S. Airways rose 21 cents to $1.11 in over-the-counter trading. The shares have fallen 82% this year.
The agreement would return 10 Airbus A319 aircraft to GE in 2005 and 15 Boeing Co. 737-300s in 2006 and 2007, the carrier said.
The deal also enables the carrier to lease as many as 31 new regional jets over the next three years. US Airways wants to operate more regional jets at its partners and wholly owned units to lower costs to destinations with less demand. The smaller jets have lower labor expense and are better suited than large jets for the smaller markets.
