US Airways reaches $125 million agreement with investor group to fund restructuring

By Ellen Chang

Houston, Feb. 22 - US Airways Group, Inc. said Friday that it has reached agreement with Eastshore Aviation, LLC, an investment entity owned by Air Wisconsin Airlines Corp. and shareholders, on a $125 million financing commitment that will provide "a substantial portion" of the equity funding for a plan of reorganization.

The agreement will take the form of a $125 million debtor-in-possession term loan. Upon emergence from Chapter 11, the loan will convert to equity in the reorganized US Airways.

The new facility will be second in priority only to the Air Transportation Stabilization Board loan as far as assets that are pledged as collateral.

US Airways expects to draw $75 million as tranche A after approval by the U.S. Bankruptcy Court for the Eastern District of Virginia and then make two subsequent $25 million draws under tranches B and C.

The interest rate on tranches A, B and C is Libor plus 650 basis points. The maturity date is Dec. 31 or Oct. 31 if a disclosure statement has not been approved. There is no commitment fee.

A hearing on the proposed facility is scheduled for Feb. 28.

Air Wisconsin, based in Appleton, Wis., is the nation's largest privately held regional airline. In 2004, it had $700 million in revenue.

As part of this agreement, US Airways and Air Wisconsin will enter into an air services agreement under which Air Wisconsin may, but is not required to, provide regional jet service under the US Airways Express brand. Air Wisconsin's arrangements with United Airlines are unaffected by the agreement with US Airways.

"This agreement has a number of benefits that are consistent with our restructuring efforts," said Bruce R. Lakefield, US Airways president and chief executive officer, in a written statement. "As an initial investor, Eastshore is providing us with short-term liquidity and also is demonstrating support for our restructuring and interest in a longer-term relationship with US Airways.

"Air Wisconsin is a top-notch airline that has had its own success in completing a turnaround, so we see tremendous upside from building a business and financial relationship."

The Arlington, Va.-based carrier filed for bankruptcy on Sept. 12. Its Chapter 11 case number is 04-13819.

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