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(Double Take) US Airways To Lend Midway Money

Thu Aug 01, 2002 7:50 am

Here is a new article from the Raleigh Observer. I looks like very smart and safe deal for US Airways.


MORRISVILLE - US Airways has agreed to loan Midway Airlines up to $3.5 million, which is most of the money that Midway has said it needs to resume flights as a regional carrier.

But the stakes are high. If Midway defaults on the loan, then US Airways can seize Midway's slots at Reagan National Airport in Washington and at La Guardia Airport in New York. Those slots are among Midway's most highly prized assets, according to airline experts.

"For Midway, this is a risky transaction," said George Hamlin, senior vice president at Global Aviation Consultants, a consulting firm based in Washington. "It's critical that Midway retain the ability to fly in and out of major cities like New York and Washington."

Two weeks ago, Midway grounded its fleet but announced plans to resume flights by Oct. 1 under a marketing agreement with US Airways. Under the deal, US Airways would pay Midway an undisclosed fee to fly regional jets. Midway would remain an independent company but would fly under the US Airways Express logo.

But US Airways said that deal was contingent on Midway raising $5 million in additional capital. US Airways has agreed to provide as much as $3.5 million of that through a secured loan, pending approval from the U.S. Bankruptcy Court in Raleigh. A hearing on the matter is set for Monday.

"We have a great deal of interest in making sure that our marketing agreement with Midway works," said David Castelveter, spokesman for US Airways, when asked why the airline made the loan. "For Midway, this provides them with some additional breathing room."

Robert Ferguson, Midway's chief executive officer, declined to comment on the company's plans for the new financing. Gerald Jeutter, the Kilpatrick Stockton attorney representing Midway in bankruptcy, did not return telephone calls Tuesday.

The loan is backed by five slots that Midway owns at Reagan National and La Guardia. Each slot represents one takeoff or landing at these airports. Those slots are highly prized among commercial airlines because there are a limited number available. Slots at Reagan National have been appraised for more than $1 million, Hamlin said.

For US Airways, the loan is virtually risk-free, said Michael Boyd, president of The Boyd Group, an aviation consulting firm based in Evergreen, Colo. The slots that Midway is offering as collateral on the loan are at least as valuable as the loan itself, he said. "A default certainly isn't going to hurt [US Airways]," Boyd said.

It's unclear how a default would affect Midway's creditors.

Midway Airlines is already in default with one of its key lenders. In September, Wexford Capital LLC of Greenwich, Conn., agreed to loan Midway $8.5 million, which helped the airline avoid liquidation. But since January, Midway has failed to make monthly payments on that loan, according to a filing Monday with the U.S. Bankruptcy Court in Raleigh.

Wexford now objects to recent efforts by Midway to sell some of its assets.

Midway recently sought approval from the bankruptcy court to sell spare Boeing 737 parts to two companies for $887,000, according to court documents.

Wexford says that it has an option to purchase those parts at a significant discount and has asked the bankruptcy court to reject the sales.

Arthur H. Amron, general counsel and principal at Wexford, did not return repeated telephone calls Tuesday.

The objection by Wexford is worrisome, according to Boyd.

"It's never a good sign when you tick off your lender of last resort.That's a lender that could have helped them out of their current fix," he said.
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RE: (Double Take) US Airways To Lend Midway Money

Thu Aug 01, 2002 8:30 am

The bankruptcy court will have to take a look at all of these transactions; but its amazing what is going on here. Is this US/Midway deal just a way for US to get the Midway slots,as Midway, the next generation, will be a regional carrier servicing mainly the US CLT hub and maybe a few token flights in/out of RDU, the DCA and LGA slots are no longer of any interest to them. The slots at DCA and LGA are worth a lot of money......but, on the other hand, why does US want these slots, isn't US cutting back services at non-hub cities like DCA and LGA to focus on expanding its hub operations?

I know that I am confused......but one thing is for sure, if US ends up with the Midway slots through this round about scheme, other airlines including the big boys, Midway's creditors, and maybe even the government, are going to cry FOUL.
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RE: (Double Take) US Airways To Lend Midway Money

Thu Aug 01, 2002 8:44 am


Just one question. Where does an airline that is already defaulted on loan pmts. and teetering on the brink of BK. Itself find $3.5 million laying around? As a taxpayer that will ultimately end up paying for all these dealings thanks to these ridiculous loan guarantees this stuff really amazes me.
Topic Author
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Joined: Wed Jun 21, 2000 7:56 am

RE: (Double Take) US Airways To Lend Midway Money

Thu Aug 01, 2002 10:55 am

It looks to me that US Airways has found a loop hole, and a good one. I don't see anything wrong with it. It would be Midway's fault if they fail on these two routes. And if Midway does fail, it's a creative way to gain 5 very lucrative slots at both LGA and DCA a day. I am sure the slots themselves are worth more then $3.5 Million.
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Joined: Mon Jun 19, 2000 3:04 am

RE: (Double Take) US Airways To Lend Midway Money

Thu Aug 01, 2002 12:03 pm

Seems like Midway is the airline with 9 lives...

First, they start up and die out of MDW...
Then they start up again and cease operations after 9/11...
Then they open up shop again and cease operations a few days ago...
Then US Airways shells out 3.5 mil to let them operate as a US affiliate, and will start up again...

What's next?

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