Regional flyers say more federal aid is needed to stay in the air

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Regional airlines often fly aircraft owned by mainline carriers and marketed under mainline regional brands, such as United Express.
Regional airlines often fly aircraft owned by mainline carriers and marketed under mainline regional brands, such as United Express.

Regional airlines are warning of more bankruptcies and closures if the Treasury Department doesn't ease the path to obtaining financing from the $25 billion airline loan program that was included in the Cares Act.

"We know that several airlines are attempting to work with Treasury to get loans and so far have not been able to do so," said Faye Malarkey Black, CEO of the Regional Airline Association (RAA). 

Treasury has announced it has reached preliminary loan agreements with 10 airlines, of which only SkyWest is a regional carrier. The other carriers are Delta, American, United, Southwest, JetBlue, Hawaiian, Alaska, Frontier and Spirit. 

Those carriers have indisputably been hit hard by the Covid-19 crisis, with the largest among them having lost billions of dollars during the second quarter alone. 

But regional airlines have also been kneecapped. The pandemic caused Compass to cease operating on April 7, while sister carrier Trans States was grounded on April 1, nine months ahead of what had been planned as an orderly, end-of-year wind down.

In addition, Alaska-based Ravn Air Group suspended operations in April. Ravn's assets have since been purchased through a Chapter 11 bankruptcy proceeding, and the new owner plans to resume some Ravn operations shortly.
Most recently, the viability of ExpressJet came into doubt following United's decision to end its contract with the regional carrier, whose entire business is operating United Express-branded flights.

Under stipulations Treasury has laid out, the $25 billion in Cares Act loans must be collateralized with assets, potentially including aircraft, real estate, landing rights and gate leases, which together must be worth half the value of the loan. 

Such guidelines, said Black, place many regional airlines at a disadvantage. That is in large part because regional airlines often don't own the aircraft they operate, flying most or all of their schedule under contract for the mainline regional brands United Express, American Eagle and Delta Connection. CommutAir and Empire Airlines, for example, don't own any planes, according to  information provided by the airline industry data service company Ch-Aviation. GoJet owns just 26% of its fleet.

The two largest regional carriers, SkyWest and Republic Airways, do own the majority of aircraft they fly, according to Ch-Aviation. And five regional airlines are wholly owned by Delta, American or Alaska.  

To help regionals overcome this structural dynamic, the RAA is calling on Treasury to be more flexible in allowing carriers to guarantee loans with untraditional assets. In particular, Black says the department should allow regional airlines to guarantee loans with the capacity purchase agreement contracts they have with major carriers. Such arrangements guarantee that the majors will use a regional's services no less than a specified minimum threshold over the life of the contract.  

Black is also critical of Treasury for announcing in mid-July that smaller regional carriers seeking loans of less than $300 million must look first to the Cares Act Main Street Lending Program before applying for the $25 billion pot that Congress designated for airlines.

"Carriers are supposed to be in the air carrier loan program. Congress didn't set that up only for large airlines. Treasury should follow the spirit and the letter of the law," Black said, arguing that absent lending assistance, more regional carriers will fail, which will damage economies and reduce connectivity in small and midsize communities.

As of 2018, 63% of U.S. airports with scheduled commercial flights were served only by regional carriers, according to the RAA. 

The Treasury Department didn't respond to a query about why it is directing small airlines toward the Main Street Lending Program. The department's website does state that under the airline loan program, applicants that do not have available collateral to secure loans can be eligible for unsecured loans provided they meet designated thresholds related to debt-to-earnings ratio. 

Not everyone agrees that the federal government should prop up the regional industry. In an analysis following United's late-July announcement about ending its ExpressJet contract, the consulting firm Boyd Group International argued that well before Covid-19, technology had reduced flight demand in small markets, especially for short-haul business travel. 

"The communication needs that were once met by near-full commuter flights between Buffalo and Cleveland, and intrastate flights inside Florida and in California's Inland Empire are still there. But now the modality is electronic," the Boyd Group wrote. 

Major carriers will continue to reduce their regional fleets and small market flying due to long-term market trends, the Boyd Group added. 

CORRECTION: A previous version of this report incorrectly said ExpressJet operated all of United Express' flights. ExpressJet does all of its flying for United Express, but it does not fly all the United Express-branded flights.

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