Republic Airways Can Use Bankruptcy to Return Embraer Planes

Republic Airways Holdings Inc. won permission to use the bankruptcy process to return what it says are some of its less attractive airplanes and engines. 

The company can turn over six Embraer SA E145 regional jets and three engines to Citibank NA, an agent to an outstanding loan, U.S. Bankruptcy Judge Sean Lane in Manhattan said Tuesday. It also obtained permission to reject the lease for a seventh Embraer plane.

Indianapolis-based Republic calls the move “a first step” in getting rid of “excess owned equipment” as it reorganizes under Chapter 11. 

Citibank said the aircraft or engines at stake in the current motion are collateral under a revolving credit facility that now has a balance of $23 million. Lane said that Citibank, which had complained that some of the aircraft had been separated from their engines, will have to bring legal claims later if it can’t work out a resolution.

“I reject the notion that Citi is entitled to have its airframes married with its engines -- or to even be in the same facility,” the judge said.

300 Planes

Republic owns or leases about 300 aircraft and is seeking to slim down to a single family type of Embraer 170/175s, while returning “out of favor” types. Those include Q400 turboprops and the smaller E145s and E140s, according to court papers.

The regional carrier has been working to slim down by flying the more popular 70- to 88-seat E170s and E175s, which are bigger than the E145s. The E170 and E175 are considered the same fleet type, and flying a single type saves money by simplifying employee training and reducing the number of spare parts that must be kept on hand.

Citibank called Republic’s proposal for returning the aircraft unreasonable. The bank said it learned for the first time on March 18 that engines for the frames weren’t in the same place as the planes and that some belonged to unidentified third parties.

The case is In re Republic Airways Holdings Inc., 16-10429, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Original article can be found here: http://www.bloomberg.com