Utah's Breeze Airways further revises launch plans

To ensure a late 2020 launch, Breeze Airways (MXY, Salt Lake City) says it has entered into a tentative agreement with Compass Airlines (United States of America) (CP, Minneapolis/St. Paul) to acquire its interstate scheduled air transport authorities. Compass Airlines was a production carrier specialising in carrying out E175 flights for US mainline carriers. However, after it lost its key contract with Delta Air Lines (DL, Atlanta Hartsfield Jackson) in 2019, and coupled with the impact of the COVID-19 pandemic, Trans States Holdings elected to close Compass in April this year. With its Part 121 Air Carrier Certificate (ACC) suspended, Compass's fleet of Embraer Regional Jets was subsequently moved to sister carrier Republic Airways (YX, Indianapolis Int'l).

In a filing to the US Department of Transportation (DOT), Breeze Airways said that under its provisional Asset Purchase Agreement (APA) with Compass dated July 6, Breeze will acquire from Compass, the relevant assets needed to allow it to make use of its scheduled interstate authority and to allow the US Federal Aviation Administration (FAA) to issue Breeze with the operating authority equivalent to that held by Compass.

"Compass will not be transferring its Open Skies Authority, any of its Mexico authority, or any other international authority," Breeze said. "The closing of the transaction is expressly conditioned on, among other things, the Department's approval of the certificate transfer to Breeze and FAA's issuance of new operating authority to Breeze enabling Breeze's E190/E195 operations. By utilising Compass's manuals, resources, and processes, FAA certification will be completed more efficiently and, accordingly, the introduction of new service to underserved markets will be accelerated."

In anticipation of the transfer, Breeze says it is working closely with Compass and FAA officials at Compass's supervising Flight Standards District Office (FSDO) and Certificate Management Office (CMO) in Minneapolis, Minnesota. As such, if the deal is approved and finalised by US regulators, Breeze said it would withdraw its current application for scheduled interstate authority, lodged in February.

Under its plan, Breeze plans to begin commercial flight operations in mid-October from its Minneapolis/St. Paul base. However, instead of operating charter flights for three months before introducing scheduled service in the winter of 2020 as it had proposed in its February DOT filing, Breeze now plans to initially operate charter services for six months before venturing into the scheduled services niche in May of 2021. Breeze said its aim of providing nonstop services to underserved markets across the United States remains unchanged.

As its scheduled service starts and ramps up, so charter operations will represent a decreasing portion of Breeze's business but will remain an important complement to its scheduled service.

From the period covering months 7 - 10 of operations (approximately May 2021 - August 2021), Breeze plans to use its incoming Embraers to introduce scheduled service to 15 underserved cities, most of which lie along the US Atlantic Coast, the South, Texas, and the Midwest. After that, in month 11 of operations (approximately September 2021), Breeze expects to receive its first A220 aircraft. Breeze plans to continue service with flights from existing destinations, though certain legs will utilise the new aircraft in place of its E190/195s. In month 12 of operations (approximately October 2021), Breeze foresees the introduction of transcontinental flights linking the US Atlantic Coast to California.

In terms of fleet, Breeze says it has taken advantage of the COVID-19 pandemic to source more "favourably" priced aircraft on the leasing market. As such, rather than completing a proposed leasing transaction with Azul Linhas Aéreas Brasileiras (AD, Sao Paulo Viracopos) - an airline also controlled by entrepreneur David Neeleman - signed earlier in the year, Breeze signed a term sheet with Nordic Aviation Capital on June 19 to lease fifteen E190s. The term sheet "offers significantly better terms than the original term sheet signed with Azul for E195 aircraft", it said. The first of the E190s is scheduled to deliver to Breeze in August 2020 with the 14 remaining aircraft due over the course of the ensuing eight months. In the long term, Breeze expects to operate E190/E195 aircraft alongside a fleet of sixty A220-300s.

Concerning its Airbus order book, Breeze said that with the delay of the launch of its scheduled services, Airbus has agreed to delay delivery of the first A220 by six months - until August 2021. The second A220 is now due in September 2021 with approximately one aircraft per month due after that beginning in January 2022. All are to be produced at Airbus's Alabama plant.

In terms of fleet ownership, Breeze has already signed an agreement with GECAS to finance nine of its first eighteen A220 deliveries. On delivery to the carrier, these aircraft are to be sold to GECAS and leased back subject to a 12-year operating lease agreement. Breeze said it is currently in talks with various lessors to execute further sale-and-leaseback transaction(s) for the remaining nine of the first eighteen A220 deliveries.

"Breeze expects to conclude the majority of the additional sale-and-leasebacks before September 30, 2020, under substantially equivalent terms to the initial GECAS transactions," it said. "Combined, these transactions will secure Breeze's A220 financing requirements through December 2022. Breeze has yet to determine its preferred financing strategy for subsequent A220 deliveries but is likely to consider a combination of operating leases and debt financing. As part of the purchase agreement, Airbus has committed backstop financing for a portion of the A220 order book."

Incorporated in Delaware, Breeze Airways is controlled by US airline entrepreneur David Neeleman (82.1%) with the remaining 17.9% controlled by a variety of management and private company investors all of whom are US nationals. Its current share capital is valued at USD23,856,241.

To raise additional capital needed to execute its business plan, Breeze is negotiating another equity financing round that will raise approximately USD45 million through the sale of common shares to approximately four US investors.

"A lead investor has been identified, and additional commitments are being secured," it said. "Breeze anticipates closing the financing transaction in July and will supplement this [DOT] application with the specific ownership information and third-party verification of the funds available as a result of the capital raise."

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