There is a Reason United’s Purchase of ExpressJet is So Complicated
The news started rolling in on Tuesday. United would be purchasing regional-operator ExpressJet from its current parent company SkyWest, but this is no ordinary purchase. It’s a very complex transaction that has United only acquiring a minority stake in a shell company that will be majority-owned by a separate, secretive company owned by “seasoned airline managers.” Confused? You aren’t alone, but there is actually good reason for this.
United is the only one of the big three in the US that doesn’t own any of its regional partners. American has long owned Envoy, Piedmont, and PSA. Meanwhile, Delta — which had sold its previous regionals in a fire sale to raise cash back in the day — now owns Endeavor.
United started to get into this game in 2016 when it bought 40 percent of Commutair. The rest of that airline is owned by Champlain Enterprises, LLC. Now United is doing something similar but even more complex for this ExpressJet acquisition. (There’s a chance that Commutair and ExpressJet will be related, as I’ll explain.) You’re probably wondering why that is.
United has a fairly unique clause in its flight attendant contract that throws a wrench in the airline’s plans to have a wholly-owned subsidiary. Specifically, this clause is mentioned in a side letter which you can find on page 401 of this doc.
… to the extent permitted by law, the Company will recognize the Union as the exclusive bargaining representative for the Flight Attendants on any commuter airline (primary 135 carrier) which it establishes or purchases in whole or in significant part. Upon recognition, the Union and the Company agree to negotiate in a timely fashion a competitive agreement no less favorable than area standard contracts for similar flying operations.
So, if United purchases a regional “in whole or in significant part,” then the United flight attendants have to fly those airplanes, albeit under different contract conditions.
United might not say it as bluntly, but it seems pretty clear that it would rather keep any regional operations as separate as possible from mainline so it can keep costs down. So, what could it do?
Well, it could go out and buy an insignificant stake in a regional, but then it wouldn’t have control. So it has instead concocted this master plan.
ManaAir, LLC will purchase ExpressJet from SkyWest. Who the heck is ManaAir? Well it’s just a new shell company and we don’t know much more…yet But an 8-K filed by SkyWest indicates that Subodh Karnik is President and CEO. Who’s that? Well he’s been running Commutair, so either he’s making a move or there will be a relationship between the two to be revealed later here.
United will take a “minority” stake in ManaAir, though I don’t see details of what that means, yet. And the rest will be owned by the also-mysterious KAir Enterprises, Inc.
Who is KAir? Again, we have no clue yet, but this is going to become public in the very near future. I’ll update here when that happens. The only thing United will say so far is that it is made up “seasoned airline managers.” Anyone want to take bets that these folks happen to have strong ties back to United in one form or another? It could even be related to the Champlain Enterprises team, now that we know Subodh Karnik is running ManaAir.
While KAir will own the majority of ManaAir, I’ll assume that they will have very little decision-making power. This is as close as United thinks it can get to having its own regional as long as that clause exists in the flight attendant contract.
This means that United is happy, because it now has a bigger regional closer to being under its control. SkyWest, by the way, should also be REALLY happy. Not only does it shed its perennial money-losing unit in ExpressJet, but it also strengthens its existing contracts with United and secures priority access to future flying that United will award. So everybody wins, right?
Don’t forget about labor.
For its part, the pilots are mildly supportive, but there’s a reason for that. This snippet from a union blast to pilots that went out yesterday sums it up well.
Exclusive UAX partners are a step in the right direction toward controlling our United Express product. The best long-term solution is to bring this flying to the mainline, with United pilots at the helm.
They’ve been pushing for that for awhile now, and I still doubt it’ll happen.
Then there are the flight attendants. I asked for a comment on this and was given a terse statement by Association of Flight Attendants (AFA) spokesperson Taylor Garland.
We’re reviewing the transaction and we will enforce our contract.
Of course, something similar is already being done with CommutAir, so it seems unlikely that flight attendants would have any leverage here. If so, it would have already been exercised.
Though we don’t know who owns KAir just yet, and I’ve probably completely confused you with this post, it doesn’t really matter. What matters is that United wants to have more control of its regionals for a variety of reasons, including a better pilot pipeline. This is as close as United can get toward making that a reality… for now.
