Updated from 9:32 a.m. EST

US Airways

(UAIRQ.OB)

reached an agreement with

General Electric

(GE) - Get Report

that would provide the airline with much-needed cash as it seeks to exit bankruptcy protection.

In a news release, US Airways said the deal would provide it with $140 million in cash, partly from the deferral of airplane debt and lease payments due over the next six months.

As part of the agreement, US Airways will lease up to 31 new 70- and 90-seat regional jets from General Electric over the next three years. At the same time, it will return 25 larger planes -- 10 Airbus 319s and 15 Boeing 737-300s -- reducing its mainline fleet to 256 planes. The airline said these changes will enable it to return to moderate regional jet growth and allow it to serve smaller markets.

All told, the airline expects the agreement to save it $80 million a year.

In exchange for the financing and deferred payments, US Airways said it would issue to General Electric a 15-year convertible note for between $125 million and $216 million.

The agreement must receive approval from the U.S. Bankruptcy Court for the Eastern District of Virginia, which is overseeing US Airways' second trip through Chapter 11 since the Sept. 11 terrorist attacks. It's also contingent upon US Airways meeting a series of cost reduction goals by mid-January and exiting bankruptcy by the end of next June.

"The fact that

General Electric remains committed to working with us is an enormous boost for our restructuring efforts and the implementation of our transformation plan," said Bruce Lakefield, chief executive of US Airways, in the release. "We still have a lot of work to do, beginning with the completion of labor negotiations with those remaining unions that still do not have cost-savings agreements in place."

Last month, US Airways' pilots agreed to a five-year concession package that includes 18% pay cuts, increased work loads and company contributions to the pilots' retirement plan. The airline estimates the concessions, which had proved contentious among pilots, will save it about $300 million a year. US Airways has also reached an agreement with the union representing its flight training instructors and dispatchers.

But the airline is seeking roughly $600 million more in annual savings from other unions. Although US Airways has said it wants to reach consensual agreements with these groups, it filed a motion on Nov. 12 asking Judge Stephen Mitchell to cancel its labor contracts under section 1113(c) of the federal bankruptcy code should negotiations fail. It also asked the court to cancel its remaining defined-benefit pension plans. The judge has already approved temporary 21% pay cuts through Feb. 15 for groups that have not reached agreements with management.

The airline's cost-cutting moves have met with resistance from the Association of Flight Attendants, which is allowing members to vote on whether to strike should bankruptcy courts terminate labor contracts. Union leadership's call for a strike could United Airlines parent

UAL

(UALAQ.OB)

is also trying to wrangle concessions from employees as it seeks to exit bankruptcy protection.