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Independence Files for Bankruptcy; The Airline, Portland's Only Low-Cost Carrier, Assures Customers That Flights Will Operate Normally.

Posted on: Tuesday, 8 November 2005, 12:00 CST

By From staff reports Staff Writer Matt Wickenheiser contributed to this story.

Flyi Inc.'s Independence Air, the sole discount airline serving Portland's International Jetport, filed for Chapter 11 bankruptcy protection Monday and said it hopes a court-supervised auction will attract a new investor in the next 60 days.

Rick DeLisi, spokesman for the airline based at Washington's Dulles International Airport, said flights would operate on their regular schedule Monday and that customers should not expect any immediate disruptions. On Nov. 1, Independence cut its daily flights from the jetport to Washington, D.C., from five to two.

Flyi, formerly known as Atlantic Coast Airlines, had operated until July 2004 as a contract carrier for United and Delta airlines. But when bankrupt United sought to renegotiate its contract with Atlantic Coast at lower rates, Atlantic Coast executives decided they had a better future as an independent carrier.

When the airline announced plans to transform into a low-cost, low-fare carrier, some were skeptical immediately because the airline's fleet of small regional jets generally has higher per- person costs than larger jets.

The airline struggled to draw customers from the beginning. In its first few months as an independent carrier, the airline's planes were often half-empty despite bargain fares as low as $29 one way to some destinations.

In Portland, Independence was hailed as the jetport's first discount airline when it began flights in June 2004. The airline's arrival was top news in the local media as travel agents and jetport officials predicted Independence would help lower overall ticket fares into and out of Portland.

The reductions were expected to be especially evident for those traveling to or through Washington, D.C.

Prices have declined, said Jeff Schultes, airport manager. In addition, the jetport has seen an increase in passengers, including an almost 10 percent jump in 2004 and a projected 13 percent rise this year.

"It's done tremendous for the jetport," Schultes.

Steve Hewins, president of Hewins/Carlson Wagonlit Travel in Portland, said he thought the presence of Independence in Maine has helped stem some of the loss of passengers from this state to the airport in Manchester, N.H.

Even so, both men said they didn't see Flyi Inc.'s bankruptcy having an impact on travelers through the jetport.

"Bankruptcies do not really affect the operations here," said Schultes. "They will continue flying and taking care of their passengers."

Delta and Northwest are now in bankruptcy, Schultes noted, and U.S. Airways recently emerged from bankruptcy, too.

Hewins said he believed and hoped that Independence would continue to operate out of the jetport, but added that Portland ought to diversify its low-cost offerings.

"I still think long-term, Portland should be looking for another low-cost carrier, and I know (officials) are," said Hewins.

In recent months, Independence has drawn more travelers and filled its planes at rates comparable to the industry average. It also earned strong marks on customer service and traveler satisfaction, but the pressure to keep fares low was intense even as fuel costs soared.

Flyi Chief Executive Kerry Skeen said the airline suffered from bad timing, going independent "in what has been described as the most challenging economic environment in airline industry history, including record high fuel prices and extreme revenue weakness. These circumstances have prevented us and virtually all U.S. airlines from meeting financial goals."

The airline said in a news release that it is seeking to establish a court-supervised auction to attract a new investor or purchaser. Skeen said in a telephone interview that the company prefers an investor who will keep the airline intact rather than auctioning off the its assets piecemeal.

He said he believes that preserving the airline as an independent low-fare carrier is a realistic option given the "good, loyal fan base" the airline has built in Washington and other smaller markets that had never previously had a low-fare carrier.

Some of Flyi's shareholders had argued for the airline to return to its roots as a contract carrier. Skeen said such a move would be risky given the financial turmoil among traditional carriers.

Still, Skeen said "We're looking at everything, and we'll consider anything that we think adds value and preserves jobs."

Analysts have speculated for months that the airline would file for bankruptcy and its shares have traded at less than $1 for months. Its shares dropped 12 cents to close at 7 cents on Monday on the Nasdaq Stock Market, and the company advised shareholders that the stock will likely be worthless following bankruptcy.

The airline's two top competitors, United and US Airways, operated under bankruptcy protection for most of Independence Air's existence.

The filing occurred in U.S. Bankruptcy Court in Delaware.

Source: Portland Press Herald

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