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End of Road for Low-Cost U.S. Airline and Parent

Posted on: Wednesday, 9 November 2005, 12:00 CST

By Jeff Bailey

Independence Air, a low-fare U.S. airline that struggled with high fuel prices and stiff competition, has filed for bankruptcy protection and says that it will try to sell itself, as a whole or in parts, within 60 days to avoid running out of cash.

The potential disappearance of Independence and its parent company, FLYi, based at Washington Dulles International Airport, comes at a time of too many flights chasing too few passengers in some markets.

Independence, formerly a U.S. regional contract carrier that used short-haul flights to feed passengers to United Airlines and Delta Air Lines, switched strategies in mid-2004, deciding to operate on its own in the crowded U.S. East Coast market, and was soon piling up losses. The airline lost $98.5 million in the second quarter.

Nearly half of the domestic airline industry in the United States is operating under bankruptcy-court protection, though the biggest carriers United, Delta and Northwest Airlines are expected to emerge, initially at least, as stand-alone carriers. That was not so with Independence.

"This is one we might finally see a liquidation," said Betsy Snyder, an airline industry debt analyst at Standard & Poor's.

In its bankruptcy filing on Monday, FLYi listed assets of $378.5 million and liabilities of $455.4 million. It has $24 million in unrestricted cash to keep operating. The company employs about 2,800 people and said it planned to continue its 220 flights a day while seeking buyers or investors.

As recently as February 2004, FLYi was able to sell $125 million of convertible notes. Collectively, the holders of those notes are its the largest creditor.

"We don't have the cash reserves to be in bankruptcy a long time," said Kerry Skeen, chairman and chief executive of FLYi. Talks in recent months failed to turn up a buyer or investor, he said.

Skeen would not speculate about the carrier's ability to continue operating for more than 60 more days.

Raymond Neidl, an airline stock analyst at Calyon Securities USA, said, "If they haven't been able to attract an investor for the last year, I don't see how they can now."

"I think there's a good chance" of liquidation, he said.

Source: International Herald Tribune

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