Nov. 8--To keep operating, newly bankrupt Independence Air needs to find a big investor willing to take a big chance.
After more than a year of losing money, parent company FLYi Inc. of Dulles, Va., filed for Chapter 11 bankruptcy protection Monday. Its plan is to attract fresh investment through a court-supervised auction within the next two months.
But the airline's money-losing business model hasn't changed, and that makes it unlikely that many investors will bite, according to Standard & Poor's airline analyst Jim Corridore in New York.
"I don't see the value of putting in more investment dollars in this company," Corridore said Monday. "There have been no major changes to the operating structure -- it's still the same discount airline."
Still, FLYi said in a statement issued Monday that it had been talking with potential investors, though it isn't disclosing their identities. Bids on the whole company as well as piecemeal offers will be considered, it also said.
The airline, which started serving Charleston's Yeager Airport in July 2004, has struggled to turn a profit in the face of an unforeseen surge in fuel prices and intense pricing competition from rivals like United and US Airways -- prompted largely by Independence's rock-bottom fares.
For months after its entry to Charleston, for example, one-way fares to Washington, D.C., were routinely sold for $39. Since Independence's arrival at Yeager, the average one-way fare from Charleston to Washington has fallen from $210 to $172, according to the airport.
"The dramatic increase in fuel prices and other pressures have made this a difficult era in which to launch and grow an airline," said Yeager Airport Director Rick Atkinson.
The bankruptcy filing "is a responsible move" on FLYi's part, he said, adding that "other carriers, such as US Airways ... have emerged from bankruptcy protection stronger than ever."
The airline said it wants to implement companywide wage reductions, with CEO Kerry Skeen taking a 25 percent cut on top of a 15 percent wage cut earlier this year. Management and other salaried employees will see an immediate 5 percent reduction, and there are wage-cut talks in the works with the leaders of FLYi's unionized work groups.
But those changes don't seem to be enough to stop the bleeding, Corridore said. FLYi "just didn't have the right kind of strategy in place for the way the [airline] industry was headed," he said.
In its bankruptcy filing, FLYi lists assets of approximately $378.5 million, against liabilities of about $455.4 million and $24 million in unrestricted cash. Company stock plunged 63 percent on Monday's news, to 7 cents per share. Bankruptcy will probably mean that existing common stock will be canceled, meaning the shares would have no value, the company statement said.
It hasn't yet released financial results for the July-to-September period, but in the quarter before that it lost $95.8 million, marking the fifth straight quarter of losses. When announcing those results in August, it disclosed that it had just $66 million in cash on hand. Its aircraft fuel costs climbed 45.5 percent from the previous quarter.
FLYi officials say they expect to attract their necessary investment within 60 days, adding that the company has enough money to operate as usual in that period. There won't be any immediate changes to service or routes, and all reservations and tickets will continue to be honored, it also said.
Under new bankruptcy laws, it will have 18 months to work out a reorganization plan. After that period, its creditors will be allowed to have a say in the process.
