Batman,
NEW YORK -- Atlantic Coast Airlines Inc. (NasdaqNM:ACAI - News) hit a 52-week low Tuesday after a judge denied the company's bid to force UAL Corp. (NYSE:UAL - News) to decide whether to reject or take on the burden of adding scores of new jets to regional routes.
The denial -- part of UAL's bankruptcy proceedings Monday -- prolongs uncertainty over the fate of the contract, which calls for Atlantic Coast to add 47 regional jets and retire 30 older turboprop planes by April 2004 at a cost of $940 million.
Atlantic Coast, headquartered in Dulles, Va., serves as a regional carrier for UAL under the United Express brand.
In midday trading on the Nasdaq Stock Market (News - Websites), Atlantic Coast Airlines was down 89 cents, or 13%, to $6.04. Volume was nearly two million shares; average daily volume is 663,176 shares. Earlier in the day, shares plummeted 31% to a 52-week low of $4.78. The previous low of $6.88 was set Feb. 13.
UAL is in the process of putting together a reorganization plan in the wake of its bankruptcy filing last December. The fate of a contract that could potentially require huge capital expenses from a small regional carrier like Atlantic has been a persistent concern for investors. Atlantic wanted the court to force UAL to either assume or reject the deal.
Also in Monday's court proceedings, UAL considered the close of its Dulles hub, resurrecting fears of liquidation by UAL, Blaylock & Partners analyst Raymond Neidl said. With UAL gone, Atlantic Coast would lose a major revenue source. The company derives about 85% of its revenue through its United Express line.
Mr. Neidl said the court decision was a surprise.
"I thought the court wanted to get this clarified," he said.
The main concern for Atlantic Coast is its ability to finance new regional jets, according to Mr. Neidl.
In court testimony Monday, Atlantic Coast Chief Financial Officer Richard J. Surratt said the uncertainty surrounding the UAL contract could make it difficult to obtain outside financing for new regional jets.
Mr. Neidl said the likelihood of UAL liquidating and the closing of its Dulles hub is still remote. If, however, Atlantic Coast does lose its UAL business, it is capable of finding another client.
Mr. Neidl added that the sharp decline in Tuesday's share price gives it a buying opportunity. He said he maintains a "buy" rating on the company.
Raymond James analyst James Parker agreed in his research note that there would be competition among the major carriers to vie for Atlantic Coast's aircraft fleet if UAL files Chapter 7.
Although there would be a temporary disruption in the revenue stream as Atlantic Coast seeks a new partner, Mr. Parker said he believes other major carriers would move quickly to establish a partnership with the company.
Mr. Parker said he maintains a "strong buy" rating on the company, as a result of demand for regional jets far exceeding supply.
A spokesman for Atlantic Coast wasn't immediately available for comment.
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Basically ACA is contracted to spend almost a billion bucks without assurance that the UAL contract will be in place after they order the jets, what the margins will be and if the flying will go to mesa or other low ballers. Sounds like a great deal for good ol' UAL but not so good for ACA. ACA is doing the right thing and it sucks.
Splert...
