storminpilot
Well-known member
- Joined
- Jul 6, 2003
- Posts
- 282
http://news.ft.com/cms/s/7cf88f8e-4989-11d9-8ce9-00000e2511c8.html
Low-cost airlines get in line for ATA assets
By Caroline Daniel
Published: December 9 2004 02:00 | Last updated: December 9 2004 02:00
Over the next week, ATA, the US's 10th-largestairline, will attract more attention from investors than at any point in its 31-year history, as three of the most successful US low-cost carriers prepare to fight for control of some or all of its assets.
The bids, expected from Southwest, AirTran and America West, are due in by Friday afternoon. They will be reviewed over the weekend, with an open auction starting on Monday. Next Thursday the bankruptcy judge in Indianapolis should rule on the victor.
Although ATA is small, the implications of the battle are not. It could lead to a decisive change in the low-cost carrier landscape. The three-way tussle will also reveal the challenges the low-cost carriers face as they try to sustain the growth rates they have enjoyed over the last few years.
The next few days will also test the tactical talents of their executives. What each wants is very different. One aircraft manufacturing executive sums it up: "For AirTran, it's strategic; for Southwest, it's tactical; and for America West, it's opportunistic." ATA filed for bankruptcy in October. Its most valuable asset is its base at Midway airport in Chicago, where it has 14 gates. It also has a base in Indianapolis, where it offers military charter services as well as leisure charter services to Hawaii and Mexico.
AirTran has so far been the most public about its intentions. It has already secured an agreement with ATA, offering $90m for its 14 gates at Midway. The deal gives AirTran a crucial northern base.
AirTran's need for Midway comes at a time of pressure - from Delta Air Lines - in Atlanta, its main base. As part of Delta's restructuring, the carrier is reducing capacity in Dallas Fort Worth, and increasing it in Atlanta. While AirTran's lower costs enable it to weather this pressure, Delta's capacity expansion could further increase pressure on yields.
While the deal has support from ATA, there are doubts about what it gives to creditors, such as the Airline Transportation Stabilisation Board, the federal body owed $140m by ATA.
There are concerns the offer effectively guts the airline, leaving ATA without enough cash to reorganise. ATA is already dangerously low on cash, with only $15.5m in current debtor-in- possession (DIP) financing.
Southwest, by contrast, could - as the best financed airline - easily outspend its rivals. It is expected to make a large cash offer for about five of the Midway gates, alongside a possible $50m-$75m in DIP financing to prop up ATA.
In a significant strategic departure, Southwest is also considering offering a code-sharing relationship with ATA, which would be extremely valuable for the bankrupt company, according to several people involved in the talks. The unusually aggressive move is a reflection of the new management team at Southwest, also evident in its expansion plans at Philadelphia.
Its interest in ATA's assets is, however, defensive. Southwest already has a dominant position at Midway and does not want to see a rival come in, taking over ATA's 14 gates. Buying five gates makes it harder for a rival to gain a significant foothold. Southwest's advantage could be that a higher cash offer, with a potential code-sharing deal, would offer more for creditors. But there are challenges, such as potential antitrust concerns. And, for the city of Chicago, it would potentially mean ruling out ever having a formidable rival to Southwest at Midway.
America West's plan is the most ambitious. It wants to take over the whole company, including ATA's employees. That is a plus for ATA's staff and for Chicago, which has been keen to preserve jobs, though it carries the complications of combining different workforces and union politics.
With its weak balance sheet, America West also has less financial flexibility, and its deal is expected to involve debt. Given ATA's deteriorating cash position, America West is also understood to be in talks to line up more than $50m in DIP financing, which would be vital to prop up ATA during a transition to a merger.
Even so, a merger poses a dilemma to the ATSB, which has a $350m loan outstanding to America West. A botched merger could threaten America West's ability to pay off the loan - its only current successful loan guarantee - leaving the ATSB in a worse position.
The overt manoeuvring over ATA is also matched internally. According to several executives and advisers, some members of the creditors' committee have doubts about the credibility of ATA's current management team, including George Mikelsons, its founder, and the role they will play in running any future, rump ATA.
Low-cost airlines get in line for ATA assets
By Caroline Daniel
Published: December 9 2004 02:00 | Last updated: December 9 2004 02:00
Over the next week, ATA, the US's 10th-largestairline, will attract more attention from investors than at any point in its 31-year history, as three of the most successful US low-cost carriers prepare to fight for control of some or all of its assets.
The bids, expected from Southwest, AirTran and America West, are due in by Friday afternoon. They will be reviewed over the weekend, with an open auction starting on Monday. Next Thursday the bankruptcy judge in Indianapolis should rule on the victor.
Although ATA is small, the implications of the battle are not. It could lead to a decisive change in the low-cost carrier landscape. The three-way tussle will also reveal the challenges the low-cost carriers face as they try to sustain the growth rates they have enjoyed over the last few years.
The next few days will also test the tactical talents of their executives. What each wants is very different. One aircraft manufacturing executive sums it up: "For AirTran, it's strategic; for Southwest, it's tactical; and for America West, it's opportunistic." ATA filed for bankruptcy in October. Its most valuable asset is its base at Midway airport in Chicago, where it has 14 gates. It also has a base in Indianapolis, where it offers military charter services as well as leisure charter services to Hawaii and Mexico.
AirTran has so far been the most public about its intentions. It has already secured an agreement with ATA, offering $90m for its 14 gates at Midway. The deal gives AirTran a crucial northern base.
AirTran's need for Midway comes at a time of pressure - from Delta Air Lines - in Atlanta, its main base. As part of Delta's restructuring, the carrier is reducing capacity in Dallas Fort Worth, and increasing it in Atlanta. While AirTran's lower costs enable it to weather this pressure, Delta's capacity expansion could further increase pressure on yields.
While the deal has support from ATA, there are doubts about what it gives to creditors, such as the Airline Transportation Stabilisation Board, the federal body owed $140m by ATA.
There are concerns the offer effectively guts the airline, leaving ATA without enough cash to reorganise. ATA is already dangerously low on cash, with only $15.5m in current debtor-in- possession (DIP) financing.
Southwest, by contrast, could - as the best financed airline - easily outspend its rivals. It is expected to make a large cash offer for about five of the Midway gates, alongside a possible $50m-$75m in DIP financing to prop up ATA.
In a significant strategic departure, Southwest is also considering offering a code-sharing relationship with ATA, which would be extremely valuable for the bankrupt company, according to several people involved in the talks. The unusually aggressive move is a reflection of the new management team at Southwest, also evident in its expansion plans at Philadelphia.
Its interest in ATA's assets is, however, defensive. Southwest already has a dominant position at Midway and does not want to see a rival come in, taking over ATA's 14 gates. Buying five gates makes it harder for a rival to gain a significant foothold. Southwest's advantage could be that a higher cash offer, with a potential code-sharing deal, would offer more for creditors. But there are challenges, such as potential antitrust concerns. And, for the city of Chicago, it would potentially mean ruling out ever having a formidable rival to Southwest at Midway.
America West's plan is the most ambitious. It wants to take over the whole company, including ATA's employees. That is a plus for ATA's staff and for Chicago, which has been keen to preserve jobs, though it carries the complications of combining different workforces and union politics.
With its weak balance sheet, America West also has less financial flexibility, and its deal is expected to involve debt. Given ATA's deteriorating cash position, America West is also understood to be in talks to line up more than $50m in DIP financing, which would be vital to prop up ATA during a transition to a merger.
Even so, a merger poses a dilemma to the ATSB, which has a $350m loan outstanding to America West. A botched merger could threaten America West's ability to pay off the loan - its only current successful loan guarantee - leaving the ATSB in a worse position.
The overt manoeuvring over ATA is also matched internally. According to several executives and advisers, some members of the creditors' committee have doubts about the credibility of ATA's current management team, including George Mikelsons, its founder, and the role they will play in running any future, rump ATA.
