ATA Holdings could be headed for bankruptcy-analyst
Wednesday August 18, 3:40 pm ET
By Jui Chakravorty
NEW YORK, Aug 18 (Reuters) - ATA Holdings Corp. (NasdaqNM:
ATAH -
News), the parent of struggling ATA Airlines, faces a liquidity crisis that could push it into bankruptcy by early next year, an analyst said on Wednesday.
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ATA said earlier this week that barring changes to its aircraft lease agreements, it does not expect to have enough cash to meet those obligations in the first quarter of 2005.
The company also said its cash balance will fall by $20 million in this year's third quarter.
"There is a very high risk of bankruptcy at this point," Clark Orsky, a bond analyst for KDP Investment Advisors, said in an interview. "We do not think ATAH has enough liquidity to get past the first quarter of 2005 without substantial relief from its aircraft lessors."
In a statement issued on Wednesday, the airline said: "ATA Airlines is dealing with many of the same challenges currently affecting other airlines, including record fuel costs and an anemic revenue environment. Management and employees are working diligently to return the company to profitability."
Shares of ATA hit a 52-week low of $2.56 on Nasdaq on Wednesday before recovering to $2.88, up 4 cents, or 1.4 percent in late trading.
ATA, the No. 10 U.S. airline, said its cash flow problems have been compounded by increased holdbacks by its credit card processing bank. Those holdbacks will cut the company's cash balance by $20 million in the third quarter, it estimated.
Indianapolis-based ATA Holdings had $150 million in cash on June 30, down from $186 million a year earlier.
Orsky also said ATA will likely be unable to meet its Air Transportation Stabilization Board-backed loans in the third quarter, and will have to ask for waivers.
"While there is a precedent for ATSB granting waivers (as in the case of US Airways (NasdaqNM:
UAIR -
News)) that carrier was required to make substantial prepayments to obtain covenant relief," Orsky wrote in a note. "We do not believe that ATAH is in a position to make such prepayments."
ATA, the largest carrier at Chicago's Midway International Airport, has been cutting costs aggressively in the last year to cope with falling fares, soaring jet fuel prices and declining demand for its military charter flights.
ATA in May became the first low-cost carrier to ask its crews to postpone a pay raise. It asked its pilots and flight attendants to postpone scheduled pay raises in 2004 and 2005. The airline's pilots have agreed to $43 million in concessions over two years, but its flight attendants recently rejected a request for $8.9 million in pay givebacks.
The discount carrier in February closed a deal with bondholders that allowed it to exchange new notes and cash for $300 million of old debt, narrowly averting bankruptcy.
"They may come back to bondholders for some kind of concessions to try and stave off a bankruptcy this time," Orsky said. "They will do whatever they can to avoid a bankruptcy and that's just one more lever they can pull."
In an effort to fight the competition and increase revenue, ATA plans to launch business-class seating this month and said it might begin service to Europe next year. "That sounds great, but I don't think that's going to save the company," Orsky said
