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http://www.azcentral.com/arizonarepublic/business/articles/1015amwest15.html
ATA deal may be on AmWest radar
Dawn Gilbertson
The Arizona Republic
Oct. 15, 2004 12:00 AM
[font=arial,helvetica,sans-serif]At an airline industry conference at the Phoenician resort last year, talk turned to the likelihood of mergers between low-cost carriers.
After his remarks on the subject, the chief executive of ATA Airlines nodded to America West Airlines CEO Doug Parker and jokingly suggested that the two might pair up some day, attendees recall.
The comment was in jest, conference moderator and veteran industry consultant Mo Garfinkle said, because "at that point neither one was weak or strong compared to the other." advertisementhttp://www.azcentral.com/imgs/clear.gifOAS_AD('BoxAd')http://www.azcentral.com/imgs/clear.gif
The same can't be said today, which is why Tempe-based America West Airlines reportedly is sizing up struggling ATA as a way to grow the airline on the cheap. Speculation on a possible deal has been rampant for weeks, and the Wall Street Journal reported Thursday that unnamed sources confirmed that America West is in talks to buy all or part of ATA.
The news caused investors to bid up ATA's stock Thursday to $2.85, up 21 cents, or 8 percent. America West's stock closed at $4.90, up 6 cents, or 1.2 percent.
ATA, an Indianapolis-based airline best known in Phoenix for its handful of flights to the Midwest and Hawaii, has been losing money and is running out of cash. It has publicly warned that it won't have enough cash to meet its bills in the first quarter and has been feverishly working behind the scenes to restructure its finances.
The company has hired an investment bank and consulting firm, Seabury Group, to shop some of its assets.
Many analysts have the company on bankruptcy watch.
America West, on the other hand, has reported a string of quarterly profits, among the handful of carriers to do so. It did just warn, however, that it will post losses the next two quarters due to sky-high fuel prices and weak airfares due to heavy competition.
The Tempe company's balance sheet, while still loaded with debt, is the best it has been in years, and Parker brags about its cash position. At the end of June, it had $478 million in unrestricted cashon hand.
Analysts and other experts say America West, which like ATA has not commented on the speculation, sees an opportunity to pick up some assets at bargain prices.
They say America West likely is most attracted to ATA's planes, brand-new Boeing 757s and 737s, and its strong operations at Chicago's Midway Airport, the close-in airport on the city's south side. America West currently only serves mammoth O'Hare International Airport in the suburbs.
ATA has 14 gates at Midway and is the No. 1 airline there based on passengers. Southwest Airlines also is big, with 19 gates and about 145 daily departures. Southwest also has been rumored to have an interest in growing in Chicago.
Southwest CEO Gary Kelly told analysts Thursday that it would be interested in some, but not all, of ATA's gates if the airline were to abandon them.
Garfinkle and others said America West is well accustomed to going up against Southwest, given the two airlines' competing beachheads in Phoenix and Las Vegas.
"They'd get a nice position in a very large market" by taking over ATA's operation at Midway, Garfinkle said.
Shoring up route map
Some analysts say America West needs to shore up its route map. In a report last week after the airline warned of the losses for the third and fourth quarter, Jamie Baker of JPMorgan praised the airline's low costs but said it "seems incapable of figuring out where best to fly." The airline has been criticized for launching non-stop flights between New York and Boston and Los Angeles and San Francisco, where competition for business travelers is brutal.
Another possible attraction of ATA to America West, depending on the scope of any deal, includes a foothold in Hawaii. ATA is the carrier behind many vacation packages to Hawaii. Out of Phoenix, it flies non-stop to Honolulu and Maui. Flights from California to Hawaii, which ATA also offers, represent a huge market.
ATA's 757s are certified to fly the long, over-water distance to Hawaii. America West flew to Hawaii years ago, but with the larger, more expensive Boeing 747, and had to abandon the money-losing route.
Garfinkle thinks the chances of a deal are "reasonably high" but doesn't expect an outright purchase of ATA's shares by America West, as often happens in a corporate buyout.
One airline analyst, who asked not to be identified, said that such a move would be "incredibly foolish" given ATA's shaky financial condition.
The scenario they envision is a purchase of assets or a buyout offer conditioned upon a prepackaged bankruptcy filing. The latter offers a better deal on the assets and more protections for the buyers.
Garfinkle, chairman and CEO of GCW Consulting, noted that Texas Pacific Group, which controls the voting stock of America West, has significant experience with such deals and is likely involved in this one, either as a partner or adviser. TPG is led by Texas financier David Bonderman and has a representative on America West's board of directors. Other parties, including aircraft manufacturers and lessors, also would likely be involved in such a scenario.
"This is not a deal that is just a two-party deal," said Garfinkle, whose clients have included Sky Harbor International Airport.
Some wary of deal
Not everyone is enamored of the prospect of an America West-ATA deal, given the sorry state of the industry. Just about every airline but Southwest is forecast to lose money this quarter due to the double whammy of surging fuel prices and too many seats chasing too few passengers. The prospect of either problem easing in the short term is not good.
"They will be grossly overextending themselves to make a purchase of this airline," said Jim Corridore, airline analyst for Standard & Poor's.
The only caveat, he said, would be if they get fire-sale prices, he said.
Corridore said airlines should be conserving cash, not spending it to buy another airline. He said America West is certainly in better financial shape than in the past but still has to watch its cash, especially during the industry's current slow season.
One Wall Street analyst recently crunched the numbers for all the airlines and determined America West will be in a critical cash situation by next summer if oil prices remain at current levels.
Parker has repeatedly said America West is committed to keeping a relative cash hoard because it was the first airline to ask for a government loan after the Sept. 11, 2001, terrorist attacks and never wants to be seen as the industry weakling again.
Garfinkle said the financing of a deal could be such that America West's cash outlay might be minimal.
"America West is blessed with one of the smartest management teams in the industry," Garfinkle said.
"If they go about this cautiously and prudently, which I expect they will, it could turn out to be something nice for them."
Reach the reporter at [email protected] or (602) 444-8617.
[/font]
ATA deal may be on AmWest radar
Dawn Gilbertson
The Arizona Republic
Oct. 15, 2004 12:00 AM
[font=arial,helvetica,sans-serif]At an airline industry conference at the Phoenician resort last year, talk turned to the likelihood of mergers between low-cost carriers.
After his remarks on the subject, the chief executive of ATA Airlines nodded to America West Airlines CEO Doug Parker and jokingly suggested that the two might pair up some day, attendees recall.
The comment was in jest, conference moderator and veteran industry consultant Mo Garfinkle said, because "at that point neither one was weak or strong compared to the other." advertisementhttp://www.azcentral.com/imgs/clear.gifOAS_AD('BoxAd')http://www.azcentral.com/imgs/clear.gif
The same can't be said today, which is why Tempe-based America West Airlines reportedly is sizing up struggling ATA as a way to grow the airline on the cheap. Speculation on a possible deal has been rampant for weeks, and the Wall Street Journal reported Thursday that unnamed sources confirmed that America West is in talks to buy all or part of ATA.
The news caused investors to bid up ATA's stock Thursday to $2.85, up 21 cents, or 8 percent. America West's stock closed at $4.90, up 6 cents, or 1.2 percent.
ATA, an Indianapolis-based airline best known in Phoenix for its handful of flights to the Midwest and Hawaii, has been losing money and is running out of cash. It has publicly warned that it won't have enough cash to meet its bills in the first quarter and has been feverishly working behind the scenes to restructure its finances.
The company has hired an investment bank and consulting firm, Seabury Group, to shop some of its assets.
Many analysts have the company on bankruptcy watch.
America West, on the other hand, has reported a string of quarterly profits, among the handful of carriers to do so. It did just warn, however, that it will post losses the next two quarters due to sky-high fuel prices and weak airfares due to heavy competition.
The Tempe company's balance sheet, while still loaded with debt, is the best it has been in years, and Parker brags about its cash position. At the end of June, it had $478 million in unrestricted cashon hand.
Analysts and other experts say America West, which like ATA has not commented on the speculation, sees an opportunity to pick up some assets at bargain prices.
They say America West likely is most attracted to ATA's planes, brand-new Boeing 757s and 737s, and its strong operations at Chicago's Midway Airport, the close-in airport on the city's south side. America West currently only serves mammoth O'Hare International Airport in the suburbs.
ATA has 14 gates at Midway and is the No. 1 airline there based on passengers. Southwest Airlines also is big, with 19 gates and about 145 daily departures. Southwest also has been rumored to have an interest in growing in Chicago.
Southwest CEO Gary Kelly told analysts Thursday that it would be interested in some, but not all, of ATA's gates if the airline were to abandon them.
Garfinkle and others said America West is well accustomed to going up against Southwest, given the two airlines' competing beachheads in Phoenix and Las Vegas.
"They'd get a nice position in a very large market" by taking over ATA's operation at Midway, Garfinkle said.
Shoring up route map
Some analysts say America West needs to shore up its route map. In a report last week after the airline warned of the losses for the third and fourth quarter, Jamie Baker of JPMorgan praised the airline's low costs but said it "seems incapable of figuring out where best to fly." The airline has been criticized for launching non-stop flights between New York and Boston and Los Angeles and San Francisco, where competition for business travelers is brutal.
Another possible attraction of ATA to America West, depending on the scope of any deal, includes a foothold in Hawaii. ATA is the carrier behind many vacation packages to Hawaii. Out of Phoenix, it flies non-stop to Honolulu and Maui. Flights from California to Hawaii, which ATA also offers, represent a huge market.
ATA's 757s are certified to fly the long, over-water distance to Hawaii. America West flew to Hawaii years ago, but with the larger, more expensive Boeing 747, and had to abandon the money-losing route.
Garfinkle thinks the chances of a deal are "reasonably high" but doesn't expect an outright purchase of ATA's shares by America West, as often happens in a corporate buyout.
One airline analyst, who asked not to be identified, said that such a move would be "incredibly foolish" given ATA's shaky financial condition.
The scenario they envision is a purchase of assets or a buyout offer conditioned upon a prepackaged bankruptcy filing. The latter offers a better deal on the assets and more protections for the buyers.
Garfinkle, chairman and CEO of GCW Consulting, noted that Texas Pacific Group, which controls the voting stock of America West, has significant experience with such deals and is likely involved in this one, either as a partner or adviser. TPG is led by Texas financier David Bonderman and has a representative on America West's board of directors. Other parties, including aircraft manufacturers and lessors, also would likely be involved in such a scenario.
"This is not a deal that is just a two-party deal," said Garfinkle, whose clients have included Sky Harbor International Airport.
Some wary of deal
Not everyone is enamored of the prospect of an America West-ATA deal, given the sorry state of the industry. Just about every airline but Southwest is forecast to lose money this quarter due to the double whammy of surging fuel prices and too many seats chasing too few passengers. The prospect of either problem easing in the short term is not good.
"They will be grossly overextending themselves to make a purchase of this airline," said Jim Corridore, airline analyst for Standard & Poor's.
The only caveat, he said, would be if they get fire-sale prices, he said.
Corridore said airlines should be conserving cash, not spending it to buy another airline. He said America West is certainly in better financial shape than in the past but still has to watch its cash, especially during the industry's current slow season.
One Wall Street analyst recently crunched the numbers for all the airlines and determined America West will be in a critical cash situation by next summer if oil prices remain at current levels.
Parker has repeatedly said America West is committed to keeping a relative cash hoard because it was the first airline to ask for a government loan after the Sept. 11, 2001, terrorist attacks and never wants to be seen as the industry weakling again.
Garfinkle said the financing of a deal could be such that America West's cash outlay might be minimal.
"America West is blessed with one of the smartest management teams in the industry," Garfinkle said.
"If they go about this cautiously and prudently, which I expect they will, it could turn out to be something nice for them."
Reach the reporter at [email protected] or (602) 444-8617.
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