Fallingbrick said:
The Do-Jets will be gone on Nov. 1
Associated Press
Analyst: Delta Troubles Could Sink FLYi
Tuesday October 19, 3:39 pm ET
NEW YORK (AP) -- Just four months after converting to a low-cost airline, FLYi Inc. faces potential bankruptcy as soon as January amid concerns over mounting oil prices and the deteriorating financial situation at Delta Air Lines Inc., an analyst said Tuesday.
UBS Investment Bank analyst Robert Ashcroft said he expects FLYi's September plane occupancy to be flat compared with August, when the airline's load factor declined to 45.1 percent from 47.1 percent. He noted that the carrier's late reporting of last month's traffic could signal disappointing figures.
With the added pressure of oil prices lingering in the $50-per-barrel range, FLYi -- now operating as Independence Air -- could see its yearly expenses soar by as much as $100 million, he said.
"It's clear to us that FLYi's business plan isn't working," Ashcroft wrote in a research note, adding that the former regional carrier based its discount concept on oil prices of about $30 per barrel and has not hedged against higher costs by purchasing fuel in advance. In recent trading, crude oil was down 72 cents to $52.95 per barrel on the New York Mercantile Exchange.
The analyst downgraded FLYi to "Sell" from "Hold" while lowering Delta two notches to "Sell" from "Buy," joining the ranks of analysts that say Delta's September cash balance of $1.45 billion is "already in the danger zone" of necessitating a trip into Chapter 11.
Delta's looming bankruptcy filing, which Ashcroft expects in the near future, would give FLYi the extra burden of making rent payments on 30 planes it used to operate as a regional arm of Delta. Unable to assume lease liability for the jets because of its poor credit rating, Delta is "highly likely to walk away" from the planes, he said.
Ashcroft's report grounded shares of FLYi, which sank 26.5 percent or 90 cents, to $2.50 in midday Nasdaq activity. Meanwhile, Delta descended 4.5 percent, or 14 cents, to $2.97 on the New York Stock Exchange.
The analyst's forecast comes after industry observers last week watched several major U.S. airlines scour for ways to cut costs and stave off financial failure. The American Stock Exchange Airline Index retreated 2.7 percent, or 1.15 points, to 41.36 points in afternoon trading. FLYi's clouded future could dash the hopes of U.S. Airways Group Inc., which on Monday unveiled its plan to reorganize into a low-cost carrier in an effort to emerge from its second bankruptcy in four years.
