Franky4Fingers
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Downgrade hits Independence Air
Stock tumbles 26 percent over viability concerns
By Matt Andrejczak, CBS.MarketWatch.com
Last Update: 3:07 PM ET Oct. 19, 2004 http://www.marketwatch.com/rss/default.asp?dist=rsstop&siteid=yhooSAN FRANCISCO (CBS.MW) - Independence Air tumbled more than 26 percent Tuesday over fresh concerns the fledgling low-fare carrier might fail before it succeeds.
UBS downgraded its parent FLYi to "reduce" from "neutral," noting the airline's business plan has not met targets.
UBS warned Independence Air could slide into Chapter 11 bankruptcy filing in January when a large aircraft rent payment comes due. Industry analysts peg the semi-annual payment on the 50-seat jets between $60 million to $100 million.
"It's clear to us that FLYi's business plan is not working," UBS analyst Robert Ashcroft wrote in a research note. "We believe the chance of (a) FLYi Ch. 11 is about 65 percent."
Shares of Independence Air (FLYI: news, chart, profile) fell 89 cents to $2.51 in late afternoon trading.
Independence Air, based in Dulles, Va., was born in June when it launched service after severing its ties with United Airlines parent UAL Corp. and Delta Air Lines. It offers about 300 daily flights, many to smaller cities along the eastern seaboard.
Analysts have wondered for months whether Independence Air would be able to outlive weak U.S. fares and stratospheric fuel prices in its quest to become the next Southwest Airlines or JetBlue Airways.
BB&T Capital Markets predicts the airline's cash balance will fall to about $100 million by early next year and that it will not turn a profitable quarter until 2006 at the earliest.
Independence Air's business plan was written with crude oil at $30 a barrel, UBS added. The airline has not hedged its fuel requirements to safeguard against rising oil costs, which will raise expenses.
Industry events, analysts point out, could turn into Independence Air's favor -- such as US Airways Group liquidating or UAL pulling back on flights from Washington-Dulles International Airport.
Independence Air competes on about a third of the flights US Airways offers, while UAL has announced plans to pare its U.S. flights but has not publicly stated where.
Analysts add one looming problem is a Delta bankruptcy.
That could further saddle Independence Air with rent payments on 30 regional jets that do not fit its plan. Potential write-offs would translate into losses in the range of $100 to $150 million, UBS said.
Independence Air used to fly regional flights for Delta and has been unsuccessful in transferring the aircraft leases to Delta because of its poor credit. The jets are now in storage.
An Independence Air spokesman could not be reached for comment. The airline will release its third-quarter results Oct. 27.
Stock tumbles 26 percent over viability concerns
Last Update: 3:07 PM ET Oct. 19, 2004 http://www.marketwatch.com/rss/default.asp?dist=rsstop&siteid=yhooSAN FRANCISCO (CBS.MW) - Independence Air tumbled more than 26 percent Tuesday over fresh concerns the fledgling low-fare carrier might fail before it succeeds.
UBS downgraded its parent FLYi to "reduce" from "neutral," noting the airline's business plan has not met targets.
UBS warned Independence Air could slide into Chapter 11 bankruptcy filing in January when a large aircraft rent payment comes due. Industry analysts peg the semi-annual payment on the 50-seat jets between $60 million to $100 million.
"It's clear to us that FLYi's business plan is not working," UBS analyst Robert Ashcroft wrote in a research note. "We believe the chance of (a) FLYi Ch. 11 is about 65 percent."
Shares of Independence Air (FLYI: news, chart, profile) fell 89 cents to $2.51 in late afternoon trading.
Independence Air, based in Dulles, Va., was born in June when it launched service after severing its ties with United Airlines parent UAL Corp. and Delta Air Lines. It offers about 300 daily flights, many to smaller cities along the eastern seaboard.
Analysts have wondered for months whether Independence Air would be able to outlive weak U.S. fares and stratospheric fuel prices in its quest to become the next Southwest Airlines or JetBlue Airways.
BB&T Capital Markets predicts the airline's cash balance will fall to about $100 million by early next year and that it will not turn a profitable quarter until 2006 at the earliest.
Independence Air's business plan was written with crude oil at $30 a barrel, UBS added. The airline has not hedged its fuel requirements to safeguard against rising oil costs, which will raise expenses.
Industry events, analysts point out, could turn into Independence Air's favor -- such as US Airways Group liquidating or UAL pulling back on flights from Washington-Dulles International Airport.
Independence Air competes on about a third of the flights US Airways offers, while UAL has announced plans to pare its U.S. flights but has not publicly stated where.
Analysts add one looming problem is a Delta bankruptcy.
That could further saddle Independence Air with rent payments on 30 regional jets that do not fit its plan. Potential write-offs would translate into losses in the range of $100 to $150 million, UBS said.
Independence Air used to fly regional flights for Delta and has been unsuccessful in transferring the aircraft leases to Delta because of its poor credit. The jets are now in storage.
An Independence Air spokesman could not be reached for comment. The airline will release its third-quarter results Oct. 27.
