Southwest is seeking control of ATA
By Ted Evanoff
[email protected]
December 14, 2004
Southwest Airlines would take almost complete control of ATA Airlines under a bold proposal discussed Monday with ATA and its creditors.
If a bankruptcy judge approves, Southwest would oust ATA senior executives, inject $47 million in cash, take a 35 percent stake in the Indianapolis carrier and name new senior managers who would quickly work to cut labor costs 15 percent to 20 percent, according to a draft copy of Southwest's plans prepared for ATA's bankruptcy auction.
The draft copy, obtained Monday night by The Indianapolis Star, is part of Southwest's $100 million bid for six ATA gates at Chicago Midway. The document gives the first indication that Southwest is attempting to win the backing of major ATA creditors over a rival $89.3 million bid ATA and AirTran Airways of Orlando negotiated early this fall.
Under Southwest's proposal, creditors would be offered new shares in ATA and a hand in choosing its board members.
Approval of the Southwest plan would appear to hand ATA Chairman J. George Mikelsons a significant defeat.
He not only would lose his position as chairman, he would also lose control of the direction of the airline he founded in 1972 and he might lose most of his 69 percent stake in ATA.
Mikelsons, 67, set out to scale down his 7,700-employee airline by filing for bankruptcy protection Oct. 26. The Latvian emigrant intended for ATA to emerge from bankruptcy as a smaller carrier centered on Indianapolis using cash from the AirTran deal.
Lawyers for ATA, lenders and creditors are expected to finish a two-day meeting today in Indianapolis that was set up to review the bids placed by Southwest and AirTran for the Midway operations. Southwest's proposal was discussed Monday.
The draft copy, labeled a "proposed (joint) plan of reorganization," is a blueprint for how ATA would be run after it leaves bankruptcy.
The copy was prepared by Southwest ahead of last Friday's bid deadline.
U.S. Bankruptcy Judge Basil Lorch III is scheduled to pick a winning bid Thursday after hearing recommendations from ATA and its creditors, which include an array of aircraft lenders such as Boeing Capital and General Electric Capital Corp.
Southwest entered the bid process, however, with an offer that could satisfy creditors interested in being repaid.
The draft copy would give creditors new stock in what is called a "New ATA," a common tactic in bankruptcy reorganizations.
It would also earmark $85 million for a federal agency, the Air Transportation Stabilization Board, that guaranteed $140 million in ATA loans.
In an industry riddled by fare wares and high fuel prices, Southwest ranks among the strongest carriers, financially. It is known as a fast, efficient operator that often flies from second-tier airports to avoid direct competition with major airlines -- and has been consistently profitable.
Lawyers for creditors and officials at Southwest and America West Airlines could not be reached for comment Monday night. AirTran and an ATA attorney declined comment.
AirTran proposed buying all 14 gates at Midway and would funnel passengers from its Atlanta and Baltimore hubs to ATA long-distance flights. As part of that proposal, the state of Indiana and the city of Indianapolis provided ATA with a $15.5 million emergency loan on the condition that ATA preserve at least 1,000 of its 2,300 Indianapolis jobs.
Southwest's offer for six ATA gates at Midway startled industry analysts because it included a code-share provision -- for only the second time in Southwest's history.
This would allow ATA to sell Southwest tickets to travelers who use both airlines on one trip, such as a passenger going to Indianapolis from Fort Worth, Texas, flying the first leg on Southwest and changing at Midway to an ATA flight.
Because the ticketing requires a complicated computer connection between the airlines, it works against long-held Southwest principles.
"If you read the gospel according to (Southwest Chairman) Herb Kelleher, it has three books: Simplicity, simplicity, simplicity," said David Field, Americas editor for the trade journal Airline Business.
"This is part of a defensive move" by Southwest, Field said, noting Southwest is offering the arrangement on fewer than 10 routes out of Midway. "They saw it as the only way to match what AirTran was offering" in code-sharing.
"If Southwest offers code-sharing, I understand that it could be very valuable for ATA," said ATA attorney Stephen Claffey before Monday's review began. "ATA has enormously profitable routes if they are properly supported."
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It early in the week and things are already getting hot! Let's see GM get out of this one!
By Ted Evanoff
[email protected]
December 14, 2004
Southwest Airlines would take almost complete control of ATA Airlines under a bold proposal discussed Monday with ATA and its creditors.
If a bankruptcy judge approves, Southwest would oust ATA senior executives, inject $47 million in cash, take a 35 percent stake in the Indianapolis carrier and name new senior managers who would quickly work to cut labor costs 15 percent to 20 percent, according to a draft copy of Southwest's plans prepared for ATA's bankruptcy auction.
The draft copy, obtained Monday night by The Indianapolis Star, is part of Southwest's $100 million bid for six ATA gates at Chicago Midway. The document gives the first indication that Southwest is attempting to win the backing of major ATA creditors over a rival $89.3 million bid ATA and AirTran Airways of Orlando negotiated early this fall.
Under Southwest's proposal, creditors would be offered new shares in ATA and a hand in choosing its board members.
Approval of the Southwest plan would appear to hand ATA Chairman J. George Mikelsons a significant defeat.
He not only would lose his position as chairman, he would also lose control of the direction of the airline he founded in 1972 and he might lose most of his 69 percent stake in ATA.
Mikelsons, 67, set out to scale down his 7,700-employee airline by filing for bankruptcy protection Oct. 26. The Latvian emigrant intended for ATA to emerge from bankruptcy as a smaller carrier centered on Indianapolis using cash from the AirTran deal.
Lawyers for ATA, lenders and creditors are expected to finish a two-day meeting today in Indianapolis that was set up to review the bids placed by Southwest and AirTran for the Midway operations. Southwest's proposal was discussed Monday.
The draft copy, labeled a "proposed (joint) plan of reorganization," is a blueprint for how ATA would be run after it leaves bankruptcy.
The copy was prepared by Southwest ahead of last Friday's bid deadline.
U.S. Bankruptcy Judge Basil Lorch III is scheduled to pick a winning bid Thursday after hearing recommendations from ATA and its creditors, which include an array of aircraft lenders such as Boeing Capital and General Electric Capital Corp.
Southwest entered the bid process, however, with an offer that could satisfy creditors interested in being repaid.
The draft copy would give creditors new stock in what is called a "New ATA," a common tactic in bankruptcy reorganizations.
It would also earmark $85 million for a federal agency, the Air Transportation Stabilization Board, that guaranteed $140 million in ATA loans.
In an industry riddled by fare wares and high fuel prices, Southwest ranks among the strongest carriers, financially. It is known as a fast, efficient operator that often flies from second-tier airports to avoid direct competition with major airlines -- and has been consistently profitable.
Lawyers for creditors and officials at Southwest and America West Airlines could not be reached for comment Monday night. AirTran and an ATA attorney declined comment.
AirTran proposed buying all 14 gates at Midway and would funnel passengers from its Atlanta and Baltimore hubs to ATA long-distance flights. As part of that proposal, the state of Indiana and the city of Indianapolis provided ATA with a $15.5 million emergency loan on the condition that ATA preserve at least 1,000 of its 2,300 Indianapolis jobs.
Southwest's offer for six ATA gates at Midway startled industry analysts because it included a code-share provision -- for only the second time in Southwest's history.
This would allow ATA to sell Southwest tickets to travelers who use both airlines on one trip, such as a passenger going to Indianapolis from Fort Worth, Texas, flying the first leg on Southwest and changing at Midway to an ATA flight.
Because the ticketing requires a complicated computer connection between the airlines, it works against long-held Southwest principles.
"If you read the gospel according to (Southwest Chairman) Herb Kelleher, it has three books: Simplicity, simplicity, simplicity," said David Field, Americas editor for the trade journal Airline Business.
"This is part of a defensive move" by Southwest, Field said, noting Southwest is offering the arrangement on fewer than 10 routes out of Midway. "They saw it as the only way to match what AirTran was offering" in code-sharing.
"If Southwest offers code-sharing, I understand that it could be very valuable for ATA," said ATA attorney Stephen Claffey before Monday's review began. "ATA has enormously profitable routes if they are properly supported."
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It early in the week and things are already getting hot! Let's see GM get out of this one!
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