On the subject of ATA....
This is an article from Aviation Week within the last month
Going for Broke
In moves that will make or break its attempts to survive the next two years without filing for bankruptcy protection, ATA Airlines has launched an exchange offer to extend $300 million in current debt and has renegotiated aircraft and other equipment leases with Boeing, GE and ILFC.
ATA, the former American Trans Air and the 10th-largest U.S. airline, said the restructured debt would reduce 2004-05 payments by $255 million, and the lease deals would cut its costs more than $40 million during the rest of this year and nearly $70 million in 2004-05. The carrier also made clear that the new lease terms are contingent on at least 85% acceptance of the debt exchange offer by its creditors, and that if either initiative fails, "the company may be forced to restructure its debts in bankruptcy." Its auditor, Ernst & Young, went further--under current conditions, it is "unlikely that the company will be able to meet its scheduled operating lease obligations beginning in 2004 and repay its debt when it matures."
KEPT AFLOAT BY LAST November's $168-million government-guaranteed six-year term loan but unable to borrow more, ATA laid the foundation for its current approach even as it announced a $40.8-million net profit for the second quarter--more than 90% of it from a federal security-fee refund. At that time, officials said they thought the carrier could survive the rest of 2003 on its $186 million in cash plus whatever it could bring in through operations, but it wouldn't be able to make surging debt and lease payments starting in 2004 (see table). The company began talks with lessors and brought in Citigroup and Morgan Stanley to consult on its debt (AW&ST Aug. 4, p. 37).
ATA's solution is straightforward--if creditors will accept it. Faced with paying off $175 million in senior notes in August 2004 and $125 million more in December 2005, the carrier proposes to extend the notes through 2009 and 2010, respectively. The interest rates would increase by 0.5%, to 11% and 10.125%.
Changes in the lease agreements would vary in detail. ATA would extend its deals with Boeing Capital Services Corp. and General Electric Capital Aviation Services by two years, deferring until later years payments now due through Mar. 31, 2005 (Boeing) and June 30, 2005 (Gecas). Under the Boeing agreement, delivery of seven on-order 737-800 aircraft would be deferred from 2004 to 2005. Gecas' commitment to finance five 737-800s would be dropped. International Lease Finance Corp. would reduce payments, without extensions, during the terms of leases for 15 aircraft, two of them not yet delivered.
Contingencies complicate the lease deals. All three require completion of the exchange offers, and GE's and ILFC's require that ATA extend its credit card processing agreement under terms comparable to those of the 2003 contract year. That won't be as straightforward as it sounds.
According to ATA's second-quarter filing to the Securities and Exchange Commission, the bank that processes and collects MasterCard and Visa card charges--U.S.Bank, a company spokesperson said--has been withholding a portion of payments for flights that are paid for but not yet operated. The theory is that the customer would be due a refund if ATA didn't operate the flight, and the bank would be liable for the refund if ATA didn't pay it. The bank began withholding cash soon after the September 2001 terrorist attacks, citing aviation industry uncertainty, and this deposit now amounts to about 60% of ATA's future obligations. If ATA fails to meet restrictive covenants in its contract, the bank can increase the deposit to 75% or even 100%.
The agreement with the bank expires Dec. 31 but renews automatically unless either party withdraws. ATA told the SEC it "can give no assurance that this agreement will be renewed, or that the company will be able to enter into a new agreement with another bank on comparable terms, or at all."
In a nightmare scenario, failure to keep up with payments under the leases, or for the senior notes, would amount to a default and would trigger cross-defaults, including the government-guaranteed loan. That loan also includes a covenant requiring ATA to maintain a $40-million cash balance. In a default, obligations under the notes might be accelerated for immediate payment and lessors might repossess aircraft, shutting ATA down.