[font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=+2]Tough talks ahead for ATA
[/size][/font][font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]AirTran plan gives company lift going into bankruptcy, but creditors must buy in[/size][/font] [font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]By Chris O'Malley[/size][/font][font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]
IBJ Reporter[/size][/font]
[font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]Who's to blame for ATA's troubles?
[/size][/font]
[font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]A deal to unload its gates at Chicago Midway Airport and two other cities for $87.5 million gives ATA Holdings Corp. a big advantage going into bankruptcy reorganization, experts say, both in negotiating better terms on its aircraft lease debt and in getting short-term financing to keep flying.
The pre-bankruptcy deal with Orlando-based AirTran Airways raises questions, though, of just how much ATA's biggest creditors--aircraft leasing companies owed more than $500 million in the next two years--are engaged in and supportive of the reorganization.
That support is key to whether ATA emerges from bankruptcy substantially intact rather than sold, either whole or in parts, to other companies such as America West Airlines, which has already expressed interest in the airline.
ATA officials won't discuss how confident they are that aircraft lease companies, including Boeing Capital and GE Capital, will agree to restructure leases on ATA's new Boeing 737s and 757s.
While the airline did not file a "pre-packaged" bankruptcy--with formal arrangements sewed up with its major creditors--the carrier may have garnered at least a nodding approval from key creditors.
ATA Chairman and CEO George Mikelsons boasted, shortly after filing Chapter 11 on Oct. 26, that ATA "will be here tomorrow, and the next day and at least for another 30 years."
"We had conversations prior to our Chapter 11 filing with virtually all of our major creditor constituents," said James Carr, an attorney at ATA's Indianapolis law firm, Baker & Daniels.
He declined to elaborate.
Whatever the degree of creditor cooperation, the deal with AirTran will bring cash crucial for negotiating leverage, said Charles Greer, former head of the creditors' rights practice at Indianapolis law firm Ice Miller.
"It makes them more credible to GE Capital or Boeing or any of the other aircraft financers," said Greer, who now runs a consulting firm to help troubled companies.
More immediately, the AirTran commitment should help take some pressure off ATA in finding debtor-in-possession financing to keep flying, Greer added. Records show ATA has only $21.7 million in available cash--most of it pledged to secure a $168 million loan backed by the Air Transportation Stabilization Board.
More ominously, ATA remains at the mercy of its aircraft leasing companies, which represent the bulk of its debt. Under bankruptcy law, those firms could recover aircraft after 60 days, said Marc Kieselstein, an attorney at Chicago law firm Kirkland & Ellis who is involved in Chicago-based United Airlines' bankruptcy reorganization.
"There's tons of legal leverage for aircraft financiers. But in a depressed economic environment [for airlines], it's sort of like, 'So what?"'
Working in ATA's favor is an overcapacity of aircraft since the 2001 terrorist attacks that slowed air travel, and the subsequent bankruptcies of Virginia-based US Airways and United Airlines. Atlanta-based Delta Airlines is on the verge of bankruptcy and ATA's demise would idle more than 50 newer Boeing aircraft.
"If there's not a home for that plane, if you repossess it, you have to insure it. You have to store it out in the desert. There's all kinds of costs," Kieselstein said.
At the same time, leasing companies must weigh the long-term prospects of ATA, he said. Are they willing to accept less in lease payments if the airline is not going to survive?
One solution, analysts suggest, is for Boeing to take back some planes in exchange for leasing ATA Boeing 717s--updated versions of the McDonnell Douglass DC-9/MD-80 line that seat about 120 passengers.
Boeing is eager to move 717s, which have taken a back seat in sales to newer-generation aircraft such as Brazil's Embraer regional jets. AirTran is a big customer for 717s and said the smaller planes are a better fit at Midway than are ATA's 737s, which seat about 175.
Mikelsons last week reiterated his intention to acquire smaller aircraft and serve secondary cities with point-to-point service.
But, already, there are some who wonder if ATA can make another go of it in an industry where "they underprice their product, the labor costs are out of line, and then you get a fuel spike [that] tips everybody over," said Kenneth Skarbeck, a principal of Aldebaran Capital Management in Indianapolis.
On Oct. 27, credit ratings agency Standard & Poor's questioned whether a reorganized ATA could make money as a smaller carrier stripped of its Chicago hub gates.
Although ATA could continue to use some of its older planes for charter operations, "the company's change in strategy and the loss of its strong Midway franchise could constrain its long-term viability," S&P warned as part of another downgrade in the airline's credit.
"They used to talk about Midway as their crown jewel," said S&P analyst Betsy R. Snyder, who added that she's dubious of ATA's plan to use Indianapolis as a hub.
She is not alone.
"I don't have high hopes to be honest with you. ... I just don't think Indianapolis is significant enough of a market for a hub operation," said Alan Bender, an airline economist at Embry-Riddle Aeronautical University.
"Clearly, there's still revenue to be generated if he's able to get good prices from selling off things," Bender said of Mikelsons. "But in today's competitive environment, I'd be hard pressed to think of something he might do."
ATA does have some things going for it that some airlines don't--its military and leisure charter business, said Clark Orsky, an analyst at Vermont-based KDP Investment Advisors.
"The bottom line is, how can you make money?" said Mike Miller, president of Washington, D.C.-based Velocity Group, an airline industry consulting firm. "Just because you shrink doesn't mean you can be profitable."--[/size][/font]
[/size][/font][font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]AirTran plan gives company lift going into bankruptcy, but creditors must buy in[/size][/font] [font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]By Chris O'Malley[/size][/font][font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]
IBJ Reporter[/size][/font]
[font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]Who's to blame for ATA's troubles?
[/size][/font]
[font=Arial,Helvetica,Geneva,Sans-serif,sans-serif][size=-1]A deal to unload its gates at Chicago Midway Airport and two other cities for $87.5 million gives ATA Holdings Corp. a big advantage going into bankruptcy reorganization, experts say, both in negotiating better terms on its aircraft lease debt and in getting short-term financing to keep flying.
The pre-bankruptcy deal with Orlando-based AirTran Airways raises questions, though, of just how much ATA's biggest creditors--aircraft leasing companies owed more than $500 million in the next two years--are engaged in and supportive of the reorganization.
That support is key to whether ATA emerges from bankruptcy substantially intact rather than sold, either whole or in parts, to other companies such as America West Airlines, which has already expressed interest in the airline.
ATA officials won't discuss how confident they are that aircraft lease companies, including Boeing Capital and GE Capital, will agree to restructure leases on ATA's new Boeing 737s and 757s.
While the airline did not file a "pre-packaged" bankruptcy--with formal arrangements sewed up with its major creditors--the carrier may have garnered at least a nodding approval from key creditors.
ATA Chairman and CEO George Mikelsons boasted, shortly after filing Chapter 11 on Oct. 26, that ATA "will be here tomorrow, and the next day and at least for another 30 years."
"We had conversations prior to our Chapter 11 filing with virtually all of our major creditor constituents," said James Carr, an attorney at ATA's Indianapolis law firm, Baker & Daniels.
He declined to elaborate.
Whatever the degree of creditor cooperation, the deal with AirTran will bring cash crucial for negotiating leverage, said Charles Greer, former head of the creditors' rights practice at Indianapolis law firm Ice Miller.
"It makes them more credible to GE Capital or Boeing or any of the other aircraft financers," said Greer, who now runs a consulting firm to help troubled companies.
More immediately, the AirTran commitment should help take some pressure off ATA in finding debtor-in-possession financing to keep flying, Greer added. Records show ATA has only $21.7 million in available cash--most of it pledged to secure a $168 million loan backed by the Air Transportation Stabilization Board.
More ominously, ATA remains at the mercy of its aircraft leasing companies, which represent the bulk of its debt. Under bankruptcy law, those firms could recover aircraft after 60 days, said Marc Kieselstein, an attorney at Chicago law firm Kirkland & Ellis who is involved in Chicago-based United Airlines' bankruptcy reorganization.
"There's tons of legal leverage for aircraft financiers. But in a depressed economic environment [for airlines], it's sort of like, 'So what?"'
Working in ATA's favor is an overcapacity of aircraft since the 2001 terrorist attacks that slowed air travel, and the subsequent bankruptcies of Virginia-based US Airways and United Airlines. Atlanta-based Delta Airlines is on the verge of bankruptcy and ATA's demise would idle more than 50 newer Boeing aircraft.
"If there's not a home for that plane, if you repossess it, you have to insure it. You have to store it out in the desert. There's all kinds of costs," Kieselstein said.
At the same time, leasing companies must weigh the long-term prospects of ATA, he said. Are they willing to accept less in lease payments if the airline is not going to survive?
One solution, analysts suggest, is for Boeing to take back some planes in exchange for leasing ATA Boeing 717s--updated versions of the McDonnell Douglass DC-9/MD-80 line that seat about 120 passengers.
Boeing is eager to move 717s, which have taken a back seat in sales to newer-generation aircraft such as Brazil's Embraer regional jets. AirTran is a big customer for 717s and said the smaller planes are a better fit at Midway than are ATA's 737s, which seat about 175.
Mikelsons last week reiterated his intention to acquire smaller aircraft and serve secondary cities with point-to-point service.
But, already, there are some who wonder if ATA can make another go of it in an industry where "they underprice their product, the labor costs are out of line, and then you get a fuel spike [that] tips everybody over," said Kenneth Skarbeck, a principal of Aldebaran Capital Management in Indianapolis.
On Oct. 27, credit ratings agency Standard & Poor's questioned whether a reorganized ATA could make money as a smaller carrier stripped of its Chicago hub gates.
Although ATA could continue to use some of its older planes for charter operations, "the company's change in strategy and the loss of its strong Midway franchise could constrain its long-term viability," S&P warned as part of another downgrade in the airline's credit.
"They used to talk about Midway as their crown jewel," said S&P analyst Betsy R. Snyder, who added that she's dubious of ATA's plan to use Indianapolis as a hub.
She is not alone.
"I don't have high hopes to be honest with you. ... I just don't think Indianapolis is significant enough of a market for a hub operation," said Alan Bender, an airline economist at Embry-Riddle Aeronautical University.
"Clearly, there's still revenue to be generated if he's able to get good prices from selling off things," Bender said of Mikelsons. "But in today's competitive environment, I'd be hard pressed to think of something he might do."
ATA does have some things going for it that some airlines don't--its military and leisure charter business, said Clark Orsky, an analyst at Vermont-based KDP Investment Advisors.
"The bottom line is, how can you make money?" said Mike Miller, president of Washington, D.C.-based Velocity Group, an airline industry consulting firm. "Just because you shrink doesn't mean you can be profitable."--[/size][/font]
