Official: Airline to File Bankruptcy
Tue Jul 30,12:09 AM ET
KANSAS CITY, Mo. (AP) - Vanguard Airlines, an 8-year-old carrier that has struggled to become profitable, plans to file for bankruptcy, the city's aviation director said.
"I was told by a senior executive that Vanguard would be declaring bankruptcy tomorrow," Russell Widmar said late Monday, adding that he expected to "get a fairly good briefing" sometime Tuesday.
Company spokesman Alan Carr, reached at his home, said, "I can't tell you anything."
At the company's headquarters in suburban Mission, Kan., a recorded message said all circuits were busy. The airline's Web site was blank, save for a link to Frontier Airlines.
A telephone message left Monday night for David Rescino, Vanguard's chief financial officer, by The Associated Press was not immediately returned.
One of the start-up carriers that proliferated nationwide in the 1990s, Vanguard was operating 32 flights a day out of its Kansas City base in late June.
Its most recent schedules listed 18 cities, including Kansas City, Atlanta, Austin, Buffalo/Niagra Falls, Chicago, Colorado Springs, Dallas/Fort Worth, Denver, Fort Lauderdale, Fla., Las Vegas, Los Angeles, Myrtle Beach, S.C. New Orleans, New York, Orlando, Fla., Pittsburgh, San Francisco and Seattle.
The carrier has a fleet of six Boeing 737s and seven MD-80s.
The company had sought a government-backed loan under a program created to help the industry recover from the Sept. 11 terrorist attacks, but was denied, despite reducing its initial request from $60 million to $13.5 million
Vanguard appears on brink of bankruptcy
By RANDOLPH HEASTER
The Kansas City Star
DELORES JOHNSON/The Kansas City Star
After more than seven years of struggling to find a niche in the Kansas City airline industry, Vanguard Airlines Inc. appeared on the brink of bankruptcy late Monday evening.
Kansas City Aviation Department Director Russ Widmar said the company was planning a press conference for today. But he remained unclear exactly what the airline planned to announce.
"What I've been told is Vanguard is filing for bankruptcy," said Widmar, who had been briefed by one senior Vanguard executive. "I heard it was a Chapter 11 filing, which would at least open the door for a reorganization."
Widmar said he was unsure whether the airline would be flying today.
Sources at the airline could not be reached immediately for comment.
Vanguard's plight affects nearly 1,100 employees, including about 915 in the Kansas City area. Some of the airline's employees were told not to report to work today.
The airline's health also affects thousands of Vanguard customers on the airline's 35 flights a day out of Kansas City.
It remained unclear late Monday what customers with tickets should do. Vanguard employees were passing out vouchers for one flight to Los Angeles that was canceled late in the evening. One Vanguard customer reported that the airline's Web site was linking customers to Frontier Airlines late Monday. The Web site could not be accessed late Monday night.
A Vanguard bankruptcy would come two months after a federal board rejected the company's request for a loan guarantee. On June 27, the airline filed its fourth application with the Air Transportation Stabilization Board, requesting that the government guarantee $35 million of a $40 million loan.
Vanguard's problems, in part, reflect the ongoing problems airlines are having in the wake of the Sept. 11 terrorist attacks. It also represents another setback for the Kansas City economy, coming the heels of recent bankruptcies by Farmland Industries Inc. in late May and Birch Telecom Inc. on Monday, and mass layoffs at Sprint Corp.
But Vanguard's problems cannot be considered surprising after years of mounting losses, a dwindling cash supply and a lack of new investors.
" `Vanguard is out of time, out of cash and out of options' is the way it was described to me," said one aviation analyst, who declined to be identified because of business relationships with the airline.
Throughout its history, Vanguard has failed to post an annual profit. The company reported five profitable quarters from 1997 to 1999, but the airline reverted back to huge losses after that. Vanguard lost $26 million in 2000 and nearly $32 million in 2001.
According to the company's annual filing with the Securities and Exchange Commission for 2001, Vanguard has accumulated $133 million in losses since starting operations in December 1994. The company reported cash on hand of $3.3 million as of March 31.
Vanguard began as a discount airline headed by Robert J. McAdoo, the one-time Peoples Express executive who tried to apply the low-cost formula to the Kansas City market.
McAdoo was the first of five CEOs who tried to make Vanguard a viable airline. Since its inception, Vanguard had a high turnover rate of top executives and constantly changed its operating strategy.
The result was that Vanguard frequently pulled in and out of markets, confusing travelers as to which cities the airline flew. Customer service also suffered, and Vanguard became known throughout the industry as an unreliable airline with frequent delays and cancellations.
Attempts to address Vanguard's problems began with Jeff Potter, who was hired in May 2000. At the time of Potter's arrival, Vanguard was focusing on building a Chicago hub at Midway Airport.
However, Potter reduced Vanguard's Chicago operations and devised a strategy to build a Kansas City hub, linking East and West coast cities with cheaper fares than the major airlines. Potter also emphasized trying to improve Vanguard's customer service and make the airline more reliable. The airline began converting to more efficient MD-80 aircraft from its Boeing 737s under Potter's tenure.
Potter left last year, lured back by Frontier, of which he is now the CEO. Scott Dickson succeeded Potter in May 2001 and tried to carry out Potter's strategy.
Airline analysts and travel agents began to praise Vanguard's improvements once it focused on a Kansas City hub. Passenger statistics for the past year showed sharp increases, and the airline's on-time performance also improved.
"It took Vanguard a while to get organized, but they now seem to have their act together," said Terry Trippler, a Minneapolis travel consultant, earlier this year.
Analysts and travel agents also gave Vanguard much of the credit for helping to keep air fares low in the Kansas City market. Vanguard flew nonstop to most of the popular destinations from Kansas City, selling cheaper tickets and forcing the major carriers to offer competitive prices.
Vanguard President Scott Dickson estimated the airline saved Kansas City area air travelers $150 million annually with its lower fares.
Still, Vanguard continued to lose huge amounts of money and continued to have trouble luring business travelers, the more profitable group of airline customers.
To maintain an adequate amount of cash, the company frequently required additional equity and debt financings from its principal owners, San Franciso-based investor William Hambrecht and the J.F. Shea Co.
In the middle of its attempt to turn its fortunes around, Vanguard and the rest of the airline industry were hit with the events of Sept. 11. While bigger and more financially sound airlines have been suffering since, the terrorist attacks exacerbated an already dire financial situation at Vanguard.
In its filings with the SEC, Vanguard said its insurance premiums rose by 170 percent after Sept. 11. In addition, one creditor had threatened to put Vanguard into involuntary bankruptcy proceedings, according to the filing.
Furthermore, Vanguard often sought to defer payments on leases on aircraft and airport gates as losses mounted in the past two years.
As a result, several aviation analysts began to wonder whether Vanguard found the right strategy for success too late in its checkered history.
Last December, Vanguard was de-listed from the Nasdaq market for failing to meet capitalization requirements. In same month, Vanguard made its initial application for a loan guarantee with the Air Transportation Stabilization Board, which was created to aid airlines following the Sept. 11 attacks.
In past seven months, Vanguard aggressively added flights out of Kansas City, saying a critical mass of operations needed to be built to become profitable. Vanguard held two job fairs early in the year because more workers were needed to adequately staff its summer schedule.
Perhaps the final setback came in May when the ATSB rejected Vanguard's loan-guarantee request. After reworking its application several times and reducing its loan package, Vanguard could not get the federal government to guarantee $13.5 million of a $15 million loan.
ATSB said at the time that Vanguard did not provide reasonable assurance that it could repay the loan, given its current financial condition. Vanguard executives complained that the ATSB was judging the airline from its 1990s history instead of from the improvements made in the past 18 months.
Last month, Vanguard submitted another loan-guarantee application prior to the ATSB's final deadline. However, the company did not identify the source of the proposed loan.
One industry analyst said that Hambrecht, one of Vanguard's principal owners, recently tried to float a $25 million equity offering for Vanguard, but without success.
Monday night, Vanguard threatened to follow the ghosts of Eastern and Braniff, becoming another commercial airline that failed to establish a hub in Kansas City.