Low-Cost Airline Enters Bankruptcy

The aircraft leases of ATA Holdings are priced at $100 million a year over market rates.
Stephen TaubOctober 28, 2004

Blaming excess capacity, extremely high fuel prices, which and descending fares, ATA Holdings Corp., parent of discount airline carrier ATA Airlines, said it has filed for bankruptcy.

Further J. George Mikelsons, chairman, chief executive officer, and majority owner of ATA said the company’s aircraft leases are $100 million a year over market rates, according to The Wall Street Journal. He said he hopes to renegotiate them during the reorganization process.

ATA stated that business will continue as usual and that a reorganization under Chapter 11 of the bankruptcy code would enable the airline to restore and strengthen its competitiveness as a low-cost carrier.

As part of ATA’s bankruptcy filing and reorganization plan, AirTran Airways, Inc. will pay ATA $87.6 million to assume the company’s flight operations, gate leases, and routes in Chicago’s Midway Airport, as well as arrival and departure slots at LaGuardia Airport and Ronald Reagan Washington National Airport, according to an ATA release.

Subject to approval by the city of Chicago and the U.S. Bankruptcy Court, the deal will take effect later this year or early next year, and will be finalized over the next several days, ATA stated.

In September 2002, the Air Transportation Stabilization Board (ATSB) conditionally approved a $148.5 million loan guarantee for ATA, according to The Wall Street Journal. In a statement, the ATSB said that “will work with the airline through the bankruptcy process to ensure that the taxpayers’ interests are protected.” The board added that it will take a close look at the proposed sale of asset to curb risks that the transaction may pose to taxpayers.

ATA will focus on the most profitable cornerstones of its business, according to Mikelsons. Those are commercial flights routed through the airline’s Indianapolis hub, flights to Hawaii, and military and commercial charter service. ATA will also continue to operate its Chicago Express connection service via Midway, and continue its Ambassadair Travel Club.

ATA is now trying to secure debtor-in-possession (DIP) financing from lenders. The ATSB is permitting ATA’s continued use of its cash collateral. Together with the company’s projected cash flow from operations, that should be enough funding for ATA and its operating subsidiaries until an agreement for DIP financing is reached, the airline asserted.

US Airways and UAL Corp. are currently in bankruptcy, while Delta Air Lines is struggling to avoid a similar fate. The ATSB guaranteed most of a $1 billion loan to US Airways when it emerged from bankruptcy early last year. But the airline later defaulted on the loan, and after prepaying a quarter of it, wound up in bankruptcy protection last month.