Airlines and bankruptcy

For more, see The Deal's Airline consolidation, bankruptcy Dealwatch

Sept. 10: Frontier Air wins plan confirmation: Frontier Airline Holdings Inc. has glided a step closer to its Chapter 11 exit after winning confirmation of its reorganization plan. Judge Robert Drain of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan confirmed the Denver air carrier's plan on Thursday, according to a company statement. - Carolyn Okomo

April 29: Frontier on five-month roll: Although Frontier is bankrupt, it's seen five straight months of bluer skies as it records operating profits. - Carolyn Okomo

Meanwhile, May brought news on bankrupt Fairchild Corp., as does April for Wingspeed Corp. The latest wave of airline bankruptcies has been upon us for months, driven by sky-high oil prices and an economic downturn. But some see opportunity amid the rubble. In a conversation with Bloomberg's "Night Talk," Virgin Group (Virgin Atlantic, Virgin America, etc.) chief Richard Branson noted: "Virgin America will actually benefit bizarrely from this crisis." He went on: "Virgin Atlantic has benefited from this crisis because a lot of airline we were competing with -- all the business-class jets Eos and Maxi-Jet have all gone bust. ... Because we have a well respected airline a lot of that business is coming our way." See the video here.

Months later, it looked like Virgin America could be headed for turbulence and in June, Virgin America cut losses, still burning cash. See more of The Deal's Lou Whiteman's take on Virgin America below.

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March 26: ATA Airlines will liquidate: The U.S. Bankruptcy Court for the District of Indiana on Wednesday, March 25, confirmed ATA Airlines Inc.'s plan to liquidate. The proposal includes selling assets to Southwest Airlines Co. for $7.5 million. -- Lou Whiteman

ATA, the Indianapolis-based subsidiary of Global Aero Logistics Inc., filed for Chapter 11 in April 2008 and stopped operating, grounded by a canceled military charter contract and high fuel prices.

March 24: Bankrupt Frontier Airlines Holdings Inc. has won approval to amend the debtor-in-possession loan that will fund its reorganization. -- Carolyn Okomo

The company filed for bankruptcy last April.

March 6: Novato, Calif.-based Sunset Aviation, a charter airline operator of turbo-prop and small jets, has filed for Chapter 7 liquidation. Sunset is a subsidiary of JetDirect Aviation Inc. of Burlingame, Calif., which did not file for bankruptcy protection. This came weeks after the bankruptcy filing of Dallas-based Regal Jets LLC, a charter airline operator and another subsidiary of JetDirect.

Feb. 19: Pinnacle Air grounded for good: Private jet service provider Pinnacle Air LLC has flown into Chapter 7 bankruptcy a little over a year after purchasing the assets of one bankrupt rival. -- Carolyn Okomo

Feb. 18: UBS analyst: Air Canada could face bankruptcy: UBS analyst Fadi Chamoun said Air Canada could be forced to file for bankruptcy protection unless it comes up with new additional financing and renegotiates covenants in credit card agreements. -- Peter Moreira

In early January, BusinessWeek liquidated the airline industry, naming several carriers poised for liquidation this year. Don't jump the gun, though, Whiteman cautioned.  

In early December, Yucaipa affiliates won Aloha: Aloha Airlines Inc. named a $750,000 credit bid from two Yucaipa Cos. LLC affiliates as the winning bid for its intellectual property. -- Jamie Mason

In March 2008, Aloha landed in bankruptcy for the second time in recent years.

Oct. 31: Alitalia files: Rome-base airline Alitalia files a Chapter 15 petition claiming that financial troubles, caused by lower-priced competing airlines, poor management, and union contract obligations, in addition to rising fuel costs had left it no choice but to seek protection for its U.S. assets.

Oct. 10: Scottsdale, Ariz.-based Primaris Air, a charter airline, filed for bankruptcy after attempts to raise fresh capital amid rising fuel costs and tight credit markets proved futile.

Meanwhile, Petters Aviation LLC, the parent of Sun Country Airlines Inc., was on Oct. 6 the latest to file for Chapter 11. The Mendota Heights, Minn., company cited both oil prices and the downturn as the reason for its filing, as well as the legal woes plaguing its largest shareholder Tom Petters, who was arrested Oct. 3 on fraud charges, Whiteman wrote.

Earlier, a false bankruptcy report sent shares of United Airlines Inc. parent UAL Corp. down more than 60% in mere minutes Monday, Sept. 8, before clarification enabled them to recover much of the losses. "The incident, and the number of people who did not question the report when it first surfaced, [are] a reminder that signs of recovery in the airline sector [are] fledgling at best," Whiteman wrote. "UAL, for the time being, is a stable company highly unlikely to file for Chapter 11 protection in the near future, despite some pundit calls to the contrary."

Italian carrier Alitalia-Linee Aeree Italiane SpA sought protection from creditors and filed for insolvency in Rome on Aug. 29. The government, with a 49.9% interest in the company, has worked for nearly two years to find a buyer for the carrier which has long-teetered near bankruptcy. A month later, a group trying to save the airline turned its efforts toward negotiating the sale of a minority stake in the Italian carrier to either Air France-KLM or Deutsche Lufthansa AG, having won union support for the plan, The Deal's Paul Whitfield noted. See more here.

Meanwhile, cargo carrier Tradewinds Airlines Inc. filed for protection July 25. The Greensboro, N.C.-based company was dogged by sky-high fuel prices, maintenance costs and poor liquidity, Whiteman wrote.

Meanwhile, trying to stave off a filing, PE-backed Midwest Air Group Inc. said July 14 it would slash about 40% of its workforce. Meanwhile, the carrier, sold to TPG Capital in August for $450 million, is in talks with its union workers on concessions it needs to avoid bankruptcy. (See more on Midwest below.)

The last few months have been rough for carriers. April was particularly dark and May and June were cloudy. The latest filing came June 18, when Gemini Cargo Logistics Inc. filed for Chapter 11 protection, for the second time, downed by rocketing fuel prices. The carrier was also at the time the latest PE-backed bankruptcy and listed more than 1,000 creditors in its filing. (See Dealwatch: PE-backed bankruptcies for more.)

Meanwhile, U.K. all-business-class carrier Silverjet plc, which was grounded at the end of May and filed for administration after backer Viceroy Holdings failed to extend a $5 million loan, looked like it would be rescued. Swiss investment company Heritage Cie. SA agreed June 11 to buy it out of bankruptcy for undisclosed terms. The deal failed two days later.

Capping off April -- a particularly active month for carriers running into turbulence -- Eos Airlines Inc. filed for bankruptcy. The Purchase, N.Y.-based New York-to-London business carrier filed for Chapter 11 April 26 in the U.S. Bankruptcy Court in the Southern District of New York and ceased operations April 27. It said May 23 it had won approval for an asset auction. But the Eos filing followed several of late. A recap:

• April 11: Denver-based Frontier Airlines Holdings Inc., the parent company of Frontier Airlines, slid into Chapter 11, saying its credit card processor had unexpectedly informed the airline it planned to begin withholding "significant proceeds" from Frontier ticket sales, which would have put the squeeze on the company's liquidity. Unlike its fellow discount carriers that sought protection of late, Frontier said it plans to continue business as usual.
• April 9: Long-haul budget airline Oasis Hong Kong Airlines Ltd. said it had stopped flying and applied for voluntary liquidation.
• April 5: Columbus, Ohio-based Skybus Airlines Inc., which took to the skies only 10 months earlier, filed for Chapter 11 and ceased operations. Shortly after the filing, its founder said the company could fly again.
• April 3: ATA Airlines filed for Chapter 11 and stopped operating.
• March 31: Hawaii's Aloha Airgroup Inc., the parent of Aloha Airlines Inc., halted passenger operations after landing in bankruptcy for the second time in recent years.

NEXT UP?

Amid the bankruptcy crashes, Whiteman wondered April 7 which airline would file next. "And while no one is predicting a near-term shutdown of carriers such as Frontier Airlines Holdings Inc. [indeed, Frontier has not ceased operations], Spirit Airlines Inc., Midwest Air Group Inc. and Virgin America Inc., these airlines are being watched closely," he wrote.

Spirit Airlines

Spirit's model, he noted, is somewhat similar to Skybus, which charges for checked baggage, and food and beverages, but Spirit has a better route network serving Caribbean destinations thereby giving it less exposure to competition from rival discounters. However, its markets heavily rely on tourism, which could fall off if the economy enters a prolonged recession.

Midwest

In accepting a $450 million take-private from white-knight bidder TPG Capital in August, Milwaukee-based Midwest escaped the reigns of hostile bidder AirTran Holdings Inc. "Midwest's fate could be tied to how willing TPG is to contribute new capital to the airline to help it buy new planes, which in turn could be determined by how bad the U.S. economy gets in the coming months."

Virgin America

Virgin America is a question mark after less than a year in operation. It lost $35 million in its first quarter of operations, Whiteman noted, but it has Richard Branson, as well as U.S. investors Black Canyon Capital and Cyrus Capital Partners behind it, who have already put up nearly $162 million. Whether they will fund continuing losses, though, is the question.

A LITTLE PERSPECTIVE

Whiteman offers a bit of context to the current, seeming rash of filings and how larger players will likely fare:

The U.S. majors, which went through a round of restructuring earlier in the decade that included nearly a half-dozen bankruptcy filings, have large cash hordes and route networks loaded with international flying that does not face the price competition experienced at home. Established discounters like Southwest Airlines Co. and AirTran Airways Inc. have low costs and fuel hedges in place that should allow them to remain competitive regardless of the price of oil. These airlines will undoubtedly be bruised, but are more likely considering dealmaking during this period of weakness than they are pondering bankruptcy filings.

But if history is a guide, there could be more casualties. The U.S. industry has always seen airlines fail when a downturn strikes, with Midway Airlines, Vanguard Airlines and Legend Airlines among the fatalities from the slowdown earlier in the decade.

CO-PILOTING

But some, having made it through reorganizations, or in order to be strong enough to emerge, have sought merger partners and carried on.

Take Delta Air Lines Inc. and Northwest Airlines Corp., which agreed to a deal April 14 after months of circling each other and trying to win labor approval for a deal. Reports indicated April 11 that pilots had reached a tentative deal that would allow for a merger, after months of impasse. The pair resumed talks April 7, weeks after pilots rejected arbitration March 19, stuck at a crossroads. It had looked like the airlines' pilots were on board Feb. 19, but the picture was cloudier just a week later.

Delta soared out of bankruptcy April 30, 2007, ahead of schedule, followed by Northwest, which headed for the exit May 31. Delta flew solo after months of standing firm against a would-be acquirer in US Airways Group Inc. Its creditors formally backed the plan for independence in late January, rebuffing a $10.2 billion takeover offer from US Air. It happened a day after Delta secured a $2.5 billion exit financing package and days after reports surfaced that US Air was considering raising its offer. After winning an extension to reorganize until June, Delta pledged March 20 to pay its workers $480 million in cash and stock upon its emergence. It unveiled plans Aug. 21 to install former Northwest CEO Richard Anderson as its chief executive, which again stirred the M&A rumor mill.

US Airways first presented its merger case to Delta in November 2006, which the target shot down. Had it not, the deal would have recalled Tempe, Ariz.-based US Airways' $1.5 billion merger with America West Group Holdings Corp. in 2005, which formally ended its own stay in Chapter 11.

Then there is also UAL which said Aug. 24, 2007, it could sell off its maintenance business to shore up some cash, a deal that analysts estimated could yield $300 million to $600 million. In December 2006, speculation swirled around UAL and Continental Airlines Inc. Rumors regarding UAL first took flight in September 2006 after a published report revealed it had hired Goldman, Sachs & Co. to explore strategic alternatives. During its nearly three years in bankruptcy, UAL cut 25% of its workers, trimmed more than $10 billion in debt and cut annual costs by more than $7 billion before resurfacing post-Chapter 11 in February 2006.

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