Thursday, ATA Airlines Inc. filed for Chapter 11 bankruptcy for the second time and discontinued all operations following the cancellation of a key military charter agreement, which made it impossible for the airline to obtain additional capital to sustain its operations or restructure the business.
As a result, the Indianapolis-based ATA is no longer able to honor any reservations or tickets. The airline said its customers should seek alternative arrangements for current and future travel.
Due to the current bankruptcy filing, many of these travelers won't be able to get refunds for their tickets. On its website, ATA said that those who paid by credit card would have to contact their credit card provider to get refunds, but those who paid cash or check would have to apply as creditors to ATA with the bankruptcy court in Indiana.
Commenting on the latest development, Doug Yakola, COO of ATA, said, We deeply regret the disruption and hardship caused by the sudden shutdown of ATA. Unfortunately, the cancellation of a critical agreement for our military charter business undermined ATA's plan to address the current conditions facing all scheduled service airlines, including the tremendous spike in the price of jet fuel in recent months. As a result, it became impossible for ATA to continue operating.
Despite its financial challenges, ATA continued to seek solutions for its scheduled service business and create value from its longstanding presence in the Hawaii market and its planned international expansion. The low cost airline suffered a major blow recently when FedEx Corp. (FDX) notified it would no longer be a member of the FedEx Teaming Arrangement. This arrangement, which represented majority of ATA's charter business, gave ATA a significant share of the airlift contracts under the International Program of the Dept. of Defense Air Mobility Command, which facilitates transportation for military personnel and their families to and from overseas destinations.
FedEx informed ATA that it would be denied membership on the FedEx Team for the government's 2009 fiscal year, a period that begins in October 2008 and runs through September 2009. This termination is a full year earlier than the term specified in a letter of agreement between FedEx and ATA.
ATA said it has engaged in extensive discussions with numerous parties in an effort to obtain capital, identify other opportunities that would allow it to continue operating, or sell the business as a going concern. However, despite its best efforts, ATA could not continue operations or consummate a sale. Accordingly, an immediate shutdown was necessary.
Like other airlines, ATA's operations were severely affected by soaring jet fuel prices. On March 6, the airline said it planned to quit operating from its hub at Midway Airport in Chicago and shut down routes to Cancun and Guadalajara, Mexico to save costs.
Fuel is the biggest cost in the airline industry. The fuel price increase, coupled with a steadily weakening U.S. economy, has dampened the airline industry's modest recovery from the 2001-2006 downturn.
Many airlines are beginning to shrink to cope with much tougher operating conditions. On March 18, Delta Air Lines Inc. (DAL) revealed plans to cut 2,000 jobs and scale back flights. Carriers have also moved to pass on fuel costs to passengers through higher fares and surcharges.
It was the second bankruptcy filing in the company's history. The airline first filed for Chapter 11 bankruptcy protection in October 2004. The carrier was brought out of bankruptcy in 2006 by MatlinPatterson Global Opportunities Partners LP.
Southwest Airlines Co. (LUV), the largest low-fare carrier, had invested $20 million in ATA to help it operate during bankruptcy. The current bankruptcy of ATA is expected to affect customers of Southwest, which have had a codeshare agreement with ATA since February 2005. Subsequent to the bankruptcy filing, the codesharing deal becomes terminated.
Southwest said Thursday that it immediately began rebooking passengers with dates and times as close to the original travel plans as possible. Southwest said it would give priority to customers who are scheduled to travel in the next 14 days.
Gary Kelly, Southwest Airlines CEO, said, "We are sad to end our codeshare relationship with ATA but understand it's extremely difficult for an airline to flourish in today's arduous financial environment that has been plagued by soaring fuel prices."
Founded in 1973, ATA Airlines is now a subsidiary of Global Aero Logistics Inc. However, Global Aero and its other subsidiaries are not part of ATA's Chapter 11 proceedings. At the time of the shutdown, ATA had approximately 2,230 employees, virtually all of whom are being notified today that their positions have been eliminated.
At the time of shutdown, ATA was serving approximately 10,000 passengers per day at the time of its shutdown. The company operated 29 aircraft, many of which are leased. Further, the closely held company listed debts of $100 - $500 million and assets of $100 - $500 million in court papers. ATA is the second airline to file for bankruptcy in as many weeks. Last week, Aloha Airline also shut down.
ATA's bankruptcy filing comes at a difficult time for airlines. Recently, United Airlines (UAUA) canceled several flights over safety issues with its Boeing aircraft. That came after thousands of passengers saw their flights canceled nationwide last week as airlines like American (AMR) and Delta did new safety checks.
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