Independence Air faces financial difficulties as cash woes rise

By Joel Smith / Detroit News
October 24, 2004

Financial problems may force Independence Air, Detroit's newest low-fare airline, to file for bankruptcy within months, analysts said.

They blame the airline's money woes on flying with more than half of its planes empty, stiff fare competition from airlines such as Northwest, looming aircraft lease payments and soaring fuel prices.

Standard & Poor's rating service has placed the Washington Dulles Airport-based carrier on CreditWatch - a list of financially troubled companies being closely monitored - based on the airline's shrinking money reserves. In January, the airline owed about $100 million in lease payments on 87 regional jets that seat 50 passengers.

"At June 30, 2004, the company had unrestricted cash and short-term investments of $345 million, fairly substantial for an airline of its size," said Betsy Snyder, a credit analyst with Standard & Poor's. "However, since then, this amount has likely declined significantly."

Independence Air had a 44 percent load factor (the percentage of seats sold) in September, when earlier it had expected 60 percent or higher. Northwest's load factor is above 80 percent.

Another analyst, Robert Ashcroft of UBS Investment Research suggests the discount carrier will likely be forced to file for Chapter 11 bankruptcy protection from creditors in January.

But Michael Boyd, president of the Boyd Group in Evergreen, Co., said it's more likely the carrier will renegotiate its lease payments.

"It's clear that Independence Air's current operation model isn't working, but that doesn't mean it can't be tweaked," said Boyd, an airline consultant

Independence Air has daily flights to Dulles International Airport from Lansing and Detroit.

Rick DeLisi, an Independence Air spokesman, declined to talk about the carrier's finances until its third-quarter earnings are released Wednesday.

Once known as Atlantic Coast Airlines, which operated regional jets for United and Delta Air Lines, the carrier began flying as a stand-alone carrier on June 16 under the name Independence Air. It now flies to 40 domestic destinations.

Source: Detroit News