ValuJet expects to resume flights in 3 weeks Fla. crash, FAA shutdown result in $9.6 million loss

August 08, 1996|By BLOOMBERG BUSINESS NEWS

ATLANTA -- ValuJet Inc. said yesterday that it expects to resume operations in three weeks, flying only five routes, a fraction of the low-fare airline's service to 31 cities before federal regulators grounded its planes.

ValuJet also reported a 41 percent decrease in second-quarter profit before a $19.6 million charge tied to the Everglades crash May 11 and subsequent shutdown of the airline by the Federal Aviation Administration, which must approve ValuJet's plan to resume service.

With the charge, the Atlanta-based airline had a bottom-line loss of $9.6 million, or 18 cents a share, or 50 percent worse than the average loss of 12 cents a share forecast by eight analysts polled by Zacks Investment Research.

"It could have been a lot worse," said Brian Harris, an analyst at Lehman Brothers, who added that the financial results showed ValuJet kept its costs under control after the shutdown.

ValuJet said its cash dwindled to $208 million as of June 30, down $46 million in three months.

Meanwhile, ValuJet's attempt to resume its low-fare airline could be stymied by the plan of rival Delta Air Lines Inc., which is beginning its own low-fare service.

"We know it will be a tough environment," said ValuJet President Lewis Jordan.

ValuJet earlier insisted that its costs would not be affected by the crash in the Florida Everglades, which killed all 110 people aboard, or the subsequent shutdown. But during a conference call with analysts, the company indicated that costs would be higher, said William Wrightson, an analyst at Alex. Brown & Sons.

Wrightson said the costs were not detailed, but likely would result from aircraft not being used and higher personnel and maintenance costs.

ValuJet reported second-quarter profit from operations of $10 million, or 18 cents a share, compared with net income of $16.9 million, or 28 cents, in the year-ago period, reflecting two stock splits in 1995. Revenue fell 6.6 percent to $81.2 million from $86.9 million.

Since the shutdown, the airline has since laid off most of its 4,000 employees. Jordan said the airline's initial start-up operations would require about 1,200 people.

ValuJet said it will resume operations if the FAA approves a plan the airline has filed with the federal agency. On Monday, ValuJet filed a request with the Department of Transportation for a waiver that would allow the airline to advertise and sell tickets while the DOT and FAA determine whether ValuJet can fly.

A return to service would come at a time when rival Delta Air Lines is preparing to introduce its own low-fare airline.

Delta, also based in Atlanta, was expected to announce the details of its airline -- code-named "Project Sunshine" -- today, with flights to begin this fall.

Analysts say Delta's project is a risky move into a business littered with bankrupt budget airlines.

"I believe it will go the way of Continental Lite," said Alex. Brown's Wrightson, referring to Continental Airlines Inc.'s expensive and failed attempt to compete in the low-fare market.

Pub Date: 8/08/96

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