ATA Airlines seeks bankruptcy protection

AirTran taking over Chicago operations

October 27, 2004|By Mark Skertic | Mark Skertic,CHICAGO TRIBUNE

Its financial situation steadily deteriorating, the parent of ATA Airlines filed for bankruptcy yesterday and said it was turning over most of its Chicago operations to another low-cost carrier, AirTran Airways.

The $87.6 million deal would give Orlando, Fla.-based AirTran the right to assume ATA's 14 gates at Midway Airport, where it is the second-largest carrier behind Southwest Airlines. ATA also would give up landing rights at New York's LaGuardia Airport and Ronald Reagan National Airport in Washington.

The sale is subject to the approval of a federal bankruptcy judge in Indianapolis, where ATA is based, and the city of Chicago, the approval of which is required for changes in ATA's gate-lease agreement.

At least one other carrier, America West Airlines, said it also might be interested in buying some or all of ATA, and bankruptcy experts say a more lucrative bid by another carrier could trump the deal ATA and AirTran have reached.

"Given what we know about their current situation, we believe a potential America West proposal may ultimately be more tolerable and have a more positive outcome for ATA's creditors and employees," said Janice Monahan, a spokeswoman for America West of Phoenix.

Until now, most discount carriers, because of their lower costs, have been able to avoid the problems that have dragged down major airlines. But ATA has been struggling with financial problems for two years and ran out of cash despite layoffs and other cost cuts. In its bankruptcy filing, the airline listed $745 million in assets and $940 million in liabilities.

For days, America West and AirTran had been rumored to be considering bids for part or all of ATA. America West wants the opportunity to review ATA's bankruptcy filing in detail.

"In bankruptcy, the situation becomes very unpredictable," said Joseph Schweiterman, a DePaul University professor and aviation expert. "The judge and creditors will have to agree on what's best for the stakeholders. America West could spark a mini-bidding war for the Chicago hub."

The desire of AirTran or America West to get Midway gates makes sense, said Michael Boyd, an aviation consultant based in Evergreen, Colo. America West, which competes with Southwest in the West, might welcome the chance to take on Southwest in Chicago.

Southwest is the largest carrier based at Midway, with 19 gates. It also is the dominant carrier at Baltimore-Washington International Airport, where AirTran is No. 2.

The ATA-AirTran deal does not include the sale of any ATA planes, but AirTran will lease some planes for up to six months in the transition.

ATA will honor tickets, its frequent-flier program and other customer commitments, said J. George Mikelsons, ATA Holdings Corp.'s chairman, president and chief executive.

ATA will shift nearly all of its focus back to Indianapolis, and AirTran is likely to build a second hub in Chicago. It is a major presence at Atlanta's Hartsfield International Airport, Delta Air Lines' home base.

AirTran has about 60 employees at Midway, where it uses a single gate part time. ATA has about 3,200 employees.

The deal between the two airlines does not include any workers. "We will certainly make good-faith efforts to look at their entire work force and see who fits into the AirTran fit," said Richard P. Magurno, an AirTran senior vice president.

ATA is the fourth U.S. carrier to seek bankruptcy protection in two years. Delta is among the large carriers struggling to avert the same fate. UAL Corp.'s United Airlines, US Airways and Hawaiian Airlines are struggling to emerge from bankruptcy.

ATA stock closed at an all-time low of 93 cents yesterday on the Nasdaq stock market, down 36 percent.

Tribune reporters Geoff Daugherty, Susan Chandler and Gary Washburn contributed to this article. The Chicago Tribune is a Tribune Publishing newspaper.

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