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FLYi Inc. files Chapter 11, looks to sell business
By Bob Bouyea
Executive Editor
In the airline industry, filing for bankruptcy has become the business norm.
Recently FLYi Inc., the Dulles, Va.-based parent company of Independence Air, Charleston International Airport’s only low-fare airline, filed for reorganization under Chapter 11.
The company, which filed its petition in the U.S. Bankruptcy Court for the District of Delaware, is looking to restructure its aircraft leases, wages and other obligations to cut costs. It is also asking the court to enter into an auction process that would allow another company or investor group to purchase all or part of the airline.
“I don’t want to trivialize this by saying it’s business as usual, but in the airline industry, it is,” said David Jennings, chairman of the Charleston County Aviation Authority and an attorney with Rosen Rosen and Hagood. “Of the six carriers serving the airport, three are currently in bankruptcy and the other three used to be.”
FLYi and Jennings both said that the filing will not impact travelers or the airport. Independence Air has around six daily flights in and out of the airport.
Jennings isn’t concerned that the airline will pull out of Charleston, he said.
“There has not been any indication from FLYi that Independence Air will not service Charleston. Independence Air has been very well received by Charleston travelers. It is one of its strongest markets,” he said.
For airlines to fly into the Charleston International Airport, they have to pay a fee on a month-to-month basis for the number and size of aircraft landing, as well as for the amount of terminal and concourse space they use, Jennings explained.
Being month-to-month is advantageous, Jennings said, because since there isn’t a contractual agreement, a bankruptcy court judge can’t reduce the amount an airline pays.
Independence Air will continue its flight schedules in the ordinary course of business, the company said. Companywide, Independence Air offers approximately 220 daily departures to 36 destinations. FLYi has no plans to make any additional changes to its operating schedule or route map of destinations at this time.
Company spokesman Rick Delisi said it is the company’s desire to sell the entire holdings on auction. “We believe the company has more value as a going concern.”
The company has developed a strong brand in the markets it serves, particularly in Charleston and Dulles, he said.
The process, if successful, should be concluded within the next 60 days. Delisi said the company has had discussions during the past few months with interested parties. Those parties, as well as new investors, will be invited to present their bids.
Bidders will be permitted to demonstrate their interest in investing in the company or to bid on all or portions of the company’s assets. The company currently anticipates that it has the financial resources to fund its obligations, including the payment of employee wages and benefits, during the process.
“After careful consideration, we have concluded that a court-supervised restructuring will allow us to complete our cost-savings initiatives while seeking outside investors or purchasers and represents the best solution for Independence Air, our customers, employees, creditors and the communities we serve,” said Kerry Skeen, chairman and CEO of FLYi Inc.
“Since the launch of Independence Air almost 18 months ago, our employees have helped us achieve a remarkable degree of customer service success and brand recognition while operating in what has been described as the most challenging economic environment in airline industry history, including record high fuel prices and extreme revenue weakness.”
These circumstances have prevented Independence Air, and virtually all U.S. airlines, from meeting financial goals.
“We have already reduced operating costs by undertaking a comprehensive operational restructuring. We will continue that effort and move quickly to use the tools of the Chapter 11 process to implement other changes that will allow us to achieve an even more competitive cost structure to make us more attractive to potential investors or purchasers,” Skeen said.
Management and other salaried employees will be subject to an immediate 5% pay reduction. FLYi reached tentative agreements to change pay rates and work rules with the unions representing the airlines flight attendants and mechanics. It is still in negotiations with the union representing the company’s pilots.
During the auction process, vendors, suppliers and other business partners will be paid under normal terms for goods and services provided during the reorganization.
The company’s bankruptcy petitions listed assets of approximately $378.5 million and liabilities of approximately $455.4 million as of Sept. 30. Unrestricted cash as of the day of filing is $24.0 million.
“We want to once again offer our sincere thanks to the 7 million passengers who have flown with us so far. Since we launched last summer, we have built a brand that truly stands for something—a very different style of service—and our customers have been more than generous in their praise of our people,” Skeen said.
FLYi warned shareholders that the likely outcome of the company’s Chapter 11 case is the cancellation of the company’s existing common stock, in which case FLYi stock would have no value. FLYi stock is highly speculative, and the company urges investors to use extreme caution in decisions about the stock.
Bob Bouyea is the executive editor for the Business Journal. E-mail him at bbouyea@charlestonbusiness.com.
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