ATA ends flights, files for bankruptcy

April 3, 2008 9:09:18 PM PDT
ATA Airlines shut down operations and stranded thousands of travelers Thursday when an unexpected loss of key charter flights and soaring fuel costs forced the carrier into bankruptcy. Once the nation's 10th-largest air carrier, ATA entered bankruptcy for the second time in just over three years. The company had more than 2,200 employees, and "virtually all" were told that their jobs were gone, company spokesman Michael Freitag said.

Many passengers learned of the collapse at ticket counters, where advisories were posted in the handful of cities ATA still served. About 10,000 passengers flew ATA each day when operations were shut down, according to the airline.

"If we had known this yesterday we could've left then. We trying to get to Dallas, it's unbelievable," said Harrison Jackson, who is trying to fly out of Chicago's Midway Airport.

"It ruins my vacation," said Beatrice Martinez, who was trying to reach Guadalajara, Mexico, from Midway International Airport in Chicago. "I'm in shock. So I guess I'll try to make other arrangements. Right now I just need to get to Mexico."

Passengers then had to scramble to try and get on flights from Southwest Airlines.

"When I walked in at curbside check-in, there was absolutely no one there. There was a little sign kind of redirecting everyone to Southwest Airlines and everything like that. I'm a little upset," said Brian Smagacz, passenger at Midway Airport.

Some employees were surprised by the company-wide shut down. Some of them were expected to be laid off some time this summer but not in early April. Many are upset with their company for not giving them enough notice.

"We were told to work until June 7, not April 3. Not even when we come to work. It's like when we get up, don't come to work. You are out of a job after 12 years. We get nothing. No severance paid, no four weeks vacation paid out, nothing," said Pam Smith, former ATA employee.

"I'm going to miss my co-workers. We cried, we ate, we partied, we did everything like a family," said Rose Santana, former ATA employee.

Airlines are struggling with rising fuel prices, labor strife, depressed ticket demand and heightened competition, said George Godlin, an analyst for Moody's Investor Service.

"We're in a perfect storm kind of environment right now," he said.

Joe Cahill, Crain's Chicago Business, says ATA was a minor player in Chicago's air travel market, operating only about 1.5 percent of the flights at Chicago's airports.

Crains reports, according to ATA's bankruptcy filing, the city of Chicago is their number one creditor. City officials say they plan to get in line with everyone else in bankruptcy court. Meantime, they will look for another airline to fill ATA's slots at Midway.

"The real fear here is that this is the beginning of a series of bankruptcy filings again, of low-cost airlines," said Joe Schwieterman Ph.D., DePaul University. "Really tough to make the business model work with $100 (barrels of) fuel."

The ATA bankruptcy generated little surprise. It was the second carrier to declare bankruptcy in just the past two weeks. Aloha Airlines filed for Chapter 11 bankruptcy protection last month, a little more than two years after emerging from bankruptcy.

"We are seeing some of the very marginal carriers shut down ... and will probably see more," said Ray Neidl, an analyst at Calyon Securities in New York.

Analysts don't think larger carriers are in imminent danger of bankruptcy. But many industry observers have long warned that sustained high fuel prices and a slowing economy could push larger airlines to the brink.

"I do think that this bankruptcy highlights the difficult times the industry is facing with oil above $100 a barrel," said Jim Corridore, an analyst at Standard & Poor's in New York. "While I don't think that any major network airlines are currently at risk of bankruptcy due to the high cash levels they have amassed over the past few years, I think that they will certainly be weakened and unable to offset higher oil with higher revenues."

Tough operating conditions have led to merger talks industrywide. Negotiations between Delta Air Lines Inc. and Northwest Airlines Corp. recently stalled over a dispute between pilot unions.

ATA said in a statement that the cancellation of a critical agreement with FedEx Corp. for most of the airline's charter business left it unable to offset exorbitant fuel prices.

That agreement gave ATA a significant share of the airlift contracts to fly military members and their families overseas, ATA said. FedEx told ATA that that agreement would end when the government's 2009 fiscal year begins in October.

"This termination is a full year earlier than the term specified in a letter of agreement between FedEx and ATA," the airline's statement said.

FedEx officials could not be reached for immediate comment.

ATA retrenched in 2006 after emerging from bankruptcy, focusing on an increase in its military charter business. The airline operated approximately 50 commercial flights per day, mostly between Hawaii and four west coast cities -- Oakland, Los Angeles, Phoenix and Las Vegas.

ATA announced last month that it would leave Chicago's Midway Airport, which it had used as a hub since 1992.

Dallas-based Southwest Airlines is trying to help. It operated a code-sharing agreement with ATA for flights to Hawaii.

The airline estimates that between 35,000 and 40,000 passengers made reservations through August for ATA flights through Southwest, spokeswoman Brandy King said.

Southwest said Thursday that it immediately began rebooking passengers. Those with travel plans in the next 14 days will be priorities.

"ATA Airlines has been an outstanding partner for Southwest, and we are disappointed to hear this unfortunate news," Gary Kelly, Southwest Airlines chief executive officer, said in a press release. "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."

The Associated Press contributed to this report. All rights reserved.


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