Consolidation of the overcrowded US low-cost airline sector could begin as ATA, the country's 10th largest carrier, prepares to sell its most valuable assets to avert bankruptcy.
Seabury Group, a boutique investment bank that specialises in transportation, has been appointed to find buyers for ATA's operations at Chicago's Midway airport, where it accounts for about 40 per cent of all departures.
ATA is seeking buyers for its leases on 14 airport gates and also wants to transfer the leases on its more than 30 Boeing 737-800 aircraft, according to several investment bankers. Seabury declined to comment.
The decision to pull out of Midway would mark a significant admission that ATA's aggressive expansion strategy, pursued since 2000, has failed. It could see the airline return to its origins an an Indianapolis-based charter operator. One banker said ATA was seeking to raise about $500m from the transactions but suggested a price tag of $200m-$300m was more realistic.
“They want to pay off their [$148.5m] loan to the Airline Transportation Stabilisation Board, and their unsecured bond holders,” the banker said.
AirTran, the low-cost carrier, and Mesa, a regional carrier, are among those understood to be interested. America West has also been looking to expand its operations and has forecast consolidation among low-cost carriers.
In a filing this month, ATA said it faced “substantial additional liquidity concerns” after plunging to a first-half loss of $90m, from income of $32m a year ago.
It blamed high fuel prices and intense fare competition from Southwest, which also operates at Midway. ATA warned it would not meet cash obligations due in the first half of 2005.
ATA is pursuing other strategies to improve revenues, including the addition of business class. However without cash from an asset sale, ATA could become the first low-cost casualty of the downturn.
“It is a question of survival but it is a Band-Aid approach,” said another banker. “It still does not address their strategic problem. There are active buyers who would also be interested in buying the whole company.”
ATA, which is still about 70 per cent owned by George Mikelsons, its Latvian founder, was founded in 1973 in Indianapolis, offering military and leisure charter services.
Since 2000 it expanded aggressively into scheduled services, agreeing to pay big upfront leasing costs to buy a new fleet of 25 Boeing 757 aircraft and 13 737-800s. It has seven more 737-800s on order.
Concerns about the future of ATA led Boeing Capital last month to take a $29m non-cash charge after concluding that its unsecured preferred stock investment, initially valued at $50m, was “other-than-temporarily impaired”.
