April 3, 2008 / 12:43 PM / 10 years ago

ATA Airlines files for bankruptcy and shuts down

NEW YORK (Reuters) - ATA Airlines Inc said on Thursday it filed for Chapter 11 bankruptcy protection and shut down all operations after cancellation of a key military charter agreement.

<p>Two ATA jets sit on the tarmac at Midway Airport in Chicago, Illinois April 3, 2008. REUTERS/Frank Polich</p>

The Indianapolis-based low-cost airline and its rivals have recently been hamstrung by big increases in jet fuel prices. ATA is the second airline to file in the past few weeks.

The fuel price spike, coupled with a steadily weakening U.S. economy, has stalled the airline industry’s modest recovery from the 2001-2006 downturn.

On Sunday, less than two weeks after filing for bankruptcy protection, Hawaii-based Aloha Airlines said it would shut down its passenger operations.

Big airlines are beginning to shrink to cope with toughening operating conditions. On March 18, Delta Air Lines Inc unveiled plans to cut 2,000 jobs and scale back flights.

Carriers have also moved to pass along fuel costs to travelers via higher fares and surcharges. Some airlines have opened new revenue streams by charging for products and services that previously had been included in the ticket price.

Oil prices, which are directly related to jet fuel costs, remain above $100 a barrel.

“ATA’s scheduled service business had been severely impacted by the dramatic and unprecedented increase in the price of jet fuel in recent months,” said ATA in a statement.

ATA said “virtually all” of its 2,230 employees have been told their jobs have been eliminated.

ATA operated 29 aircraft, serving destinations that included Hawaii, Guadalajara and Cancun, Mexico; Oakland, California; Chicago; Las Vegas; and Dallas and also had a code-share agreement with Southwest Airlines Co.

ATA said it is no longer able to honor any reservations or tickets, and customers who bought tickets from Southwest for flights operated by ATA through its code-share agreement should contact Southwest.

Southwest said it would rebook such travelers on new itineraries or offer refunds for any unused portions of their tickets.

Northwest Airlines Corp, US Airways Group and Delta Air Lines all offered to assist ATA passengers.

HARDSHIP

<p>A note for its passengers is posted at the ATA ticket counter in Midway Airport in Chicago, Illinois April 3, 2008. REUTERS/Frank Polich</p>

ATA said it spoke to numerous parties in unsuccessful efforts to obtain capital or sell the business as a going concern.

ATA said it was told recently by FedEx Corp that ATA would no longer be a member of a “teaming arrangement” that gave ATA a significant share of airlift contracts for transporting military personnel and their families to and from overseas destinations.

This arrangement had accounted for most of ATA’s charter business.

The cancellation of the military contract “undermined ATA’s plan to address the current conditions facing all scheduled service airlines, including the tremendous spike in the price of jet fuel in recent months,” said Doug Yakola, chief operating officer of ATA.

ATA had emerged from Chapter 11 bankruptcy protection in 2006, according to the company’s Web site. ATA is a subsidiary of Global Aero Logistics Inc.

Slideshow (3 Images)

Global Aero and its other subsidiaries -- World Airways, Inc and North American Airlines, Inc -- are not part of ATA’s bankruptcy proceedings and are conducting business as usual.

Capt. Steve Staples, chairman of the ATA unit of the Air Line Pilots Association, International (ALPA), blasted the decision to shut down ATA.

“We find it unusually coincidental that ALPA, which was in contract negotiations with ATA ... was suddenly forced to shut down while World and North American will continue operating under the Global Aero Logistics banner,” said Staples.

SQUEEZE

The absence of both ATA and Aloha from domestic markets could be some help to major airlines as they struggle to raise fares in an era of low-cost competition.

“Obviously, anytime capacity comes out of the system, it’s a positive for the survivors,” said Morningstar equities analyst Brian Nelson.

“There is a silver lining to these bankruptcies,” he said.

Calyon Securities analyst Ray Neidl said ATA had scaled back operations so much since its previous bankruptcy that its exit will have little impact on major carriers.

The fate of ATA does, however, underscore the challenges smaller airlines face in the ultra-competitive industry plagued by high costs.

“The more marginal players are starting to be squeezed,” Neidl said.

Additional reporting by Kyle Peterson, editing by Gerald E. McCormick, Steve Orlofsky and Gunna Dickson

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