Flyi Looks for Ways to Move Past Mistakes

Independence Air chief executive Kerry B. Skeen, left, talks with Dulles manager Keith Meurlin at his airline's inauguration ceremony in June. Independence has said it will pull out of two airports and reduce service at others. (Tracy A. Woodward -- The Washington Post)

On Thanksgiving eve, one of the biggest travel days of the year, Independence Air's top executive, Kerry B. Skeen, sprinted from gate to gate in Washington Dulles International Airport's Terminal A, boarding flights to greet his customers.

"I've been at the airport all day and I've been on about 25 airplanes," Skeen reported, a bit breathless, Wednesday afternoon. "I do this every week. But it was more fun today because the flights were full. I just wanted to thank people for their business."

Skeen's low-fare airline, now five months old, can use all the business it can get. The Dulles-based carrier's parent, Flyi Inc., reported an $82.7 million loss in the third quarter, partly because it was flying half-empty jets. It recently warned that it would file for Chapter 11 bankruptcy protection if it cannot renegotiate $83 million in aircraft lease payments, due in January. It has won some concessions -- Airbus SAS has agreed to delay delivery of 10 jets until 2007 -- but needs more.

Some airline analysts assert the Flyi model was flawed from the beginning. Skeen, Flyi's chairman and chief executive, says he is evaluating an offer from a former partner, United Airlines, to bid on a contract that could change the way his company does business.

"Obviously, in this business and this industry -- with the shape it's in and with our liquidity crunch -- we have to look at every single possibility," Skeen said in an interview.

Flyi was born into an industry challenged by labor disputes, soaring fuel prices and competition that has forced airlines to slash fares -- and, in turn, profit. Two of the major players -- United Air Lines and US Airways -- are under Chapter 11 bankruptcy protection, and a third, Delta Air Lines, has said it may have to consider filing for Chapter 11 protection.

"I've been in this business for 25 years or so, and I've never seen the industry in such turmoil as it is in right now," Skeen said. "So we didn't start off in this business where we wanted to be."

Independence Air was conceived last year after Skeen decided to break off a 14-year partnership with United. Skeen's company, then known as Atlantic Coast Airlines Holdings Inc., ran regional feeder flights for the larger airline under the brand United Express. The breakup came after United, which filed for bankruptcy protection in December 2002, tried to reduce the fixed payments it made to Atlantic Coast to operate these flights.

Now United has invited 10 smaller airline companies, including the beleaguered Flyi, to bid by Dec. 10 on a contract to operate as many as 70 regional jets in the United Express network. The flights are now operated for United by Air Wisconsin, a feeder carrier that is having a contract dispute with the larger carrier.

Flyi's largest shareholder, PAR Investment Partners LP, a Boston-based private investment fund, has told Skeen he has a fiduciary responsibility to his investors to submit a bid. Some airline experts expect Independence to return to its roots as a feeder airline because of its financial woes.