Flyi Inc., parent of low-cost carrier Independence Air, yesterday announced it completed a financial restructuring plan under which it will cut its fleet of regional jets and reduce its workforce in return for tens of millions of dollars in concessions from creditors.
After almost four months of negotiations, Flyi said it will be allowed to terminate leases on 24 of its regional jets -- about one-third of its fleet. Those concessions will help cut its aircraft lease payments by $94.5 million over the next two years. Creditors are also allowing the company to defer another $70 million in lease payments over the same period. Flyi also said it was given a five-year, $16.1 million loan from GE Capital Aviation Services Inc. In exchange for the concessions from its creditors, which Flyi did not name, the airline agreed to issue them about 8.3 million shares of stock.
Flyi has five A319 Airbus jets and plans to add seven more by June, despite just-announced changes that include staff and fleet cuts.
(Photo Independence Air)
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For now, the plan eliminates some of the questions Wall Street analysts had about the future of the financially troubled Dulles-based carrier. Many had predicted Flyi would file for Chapter 11 bankruptcy protection this winter.
"There have been a lot of smiles around here," Flyi Chairman Kerry B. Skeen said in an interview.
But analysts yesterday cautioned that Flyi still has to prove that its shrunken fleet can attract more customers. Since its inception last June, Independence Air has been flying about half full; the average carrier sells about 70 percent of its seats. Skeen predicted his airline could reach that benchmark next month.
Flyi's stock rose 3.33 percent, to $1.55, on the Nasdaq Stock Market after being ahead more than 25 percent in morning trading.
Raymond Neidl, an analyst for Calyon Securities (USA) Inc., called Flyi's restructuring plan "a reprieve." But he cautioned that the airline's low-cost business model -- flying with a mix of 50-seat regional jets and larger Airbus A319 jets -- ultimately may not work.
Flyi seemingly had little choice but to downsize because it could not afford to pay $83 million in aircraft lease payments that were due last month. Under the plan announced yesterday, Flyi will pare its regional fleet to 58 jets. It also has five Airbus jets and plans to add seven more by June.
Flyi said that under an agreement with GE Capital Aviation Services it may have to turn in eight more regional aircraft if certain financial milestones are not met this year and in the first quarter of 2006.
Independence Air has been cutting flights at its Washington Dulles International Airport hub. It had as many as 300 daily flights last fall. Yesterday, it had 211. The company has not determined if further cuts will be necessary.
