To stay out of the clutches of bankruptcy protection, low-cost carrier Independence Air has sold airplanes, cut flight schedules and begged for mercy from creditors in recent months.
But yesterday, the airline's board of directors admitted it had not done enough to combat lower-than-expected ticket sales and higher-than-anticipated fuel costs.
Flyi chief executive Kerry B. Skeen's annual salary was lowered 15 percent, to $369,750.
(Hyosub Shin -- The Washington Post)
The board's solution? Cut salaries and benefits of the people who run the financially struggling nine-month-old company.
Flyi Inc., the airline's parent, yesterday disclosed that the board's compensation committee had reduced the salaries of chairman and chief executive Kerry B. Skeen to $369,750 from $435,000, President Thomas J. Moore to $247,500 from $275,000, and Chief Financial Officer Richard J. Surratt to $193,500 from $215,000, according to a filing with the Securities and Exchange Commission.
The Dulles-based carrier also revealed that the three executives had agreed to cancel some stock options. Skeen and Moore also agreed to a reduction in life insurance benefits, and Skeen will defer until next year $1.4 million that was owed to him this year, the company said.
Flyi said these moves will save the company about $2.2 million over the next year.
The airline needs every last cent because it has failed to sell enough tickets to make a profit, Wall Street analysts say. Flyi warned last fall that it might be forced to file for bankruptcy protection in January if it could not win concessions from creditors.
Flyi won many concessions and announced a restructuring plan last month. But this week, in its annual state-of-the-company filing with the SEC, Flyi again warned that factors such as the airline's debt and historically high fuel prices could result in a Chapter 11 filing for protection from its creditors.
"In connection with our recently completed financial restructuring, we pledged substantially all of our remaining unencumbered collateral," Flyi said in the filing, known as a 10-K. "Even with the recent completion of our financial restructuring, if passenger traffic or yield do not achieve anticipated levels, fuel costs continue at current high levels or other events affect its operations, the Company may again face liquidity concerns. . . .
"If we are unable to make payments on our debt and other fixed obligations as they come due, we could be forced to consider commencing a bankruptcy case . . . or may be the subject of an involuntary Chapter 11 case commenced against us by creditors. Because we have limited operating history as a low-fare carrier, it is difficult to evaluate our ability to succeed in this business."
Flyi noted that fuel prices have "dramatically" affected the company's financial picture.
"Recently, Independence Air has purchased fuel at a price of $1.65 per gallon," the annual filing said. "When Independence Air operations commenced in June 2004, fuel prices were $1.27 per gallon, and the original business plan from June 2004 for Independence Air estimated fuel prices . . . at $.90 per gallon."
The airline said it expects to consume about 100 million gallons of jet fuel this year.
Yesterday, Merrill Lynch Co. analyst Michael Linenberg cut his rating of Flyi to "sell" from "neutral," predicting the company's "business model is destined to fail in light of record high fuel prices and intense competition."
Flyi's stock price yesterday rose 3 cents, or nearly 2 percent, to close at $1.55 on the Nasdaq Stock Market. The company's shares have fallen 6.6 percent since last Friday.