Flyi Is Latest Airline in Bankruptcy Protection

Independence Air, the scrappy Dulles-based carrier that broke off from United Airlines two years ago in the hopes of creating a budget alternative, yesterday filed for bankruptcy protection in a move that could well spell the airline's demise.

Flyi Inc., the airline's parent, vowed to continue normal flight operations while seeking court approval to auction itself off, but it warned that it will have to shut down if new investors or a buyer are not found in 60 days. Industry analysts, many of whom thought the airline was doomed from the start, expressed doubt yesterday that investors will be ready to gamble on a turnaround.

The announcement puts into question the jobs of more than 2,000 Flyi workers, most at the company's Dulles airport hub and nearby headquarters. The company had more than 5,000 employees when it operated as a feeder carrier for United Airlines for 15 years, before taking off on its own two years ago.

Flyi said the Chapter 11 bankruptcy filing will have no effect on passengers for now and vowed to continue through the holiday season its 220 daily departures to 36 destinations on a mix of 50-seat regional jets and 132-seat Airbuses.

No refunds will be offered to passengers wishing to cancel their reservations while the company is in bankruptcy protection, airline spokesman Rick DeLisi said. "Our fares have always been nonrefundable," he said.

When Independence Air's first flight left Dulles on June 16, 2004, Flyi chief executive Kerry B. Skeen seemed convinced passengers would embrace an airline that offered cheap, quick-turnaround flights and that billed itself in a spry marketing campaign as "the polar opposite of the lumbering, arrogant major carriers."

But the market for Skeen's dream never materialized, and even slick ads trumpeting $29 one-way fares couldn't overcome rising jet fuel prices and competition that forced Flyi to run money-losing flights with fares often as low as a Greyhound bus. Intent on keeping his image of an independent airline alive, Skeen, against the advice of analysts and others, rejected a buyout offer from budget contender Mesa Air Group Inc. and refused to renew his company's role as a regional feeder for United.

"There was risk if we stayed with United or if we didn't," said Skeen, who has accepted a 25 percent pay cut, to $277,500 annually, as part of a cost-saving effort that includes 5 percent pay cuts for non-union Flyi employees. The company said it is also negotiating with unions to change "wage rates and work rules."

The only hope now, Skeen said in an interview, is for a new investor to "either finance what we are doing today or, more likely, finance a transition" to a different model.

"We didn't have the advantage of a crystal ball when we launched Independence that fuel prices would be nearly triple. And the spike in fuel prices after [Hurricane] Katrina was just icing on the cake," Skeen said.

Employees at the airline's Dulles operation had been asked by the company not to speak to reporters, but several who spoke on the condition of anonymity said they were hardly surprised. The company has been scaling back routes and operations since the summer in an effort to pare expenses. That, coupled with the turmoil in the airline industry that has led Delta Air Lines Inc., Northwest Airlines Corp. and United Airlines parent UAL Corp. into bankruptcy as well, made yesterday's filing seem almost inevitable.

"This is my third airline in 20 years. I have seen this before. I expect this airline to be acquired by someone else," said one Dulles skycap. "I could see it coming."