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Flyi Says Older Carriers Played Tough

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By Bill Brubaker
Washington Post Staff Writer
Wednesday, November 9, 2005

Though Independence Air once billed itself as a nimble alternative to the major airlines, the Dulles-based company suggested in a bankruptcy filing this week that it was ultimately beaten by those same legacy carriers.

Flyi Inc., the airline's parent, says an "extremely aggressive" competitive response by United Airlines and US Airways was partly responsible for sending the company into Chapter 11 bankruptcy protection even as the larger carriers themselves were in financial trouble. United's parent, UAL Corp., is operating under bankruptcy protection, and US Airways Group Inc. recently emerged from Chapter 11.

"These competitors . . . have reacted by matching fares, reducing restrictions [on airline tickets], offering additional frequent flier incentives, increasing advertising, and by taking aggressive steps to reduce their own costs," Flyi's top restructuring executive, Steven Westberg, wrote in one filing.

As a result, Flyi was forced to reduce its own fares to unsustainably low levels, Westberg wrote. The carrier has offered one-way fares as low as $29 to some East Coast destinations and $99 to the West Coast, excluding taxes.

Over the next few weeks, the future of Independence Air will be sorted out in Courtroom No. 4 at the U.S. Bankruptcy Court in Wilmington, Del., where Flyi has already filed more than 1,000 pages that offer insights into its past troubles and future plans.

Flyi says it plans to solicit bids and proposals from new investors so the airline can be sold -- whole or in pieces -- by Jan. 5. Whether a buyer can be found is uncertain. Flyi warned in one court filing that it "recognizes that in this challenging industry environment, an investor . . . or buyer may not step forward."

The first bankruptcy court hearing was held Monday afternoon as Flyi sought the court's approval to continue paying employees' salaries and prohibit utilities from shutting off service, among other requests. Another hearing is scheduled for Nov. 22.

Independence Air's competitors seemed bemused by the premise that their competitive response helped drive Flyi into bankruptcy protection.

"You know, there's nothing irrational about what we've done at all," said Philip J. Gee, a US Airways spokesman. "I mean, the industry now is more competitive, in some ways, than it's ever been because of an excess of capacity out there, especially on the East Coast. So it behooves us to do everything we can to grow a market share. So no airline takes competition lightly, and US Airways also has been the target of aggressive means by other carriers. Really, US Airways can say the same thing about Flyi."

Flyi's bankruptcy court filing said United increased its service by 37 percent on competing routes.

"We are very competitive wherever we fly. We match fares with other competitors," said Jean W. Medina, United spokeswoman. "Dulles is a major hub for us; it's our transatlantic gateway. We compete very vigorously there for our customers."

Flyi reported to the bankruptcy court that it had assets of $378.5 million, liabilities of $455.4 million and unrestricted cash of $24 million on Sept. 30.

As part of the restructuring, Flyi has given nonunion employees a 5 percent pay cut, and yesterday the airline said its mechanics and flight attendants unions agreed to new pay rates and work rules.

The company's largest creditors, all lenders, have a decidedly international flavor, according to documents filed by Flyi.

They include the U.S. Bank National Association ($125 million), Export Development Canada ($56.4 million), Germany-based HSH Nordbank AG ($19.5 million), Canadian Regional Aircraft Finance ($18.8 million), Ireland-based Trident Turboprop (Dublin) Ltd. ($16.1 million), and Herndon-based BAE Systems Ltd. ($8.5 million).

Other companies lining up to be paid for various services include Dulles-based America Online Inc. ($140,238), Los Angeles-based Travelocity.com LLP ($89,111) and Arlington-based New Media Strategies Inc. ($53,332).

The bankruptcy court documents also offer a look into Flyi's everyday expenses, such as jet fuel -- $2.9 million is paid weekly -- and utilities: a total of $303,000 a month, on average, to 45 companies, including Verizon Communications Inc., Sprint Nextel Corp. and Washington Gas parent WGL Holdings Inc.

Flyi stock closed yesterday at 6 cents on the Nasdaq Stock Market, down 1 cent from Monday's close. The airline's stock traded at $6.01 a share on the day Independence Air was launched almost 17 months ago.


© 2005 The Washington Post Company

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