Independence Air Gets Reprieve
By Ross Snel
TheStreet.com Staff Reporter
FLYi Inc. (FLYI:Nasdaq - commentary - research), the parent of Independence Air, will bolster its coffers by postponing some airplane deliveries, a move that may help the cash-strapped airline avoid bankruptcy, at least for now.
On Thursday, the Dulles, Va., company said airplane maker Airbus agreed to defer deliveries of six A319 planes originally scheduled for 2006. Independence has 16 of the planes on order and now plans to receive six in the second half of 2007, six in 2008 and four in 2009.
In return, Independence will receive a $31.2 million refund from Airbus. Airbus also will let Independence put off $11.5 million in other payments scheduled for the rest of this year, and the carrier has canceled $16.5 million in debt it had issued to finance some of its airplane payments.
The airline disclosed the news in a filing with the Securities and Exchange Commission.
Shares gained a penny to 46 cents. Over the past year, the stock has lost almost 90% of its value on bankruptcy fears.
Formerly a regional carrier for UAL's (UALAQ:OTC BB - commentary - research) United Airlines and Delta Air Lines (DAL:NYSE - commentary - research), the company struck off on its own as a hip discounter in June 2004. The move proved poorly timed however, as fuel prices were on the rise just as industry overcapacity was making it difficult for individual carriers to raise fares.
The skyward march of fuel prices is showing no signs of stopping, confounding airlines. Crude oil futures hit new highs above $65 Thursday after logging another record close Wednesday.
Independence has been burning through cash, ending the second quarter with only $66 million in unrestricted funds. The quarter's loss of $98.5 million, or $2.01 a share, was significantly higher than the Wall Street forecast for a loss of $1.24 a share.
In a quarterly filing this week, the company offered a dire forecast, saying its cash wouldn't cover obligations for the rest of the year and it might have to file for bankruptcy protection.
Although the latest move will give Independence some needed liquidity, analysts have warned that deferring A319 deliveries won't help the airline's cost structure because the Airbus planes have lower unit costs than the smaller regional jets that make up the bulk of Independence's fleet.
