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Independence Air Is Bankrupt

November 8, 2005
Sky-high fuel costs and brutal competition have taken a toll on another U.S. airline, as Independence Air has declared Chapter 11 bankruptcy. The company said its rising costs made its low-fare strategy a big money-loser.

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The airline, based at Washington's Dulles International Airport, says it will continue flying – for now. But company officials say they will immediately begin preparations for a court-supervised auction in hopes of attracting a buyer. Otherwise, industry analysts say, the airline probably faces liquidation.

On its Web site, Independence Air told customers that it will be "business as usual" for the next few months. But that's not necessarily so. Whether the failing carrier can find enough cash to keep operating is doubtful.

If you're holding a ticket on Independence, it might be wise to consider other options. But if it's a discounted non-refundable ticket, you probably won't be eligible for a refund if the flight departs as scheduled.

If the airline fails to operate a scheduled flight, customers who used a credit card to buy their ticket can dispute the charge with the credit card company and receive a credit. Those who paid cash or used a debit card will have to get in line with all the other unsecured debtors and are unlikely to collect anything.

If another carrier buys Independence Air, it will probably honor its frequent flier miles. But if the airline sells off its assets in bits and pieces or simply runs out of cash and stops flying, frequent fliers will be out of luck.

Independence Air was launched with great fanfare less than two years ago after operating profitably for years as Atlantic Coast Airlines, a regional feeder airline for United and Delta. The airline won praise from some passengers, but didn't attract enough of them to justify its rock-bottom fares.

Airline analysts had predicted a short flight since Day One.

"It was always a bad concept and never made sense," Vaughn Cordle, CEO of Airline Forecasts Inc., said. "None of the big carriers would give up seat capacity. They matched them on every route. Even with their own bankruptcy problems, all three major airlines had more financial resources than tiny Independence."

Its larger competitors matched its low fares on most routes, making it a less attractive alternative to the major carriers.

Independence has eaten through about $145 million in cash since it began operating as a low-cost carrier in June 2004. Through the second quarter of 2005, the carrier has lost nearly $400 million. Its stock price fell Monday to 7 cents, down from about $6.01 a share when it began flying 18 months ago.

Independence said it would try to continue its current schedule of flights but would have to slash costs immediately. The first target are the employees, who face immediate pay cuts.

The airline lists assets of $378.5 million and liabilities of $455 million.

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