Bankruptcy Hits 3 US Airlines

By Rebecca Rayko
AWN Editor

High fuel costs and a slowing economy have begun to take a drastic toll on at least three US airlines. National Airlines, Legend Airlines and Reeve Aleutian Airways filed for Chapter 11 protection under the US bankruptcy code last week.

Las Vegas-based start-up National Airlines filed for Chapter 11 on Wednesday, citing the burden of escalating fuel prices as the major cause. Unlike many of the major US airlines, National did not participate in a fuel hedging program that could have locked in favorable rates for the carrier.

Despite the bankruptcy filing, National does plan to continue all normal business operations and continue uninterrupted services to its customers.

"We want to assure our customers that we will continue to operate on a normal schedule without interruption, and we are dedicated to serving our customers' needs today while we strengthen our ability to provide them with high-quality service well into the future," said Michael J Conway, president and CEO of the airline.

"Protecting customer interests and providing them with exceptional customer service has been and remains one of our top priorities," Conway said.

The company, which began operations just last year, is focusing on restructuring the balance sheet, said Conway, and hopes to come back "stronger and more viable" in the future.

"We remain dedicated to our business and believe that our financial situation is a short-term issue that can be successfully managed through the reorganization process," he said.

The US airline industry is well known as an intensely competitive one, and the new entrants face especially difficult challenges. The slightest economic downturn or negative change to the operating environment can pose a huge hurdle to start-ups, which are smaller, leaner, and more vulnerable with high levels of debt.

"The fact of the matter is, the more established airlines have deeper pockets that help them to withstand these kinds of fuel prices," Conway said.

Dallas-based Legend Airlines knows all too well the meaning of Conway's statement. Legend announced last Sunday that it, too, had filed for bankruptcy, but unlike National, the privately held airline shut down its operations.

"We are doing our best to assemble the necessary resources to get our airline back in the air with service for customers," said Legend president and CEO T Allan McArtor.

Legend, which began operations last April (see AWN April 10, 2000), grounded all seven of its refurbished Boeing DC-9s as it looks for additional financing. The airline lost more than $25 million during its first six months in operation and had just $184,000 in cash on hand at the September 30 mark.

Legend officials said the company would be out of cash by Christmas.

McArtor, former head of the FAA, blamed fuel and the high cost of refurbishing the DC-9 fleet into luxurious all-business class configurations for hurting the bottom line. Also, an unidentified investor unexpectedly withdrew a planned infusion of capital last week, McArtor said.

"We did everything within our means to continue to operate while we secured financing," said McArtor.

"We believed we had secured additional funding, and when the funds were not made available, our only alternative was to temporarily suspend operations until funds could be secured," he said. "The tightening in the credit markets and private equity as well as the time of the year with the holidays delayed our capital raising."

Legend also ran up high legal bills during a three-year court battle to gain slots at Dallas Love Field.

Alaskan regional tries to keep flying

Reeve Aleutian Airways, the oldest regional airline in Alaska, suspended all scheduled flights last week. The legendary airline had been in service for more than 60 years.

While trying to continue to fly its charter and contract flights, Reeve Aleutian also filed for protection from creditors under Chapter 11 of the US Bankruptcy Code.

The move came, said Reeve president Dick Reeve, as a last resort in the effort to keep the airline flying.

"Competitive forces over the last several years have eroded our business base to the point where we don't have enough customers on our scheduled flights to support our operations," said Reeve.

"Our aged fleet has increased maintenance costs to an all-time high, and the spike in fuel costs this year was definitely a factor in our decision.

"Ironically our business in the Russian Far East tripled in the past two years, but it wasn't enough to support the rest of our operations," Reeve said.

While employees are being retained to run Reeve charter flights, the company was forced to lay off 250 employees the first day of the shut down.

Reeve operates one Boeing 727 Freighter and two Lockheed L-188 Electras.