Independence declares dim 50-seat future

If any confirmation of the limited outlook for 50-seat regional jets were needed, long-troubled Independence Air has given it with its long-awaited bankruptcy reorganisation filing on Monday. Its parent FlyI gave in to pressures months after most airline observers gave up on its strategy of low-fares on very frequent 50-seater flights. It has lost more than $395 million since it began flights in June 2004, when it ended its Atlantic Coast feeder operation for United Airlines.As its losses continued, Independence, based at Washington’s Dulles International, tried to recast itself, dumping some of the CRJs and adding a dozen Airbus A319s but could not overcome the response of low-fares on bigger airplanes thrown up against it by former partner United and others on the highly competive East Coast. Many questioned its entire strategy of using RJs, noting that the aircraft type simply does not lend itself to low-fare economics with a relatively high trip cost of more than $2,400, which if spread over only 50 seats leaves no room for empty seats, high oil costs, or strategic error.
Independence said it plans to continue operating 30 of its CRJs, grounding another 28 more in addition to its earlier CRJ groundings; it will also seek to continue its 12 leases on A319s from the manufacturer. The airline had already shrunk capacity by a quarter, cutting most of its Airbus services to the West Coast, laying off workers and cancelling further Airbus deliveries.
By the time it filed in the Delaware bankruptcy court, it had just $24 million in unrestricted cash. Standard & Poor’s analyst Betsy Snyder says lenders with FlyI RJs as collateral will see little if any return because “recent developments in the 50-seat regional jet aircraft market have resulted in an oversupply of this size of aircraft”. She notes the announced cessation of production in 2006 by Bombardier, which will instead focus on its larger 70- and 90-seat projects.
Independence claims it is “maintaining a dialogue” with 30 interested parties and set a deadline of 5 January for a sale or auction of its assets. But most feel that its certificate is more valuable than its fleet. Analysts such as Calyon’s Ray Neidl doubt that stronger low-fares carriers such as AirTran or JetBlue would come in to rescue Independence or pick up its assets. Liquidation or a sale to a start-up or even foreign-backed investors, such as Sir Richard Branson’s long-delayed Virgin America project, may be the best possible outcome but many including Lehman Brothers analyst Gary Chase think that liquidation is a likely outcome.
One of the few to offer any praise for Independence is Leo Schefer, veteran airline observer and head of the Washington Airports Task Force, which seeks to attract service to Washington’s two airports. “They proved that thirst for low fares in the region and the viability of Dulles as a low-fares hub. They are a main reason why the airport went from 17 million annual passengers before FlyI to 27 million passengers, and those flyers are not going away.”

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