Unprepared for the strong competitive response it has faced and hobbled by an unexpectedly sharp increase in fuel costs, FLYi Inc, parent of Washington Dulles-based low-cost carrier Independence Air, warns it may be "forced to consider" a Chapter 11 filing for bankruptcy if it cannot renegotiate aircraft lease payments of $83 million due in January.

Since starting flights in June, Independence has struggled to fill half the seats on its regional jets while rivals have matched its fares and offered them on larger jets. FLYi said it "cannot sustain" the losses it projects for the fourth quarter and for 2005 without raising more cash. Raymond James & Associates regional airline expert Jim Parker sees cash falling to $100 million by year-end.

Independence flies 50-seat regional jets, but has based its plan on adding Airbus A319s on longer routes such as Washington-Florida this autumn. However, FLYi has failed to pay $8.7 million it owed on new A319s, and Airbus says it may cancel deliveries. The addition of mainline jets is "critical" to its business plan to serve larger markets with longer-haul flights. Further complicating matters, the FAA has yet to certificate FLYi to operate its A319s.

Meanwhile, Independence has altered basic elements of its businesses plan, joining the global distribution systems that it rejected in favour of its own website, raising fares, and redeploying aircraft to point-to-point routes that bypass its Dulles hub.

FLYi is also considering again becoming a United feeder. Under its former name Atlantic Coast, Independence was the main United Express feeder on the East Coast. UBS analyst Robert Ashcroft, who had said the business plan had a chance, now says: "It's clear that FLYi's business plan isn't working."

Source: Airline Business