America West not seen as likely suitor for ATA

Analysts say Arizona-based America West Holdings Corp., which today cut its 2005 growth plan in half, doesn't appear to be a likely suitor to purchase ATA Holdings Corp. out of bankruptcy.

America West yesterday said it was still interested in ATA despite the local airline's prepackaged Chapter 11 deal with Florida-based AirTran.

Ultimately, a federal bankruptcy court judge in Indianapolis will decide the best course for ATA.

America West today reported a third-quarter loss of $47.1 million, or $1.30 a share, compared to a profit of $32.9 million, or 60 cents, a year ago. The loss ended five straight profitable quarters.

Revenue for the quarter declined 2.3 percent to $578.6 million.

"It certainly looks like [America West is] not suitable at this point," said aviation analyst Morten Beyer, president of Arlington, Va.-based aviation consultancy Morten Beyer & Agnew. "I don't know what their cash position is, but I think AirTran is probably in a better cash position to exercise their plan."

America West had liquidity of $488.1 million in cash and investments, of which $416.8 million was unrestricted, America West Chief Financial Officer Derek Kerr told analysts this morning in a conference call.

Kerr pointed out that the company recently paid off the final $77 million of a term loan with Mizuho Corporate Bank Ltd., and made its second loan repayment of $42.9 million as part of its Airline Transportation Stablization Board loan. The company also has restructured $94 million of debt set to come due between 2005 and 2007, pushing it off to 2010.

He said the move frees up America West assets to use as collateral in future deals.

America West Chairman and CEO Doug Parker this morning told investors he wasn't ruling out making an offer for ATA, but wasn't going to become involved in a bidding war.

"I am confident that any bid we could make would be better than [AirTran's] current bid," Parker said.

But given the high fuel prices and lower fares that are plaguing the industry, the company won't rush to place a bid until later in the bankruptcy process.

"We've worked far too hard, and we're not about to harm that in pursuit of something that might put all that we've worked for in jeopardy," Parker said. "We're not making any commitment at this point… In a worst-case scenario, [the industry would] have fewer low-cost carrier seats flying around the United States, and we're OK with that."

Parker declined to say just how the company would structure a deal, but said he believed the company presently has enough cash on hand to make a bid.

"I think they're going to need a fair amount of liquidity on hand if they're going to do a deal, and with fuel costs and other factors making it so tough for everyone in the industry," said Clark Orsky, an aviation analyst with Montpelier, Vt.-based KDP Investment Advisors Inc. "I just don't know if it would be a good move for them. They would need a new credit facility if they want to do any kind of a deal. There are just a whole lot of unanswered questions."

One of the most burning questions, Orsky said, relates to the fate of ATA's leased Boeing 737 and 757 aircraft.

AirTran currently has about 50 737s on order from Boeing, said Beyer, who also questioned where the leased planes will end up.

 America West operates both 737s and 757s, and has shown interest in purchasing some of ATA's aircraft, primarily to serve its southwestern U.S. and Hawaiian markets.

Parker said that, based on the company's loan covenant with the ATSB, an acquisition of planes and other specific assets wouldn't require federal approval. There also is the question of whether the winning bidder will have to assume ATA's ATSB loan, or whether the loan will be assumed by the reorganized ATA, secured by the company's assets.

"There are a whole lot of unanswered questions at this point," Orsky said. "But from what I've seen AirTran certainly seems to be in a better position at this point."

Copyright © IBJ Corp. 2004.