Ahh the second shoe drops

wnbubbleboy

Veteran
Aug 21, 2002
944
22
By God Indiana
ATA creditors want investment deal halted
Committee claims investor, Southwest plan to carve up airline
By Ted Evanoff
[email protected]
November 23, 2005


ATA Airlines struggled for months to find enough cash to stay in the air. This fall, the bankrupt Indianapolis carrier finally found a potential investor. Now, major ATA creditors contend they and the airline were "hoodwinked."
ATA's committee of unsecured creditors claims that the potential investor, Matlin Patterson Global Opportunities Partners II, and ATA business partner Southwest Airlines have quietly worked out a deal to cheaply carve up ATA.
The claim was made Tuesday in a filing in federal bankruptcy court in Indianapolis. The filing points out ATA is being scaled down to a single gate at Chicago Midway, an airport where it was the leading carrier as recently as last year. Southwest dominates the airport today.
ATA bond owners represented by Wells Fargo Bank Northwest filed similar objections to the Matlin proposal Tuesday.
Both groups want the Matlin deal shelved. U.S. Bankruptcy Judge Basil Lorch III is expected to convene a hearing today on the matter in New Albany.
While the objections could delay the Matlin deal, it's not clear whether they would scuttle the investment altogether.
If that happened, ATA might be forced to renew the search for cash or liquidate if it runs out money.
Creditors say ATA could bring in more money by auctioning off valuable passenger gates at Chicago Midway airport than by going forward with the Matlin proposal.
Tuesday's legal action singles out the diminished status of the airline long regarded as an Indianapolis success story. Started in 1972 in the city, the discount carrier became the nation's No. 10 carrier, employing 8,200.
But ATA entered bankruptcy Oct. 26, 2004, broken by fare wars, rising fuel prices and hefty lease payments on a new Boeing airliner fleet. It now employs 4,200.
Soon after the bankruptcy filing, Southwest emerged as a white knight. Retired Southwest executive John Denison joined ATA as chief executive, and the Dallas carrier injected cash and arranged a deal that funneled Midway travelers through both airlines.
Lately, ATA has veered from course. It's eliminating all regular Indianapolis service and would put most of its Midway gates into Southwest's control. And under the Matlin deal, it would take a narrower focus, concentrating on Hawaiian and West Coast flights and the profitable military charter service.
"If (ATA) can make a factual record that this is best possible deal they can get, then that is something the court probably would have to sign off on," said Wells Fargo attorney Gregory Taddonio of the Pittsburgh law firm Reed Smith.
However, the creditors' committee claims Matlin and Southwest froze them out of the reorganization process in "a thinly veiled attempt" to cheaply deliver ATA assets "on a silver platter" to Matlin, and almost completely drive ATA from competition with Southwest at Chicago Midway.
According to the filing, the deal was worked out in secret by Matlin and Southwest "without any participation by the committee, despite the committee's repeated requests to participate."
Matlin and Southwest, according to the filing, spun "a web" around ATA that "has somehow hoodwinked (ATA) management and professionals into believing" Matlin is ATA's only hope to avoid complete liquidation. The filing says ATA's recent proposal to scale back at Midway puzzled the creditors' committee, "despite repeated requests by the committee to understand (ATA's) dismantling of their operations at Midway, which only a year ago were touted by (ATA) and Southwest as the crown jewel of the newly revitalized ATA."
As recently as 2004, ATA commanded 14 Midway gates, more than any other carrier. Two months after the bankruptcy, Southwest and ATA worked out a complicated $113 million bailout.
Originally, Southwest got six of ATA's Midway gates, surpassing ATA as the leading carrier at Midway.
Under the Matlin plan, a second deal is in the works. Southwest would take over another four ATA gates and forgive $20 million in ATA bailout loans. Midway's owner, the city of Chicago, would get three of ATA's remaining Midway gates, leaving ATA with one gate.
Creditors claim the newly proposed Midway gate transfer and the Matlin investment were put together privately without consulting creditors, even though the legal process is supposed to give creditors a large say in a bankruptcy reorganization. A hearing has been set for Dec. 6 in bankruptcy court on the gate transfer.
In a bankruptcy, creditors are those owed money by the bankrupt firm. Bonds, which are a kind of loan, are often not repaid in full in a bankruptcy. Bond owners become unsecured creditors and often are compensated by receiving shares of new stock issued after the firm emerges from bankruptcy.
Wells Fargo claims the Matlin deal limits the bondholders to about 2 percent of the new stock to be issued, while setting aside more than 4 percent for the Air Line Pilots Association and more than 5 percent for ATA management. Matlin would get most of the remainder.
In Tuesday's filing, Wells Fargo contends the Matlin deal amounts to a reorganization plan but should be rejected by the court because it wasn't presented to creditors in a hearing. The filing says the deal is "proposing to treat unsecured creditors in an inconsistent and discriminatory manner."
Southwest officials did not return messages Tuesday seeking comment. The pilots union declined to comment. New York attorneys representing ATA's unsecured creditors committee could not be reached.
ATA issued a statement late Tuesday, saying that after an exhaustive search for investors, it reached a deal with Matlin that "carefully" considers and balances the interests of all parties. "As a result," ATA said, "the company believes it has reached a solution that provides the most equitable outcome possible."
Even if Lorch rejects the Matlin deal today, it could be modified later in meetings with creditors, and then approved by the judge.
"My sense is the unsecured creditors want to get as much as they can, but you also have to deal with the realities of this case," said Taddonio, the Wells Fargo attorney. "It's a matter of getting the best possible deal out there."
New York-based Matlin manages a reported $3 billion investment fund. Known on Wall Street as a vulture fund, it specializes in buying distressed companies.
Matlin would receive a $3.6 million payment from ATA and take control of the airline through a $100 million cash injection. Matlin in turn would get the bulk of the new stock to be issued by ATA when it comes out of bankruptcy.
 
Hmmmmmm....

So the options are:
1) make a further retrenching move to focus on the proven and profitable parts of the ATA business (West Coast to Hawaii and Charter) or
2) liquidate.

Sounds like the unsecured creditors don't care either way as long as they get their cash.

Best of luck to the ATA folks. I hope you get to remain independent and do what you do best!
 
<<Best of luck to the ATA folks. I hope you get to remain independent and do what you do best!>>

Ahem - is that like "Thank you for the MDW gates. PS. Please stay off our seniority list?"

Just wondering,

Globetrotter11
 
<<Best of luck to the ATA folks. I hope you get to remain independent and do what you do best!>>

Ahem - is that like "Thank you for the MDW gates. PS. Please stay off our seniority list?"

Former ATA pilots would always be welcome on our ALPA-free SWA seniority list.

And yes, thanks for the gates and you're welcome, too. They will provide many more opportunities for SWA to feed passengers to ATA through the code share. :)

(I'll refrain from speculating any further on the hypothetical issue of ATA/SWA uniting in any way, shape, or form. Way, way too hot of a potato at the moment!)
 
<<(I'll refrain from speculating any further on the hypothetical issue of ATA/SWA uniting in any way, shape, or form. Way, way too hot of a potato at the moment!)>>

Corl,

My previous reply was actually (somewhat TIC) meant in this context. The SWA "investment" has the appearance of cherrypicking assets from ATA and leaving them to wither away on their own. And yes, I realize that they received an infusion of cash - but codesharing with a scheduled carrier to a mostly non-sked carrier has a very limited benefit.

Just wondering some more,

Globetrotter11
 
The SWA "investment" has the appearance of cherrypicking assets from ATA and leaving them to wither away on their own.

Don't confuse appearance with substance. Yes, SWA has acquired valuable real estate with the MDW gates and maintenance hangar. In return they provided ATA with a lot of cash both up front and via code-share revenue. Arguably, this may have allowed them to ride out the time to step back, find another investor, and move forward instead of simply liquidating months ago.

Wither is an interesting term, but not one I'd apply to ATA. They appear to have stepped into a business idea (scheduled operations) for which their timing and execution weren't perfect. Unlike some airlines that don't even have a profitable core to fall back on, ATA can retrench to its proven businesses of West Coast to Hawaii and Charter. Downsizing is a necessary element of the process.*

World Airways did this same thing back in the '80s and, after an ego-busting retrenchment, are now one of the major military charter groups -- and profitable at that. (Info on World [WLDAE])


* John Roberson, Director of Aviation for the City of Chicago was reported as saying "ATA and Southwest also agreed that ATA employees who may lose jobs because of the reduction will be given interview preference at Southwest."
(Reference HERE)
 
Don't confuse appearance with substance. Yes, SWA has acquired valuable real estate with the MDW gates and maintenance hangar. In return they provided ATA with a lot of cash both up front and via code-share revenue. Arguably, this may have allowed them to ride out the time to step back, find another investor, and move forward instead of simply liquidating months ago.

Wither is an interesting term, but not one I'd apply to ATA. They appear to have stepped into a business idea (scheduled operations) for which their timing and execution weren't perfect. Unlike some airlines that don't even have a profitable core to fall back on, ATA can retrench to its proven businesses of West Coast to Hawaii and Charter. Downsizing is a necessary element of the process.*

World Airways did this same thing back in the '80s and, after an ego-busting retrenchment, are now one of the major military charter groups -- and profitable at that. (Info on World [WLDAE])
* John Roberson, Director of Aviation for the City of Chicago was reported as saying "ATA and Southwest also agreed that ATA employees who may lose jobs because of the reduction will be given interview preference at Southwest."
(Reference HERE)

=======================================================

Hiring preference for ATA employees, is in my opinion, a generous offer by WN.

Sure they will work their nuts off, on the ramp, but the eventual reward(top out $$, and bennys) will be worth it, in the long run !!


NH/BB's
 
=======================================================

Hiring preference for ATA employees, is in my opinion, a generous offer by WN.

Sure they will work their nuts off, on the ramp, but the eventual reward(top out $$, and bennys) will be worth it, in the long run !!
NH/BB's

I think it needs to be said as a member of WN starquest team that this does not guarantee anyone a job. All TZ employees will have to go through the interviewing process. The same offer was extended to National Airline employees in LAS when they went out of business in 2002. <_<
 
Unlike some airlines that don't even have a profitable core to fall back on, ATA can retrench to its proven businesses of West Coast to Hawaii and Charter.

You sure about that? According to a friend of mine who is an ATA flight attendant, the charter business is drying up because the U.S. military (the major source of their charter business in the past) "HATES" (his word, not mine) narrow-body a/c--such as ATA's 757s--for overseas charters. Right after the narrow-body hate falls "old" widebodies--such as the L1011. Their main complaint with the L1011 is reliability. They have gotten so bad that ATA now flies a mechanic on all L1011 trips as a part of the crew. If nothing happens, the mechanic gets a "paid vacation" because he stays in the same hotels and gets per diem for meals just like the flight attendants.

Now, I know that you will dismiss my post as simply an AA hater of SW--and I'm not. If you read many of my previous posts, you would find that I am the first to say that SWA does what they do extremely well and makes a nice profit to boot.

But, the truth is that SWA, for a relatively small amount of money, got control of a major city airport and eliminated a major competitor in that airport at the same time. And, don't expect anyone to believe the altruistic "just trying to help out a fellow airline" BS. SWA wanted to control MDW and ATA stood in their way. Also, if ATA were to fail before SWA got control of the gates, someone else might move in who was stronger than ATA and better able to compete like Airtran, Frontier, or Alaska.

And, Globetrotter is right. The codeshare would have been to ATA's advantage only if they could have maintained some semblance of being a regularly-scheduled airline serving a number of cities not already served by SWA. There have been several attempts in the past by airlines to specialize in a single--or limited multiple--destination market--LAS, or Hawaii, or Florida. ALL have failed.
 
jimntx,

Your observations are spot on.



<<ATA can retrench to its proven businesses of West Coast to Hawaii and Charter. Downsizing is a necessary element of the process>>

John Tague came to United airlines from ATA. One of the things he accomplished at his new employer was to get Pleasant Hawaiian Holidays to switch from ATA to UA. I believe that this was one of the mainstays of ATA's business, having seen ATA L-1011's at LAX with a Pleasant Hawaiian paint job. That might just make the retrenching impossible.

corl737,

I do not intend to pick on you. You seem like a fair guy. That said, SWA's promoters can come come across as a bit smug at times. To the casual observer it seems like Southwest is playing the "country come to town" game, while being "sly as a fox".

While I understand that it is all business, I can't help feeling for the ATA employees that are being pawns in this game.

Southwest, I my experience, has always been a good airline. I just wish that the benefits from fuel hedging will not be a reason to step over anyone in its way without regard for the ones affected. It believe that it is out of character for this airline.

From the sidelines,

Globetrotter11

PS. Edited for spelling
 
Creditors say ATA could bring in more money by auctioning off valuable passenger gates at Chicago Midway airport than by going forward with the Matlin proposal.

Not to totally side track the discussion, but these gates aren't ATA's to "auction off". They belong to the city of Chicago, which has to sign off to the split bet. SWA getting them in exchange for loan payoff, and "city" gates made available to everyone.

The creditors idea is a repeat of the mis-information assumed during the Am. West/AirTran/SWA asset bid process.
 
John Tague came to United airlines from ATA. One of the things he accomplished at his new employer was to get Pleasant Hawaiian Holidays to switch from ATA to UA.
I wasn't aware of this development. Thanks for the enlightenment. Is ATA completely "shut out" of PHH's business?
That said, SWA's promoters can come come across as a bit smug at times. To the casual observer it seems like Southwest is playing the "country come to town" game, while being "sly as a fox".
Sorry if you take it that way. We're still fairly new to the "being on top" position and only have the examples of the former industry leaders to emulate. We're continue to work on perfecting humility.
While I understand that it is all business, I can't help feeling for the ATA employees that are being pawns in this game.
When your company is in bankruptcy, everyone -- including the CEO -- is a pawn controlled by those who are willing to provide the financing to keep your company afloat.

I agree that it's an unfortunate situation, especially in a highly unionized industry where your quality of life is intimately tied to a seniority number. But for luck go I, but the decision to enter this industry with all it's good and bad was mine alone.
Southwest, In my experience, has always been a good airline. I just wish that the benefits from fuel hedging will not be a reason to step over anyone in its way without regard for the ones affected. It believe that it is out of character for this airline.
I think SWA is being true to its historical form. When there is a good business opportunity, it goes forward if and when it fits the SWA strategy. I think the only reason SWA is getting such publicity today is that they are the only ones with the cash to grow through facility acquisitions. If the whole industry wasn't in shambles SWA's moves would be virtually ignored by the media since they are nothing new.

Still, there is compassion for workers that may be displaced by a SWA-initiated transaction. They are being offered preferential placement on the interview list. Like every SWA employee, however, they'll have to earn their place on the team by meeting SWA's hiring standards. (Giving "free rides" to people who don't fit the company culture just to make them feel better is akin to drinking lemon-flavored hemlock because it tastes good.)
 
Now, I know that you will dismiss my post as simply an AA hater of SW--and I'm not.

I won't dismiss your post, Jim, because all your points are valid. (How about that, I actually do respect you!)

It will be interesting to see how John Denison makes ATA profitable again. If there's someone with the know-how, he's the guy to go to. I don't think he's trying to hide the fact that he sees SWA as a major player in the reorganization strategy. He knows SWA well. When Denison was SWA's CFO, he hired Gary Kelly to be their controller! So its no coincidence that when there are two competing offers with no clear-cut winner, SWA will get the nod.

It does seem that ATA is at least temporarily evolving into a closely allied though independent partner of SWA. (They just announced even more Hawaii code-shares.) And while some SWA employees are angered by the thought of ATA flying routes they feel SWA should fly, I, for one, am glad to see ATA filling those holes in our system while we concentrate on growth elsewhere. (I don't think SWA will go to Hawaii independently until we get the 737-1000 series "Dreamliner edition". :up: )
 
I wasn't aware of this development. Thanks for the enlightenment. Is ATA completely "shut out" of PHH's business?

I believe they are. I think ATA now uses Apple Vacations as their exclusive Hawai'ian package tour partner.
 
I believe they are. I think ATA now uses Apple Vacations as their exclusive Hawai'ian package tour partner.


Ok. So although ATA isn't flying charters for PHH, they still are alive and well in the charter business. Correct?

(I try to recalibrate my knowledge base whenever I learn that some of my "facts" no longer apply.)