Another Airline Deal Crashes

Are you holding tickets to fly on a private equity-owned airline? May I suggest a train or automobile?

ATA Airlines today canceled all current and future flights, after filing for Chapter 11 bankruptcy protection. If that sounds familiar, it might be because Aloha Airlines did the exact same thing earlier this week.

In fact, the two cases are very similar. ATA first filed for bankruptcy back in 2004, but was acquired by turnaround firm MatlinPatterson in 2006. The company would move its headquarters from Indiana to Georgia, and even paid $315 million to acquire WorldAir Holdings. But things hadn’t gotten much better by earlier this year, particularly when ATA lost a big FedEx contract to transport military personnel. MatlinPatterson began frantically searching for new funding or a discount buyer, but came up short on both fronts. According to the Chapter 11 filing, the current game-plan is liquidation.

Aloha also spent an earlier part of this decade in bankruptcy protection, before being carried out by Yucaipa Cos. It had been on the block for nearly a year, but was badly devalued by rising fuel costs and new inter-island competitors. It filed for Chapter 11 on March 20, and shut down operations this past Monday after more than 60 years in business. The current situation is best summed up by this “insider” quote in today’s Honolulu Star-Bulletin: “Between you and me, the unsecureds are not going to get squat.”

Maybe the lesson here is that you shouldn’t try an airline rescue if your firm’s initials aren’t TPG. It saved Continental back in the 1980s, and is about to try again with MidWest air. Who knows, it even may reenter the Alitalia picture, now that the talks with Air France have collapsed. Or maybe it’s just a sector to avoid altogether.