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Independence Air....Analyst says bankruptcy filing is possible

Independence Air....Analyst says bankruptcy filing is possible

Old Oct 20th, 2004, 04:56 AM
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Independence Air....Analyst says bankruptcy filing is possible

This morning's Washington Post quotes an analyst at UBS Investment Research as saying the airline's parent company is...."looking at large losses and a potential Chapter 11 filing by January when it must make a large aircraft rent payment". (lease payment of 100 mil is due)

The anyalyst said their business plan is not working. Flyi stock dropped 29% to $2.43 on the news.

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Old Oct 20th, 2004, 04:58 AM
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I think with very few exceptions, you can say with confidence "an analyst says that (insert name here) airline is at risk of filing bankruptcy in the near future."
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Old Oct 20th, 2004, 05:03 AM
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Ryan,

I beg do differ. Analysts do have some fiduciary responsibilities.
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Old Oct 20th, 2004, 05:08 AM
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Ryan's point is all airlines are at risk of filing bankruptcy. Aside from baseball knowledge, he speaks the truth.

I know of maybe 3-4 major airlines that are not in danger of this.
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Old Oct 20th, 2004, 05:16 AM
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When an anyalyst issues a specific bankruptcy warning..it usually becomes true. The warning precipitates a tightening and/or withdrawal of credit between the airline and its creditors.

In an effort to avoid getting "stuck" credit dries up until after the filing. Next would be for the airline to get behind in their accounts payables.
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Old Oct 20th, 2004, 05:23 AM
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Dick,
I'm well aware an analyst fiduciary responsibilities as I've been in the securities business for 17 years and have spent at least 12 of those years working directly with distressed credits.

I think you took my point too literally. With few exceptions, virtually every airline is facing significant financial pressure.

BTW, an analyst only has a responsibility to offer THEIR opinion. If their opinion is that a bankruptcy filing is possible, for whatever reason they deem as likely, they have no legal liability for stating that opinion if they qualify it as "in our view" based on what can be deemed as reasonable justifications. Research analysts do not face the same burden of proof that banks have with Lender Liability laws.
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Old Oct 20th, 2004, 06:13 AM
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Ha, Ryan. I love it when someone assumes one doesn't know what one is talking about and then one can come blazing back and make them eat their words.

I spent about the same amount of time as you did in the creditor/bankruptcy arena, and it is amazing how damaging people's "opinions" can be.

I think the amount the stock dropped is pretty indicative of how easily investors can be spooked by a negative outlook offered by some "analyst" who spends far too much time sitting in an office poring over financial statements that can be used in many different ways to create their observation.

Especially in the airlines industry, some junior analyst's idea (gee, what rocket scientist DOESN'T know the airlines are in trouble) of fun could easily be creating a furor in a 24 hour timespan over what edict he/she issued. (Not to say that's what happened here...)

Could Dick be "the analyst"?
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Old Oct 20th, 2004, 06:32 AM
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Diana,
It is amazing how many people (not suggesting Dick is one of them) who think analysts have a crystal ball. All they are doing is offering their opinion and their interpretation of a situation.

Curious, where did you work in the business?
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Old Oct 20th, 2004, 06:55 AM
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I also agree that Ryan speaks the truth including baseball knowledge. I am also in the securities business but I'm not nor will I ever be an analyst (I'm in Sales). A recent study showed that just slightly over half of analysts predictions turn out to be correct - go figure!
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Old Oct 20th, 2004, 06:57 AM
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As JDSU dropped from $80/share to $2/share. Most analysts still had it a strong buy. Too funny

BTW, JDSU stands for "just don't sell us"
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Old Oct 20th, 2004, 06:59 AM
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I have no crystal ball or I'd be playing Mega Bucks lottery.

I only posted the quote as a caution. I should add, I a holding tickets on a Independence Air flight in a few weeks. This airline has only been in business a few months and doesn't have the cash reserves that some of the legacy carriers have.

I know that most any analyst can have an opinion and I don't claim (as you do) any special knowledge.

However, in my experience in business, when an analyst from a major company suggests bankruptcy, it seems to become a self-fulfilling prophecy. As credit is cut off or reduced , it has a negative impact. Suppliers get nervous about granting more credit since they get more protection after the filing.
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Old Oct 20th, 2004, 08:03 AM
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Ryan,

I worked for a major NY based cosmetics manufacturer as their credit/problem accounts receivable manager and was involved in MANY high profile bankruptcy cases as an unsecured creditor.

We had millions of dollars of inventory in some high risk and high profile chain and department stores, and I was not fond of analysts jumping to conclusions on long term health and causing scares among the secured creditors.

The banks would call the loans, and get THEIR money, while the unsecureds would line up and get --- .05 cents on the dollar or more likely ZIP.

Craig's post said that the chance of their (the analysts) predictions being correct is a bit over 50%.

Maybe my Jack Russell Terrier Zoe should be an analyst. I could base her predictions on whether she turns around 3 or 4 times before she lies down after I show her the spreads of the financials.

3 wins out about 55% of the time.
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Old Oct 20th, 2004, 08:06 AM
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So USAirways and United in bankruptcy with Delta, AA, and Independence Air on deck.

Yes, AA did turn a small profit last year but they will not this year and are very very vulnerable to bankruptcy court in the near future.

Anyone who doesn't beleive me can do a google search.
 
Old Oct 20th, 2004, 09:07 AM
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Back to the original topic - It's no surprise they are having major problems. Their load factor are in the mid-40's percentile for the past few months.

The majors are losing enough money with load factors around 80%, the regional jet is not as cost-efficient as mainline jets. Independence is bleeding major dollars by putting like 20 paying customers on their plane.

Think about it. Say each leg they get an average of $100 per passenger, they are only going get $2,000 per flight. Think about all the fuel, wages, interest on their planes, etc... How can this business model survive, especially in the high-cost East Coast?
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Old Oct 20th, 2004, 09:13 AM
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Don't shoot the messenger. I live in the Metro DC are and want Indepence Air to succeed. I merely was passing on pertinent info.

Unfortunately, the analyst pointed out specific facts about Flyi.

1. The airline is only 4 months old.

2.Their load factor in September was 44.4%....compared to 76.6% for Jet Blue and 63.2% for Southwest.

3. They have a $100 million lease payment for their planes due in January.

Ryan, if you think the anaylyst's comments are without merit, I would suggest that the stock's decline represents a tremendous buying opportunity. The stock is down today (on top of yesterday's big drop) over 38% as I write this. You could have bought the stock ealier today at $1.04 a share.

Who knows, maybe we should all be buying the stock.

Truth be told, I'm guy shy after getting stiffed as vendor/creditor and as a shareholder in previos bankruptcies.
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Old Oct 20th, 2004, 09:24 AM
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I suppose with rising fuel costs, Independance Air is really going to turn a profit now, and the stock price will reflect that.

Anyone who buys the stock should have their head examined.

Buy good companies and hold. The collapse of March 2000 should have taught us that.
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Old Oct 20th, 2004, 11:41 AM
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Questions: Who authorizes funding and then funds these enterprises? Or maybe more to the point, where did funding for Indep. come from? -- there can't have been much equity when they split from UA.

Someone must have thought they had a good plan, but wouldn't a plan for ANY start-up give them a longer period, perhaps a full year before declaring failure? At least more than 4 months? What is "standard procedure" here?

It was one thing for Midway, which had been a going concern until upper mgt. made some seriously dumb decisions even before 9/11 came long, to go ahead and order new planes, but Independence had ordered its larger jets close to Day 1 -- so someone must have built into the plan that they would survive long enough to take delivery. Maybe I'm being seriously simplistic here, but when is a declaration of mortality too soon with respect to a new enterprise?
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Old Oct 20th, 2004, 12:28 PM
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You'll note Dick that I never referenced the report specifically nor did I comment on it in any way, shape or form. My comments were really meant as generic. Anyone who admits to being in the public securities business would have to be a complete fool to give an opinion of a public security on a message board.
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