Flyi Files For Bankruptcy

Flyi Inc., which launched low-fare Independence Air just one year ago from its hub at Washington's Dulles Airport, filed for Chapter 11 bankruptcy protection Monday and said it hopes a court-supervised auction will attract a new investor in the next 60 days.

Airline spokesman Rick DeLisi said flights would operate on their regular schedule Monday and that customers should not expect any immediate disruptions.

Dulles-based Flyi, formerly known as Atlantic Coast Airlines, had operated until July 2004 as a contract carrier for UAL Corp.'s United Airlines and Delta Air Lines Inc. But when bankrupt United sought to renegotiate its contract with Atlantic Coast at lower rates, Atlantic Coast executives decided they had a better future as an independent carrier.

When the airline announced plans to transform into a low-cost, low-fare carrier, some were skeptical immediately because the airline's fleet of small, regional jets generally has higher per-person costs than larger jets.

The airline struggled to draw customers from the beginning. In its first few months as an independent carrier, the airline's planes were often half empty despite fare sales as low as $29 one way to some destinations.

In recent months the company has drawn more travelers and filled its planes at rates comparable to the industry average. It also earned strong marks on customer service and traveler satisfaction, but the pressure to keep fares low remained intense even as fuel costs soared.

Flyi chief executive Kerry Skeen said the airline suffered from bad timing, going independent "in what has been described as the most challenging economic environment in airline industry history, including record high fuel prices and extreme revenue weakness. These circumstances have prevented us and virtually all U.S. airlines from meeting financial goals."

The airline said in a news release Monday that is seeking to establish a court-supervised auction to attract a new investor or purchaser. Skeen said Monday in a telephone interview that the company prefers to draw an investor who will keep the airline intact rather than auctioning off the airline's assets on a piecemeal basis.

He said he believes that preserving the airline as an independent low-fare carrier is a realistic option given the "good, loyal fan base" the airline has built in Washington and other smaller markets that had never previously had a low-fare carrier.

Some of Flyi's shareholders had argued for the airline to return to its roots as a contract carrier. Skeen said such a move would be risky given the financial turmoil among traditional legacy carriers.

Still, Skeen said "We're looking at everything, and we'll consider anything that we think adds value and preserves jobs."

Analysts have speculated for months that the airline would file for bankruptcy and its shares have traded at less than $1 for months. Shares closed Friday at 19 cents on the Nasdaq Stock Market.

The filing occurred in U.S. Bankruptcy Court in Delaware.