News & Analysis

MatlinPatterson-backed ATA Airlines files for Chapter 11

In the wake of Yucaipa-owned Aloha Airlines’ bankruptcy, yet another private equity-owned commercial airline has crashed.

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A troubled airliner owned by a private equity firm has gone belly-up for the second time in a week.

ATA Airlines, a US regional airline controlled by distressed investment specialist MatlinPatterson, filed for Chapter 11 bankruptcy protection and terminated all passenger operations earlier this week. ATA currently has between $100 million (€64 million) and $500 million in assets, and between $100 million and $500 million in liabilities, according to court bankruptcy documents.

It is the second time ATA has sought protection from creditors in the last four years, but the first since MatlinPatterson acquired the Indianapolis-based airline in 2006 through parent holding company Global Aero Logistics. The New-York based firm currently owns a 74 percent stake in Global Aero, which was not part of ATA’s filing.

ATA’s announcement comes on the heels of Aloha Airlines’ collapse earlier this week. Like ATA, Aloha had been rescued by a private equity firm, the Yucaipa Companies, after an initial bankruptcy. MatlinPatterson had actually bid to acquire Aloha after its first bankruptcy in 2004, but was beaten by Los-Angeles based Yucaipa.

Despite their owners’ restructuring efforts, however, both Aloha and ATA continued to mount major operating losses, each citing the skyrocketing cost of fuel as a primary reason behind their collapse. ATA also said the unexpected cancellation of a key military charter contract had undermined its efforts to obtain additional capital or restructure its operations.

Two ATA-affiliated airlines owned by MatlinPatterson, World Airways and North American Airlines, are not involved in the filings. The firm frequently gets involved with beleaguered airlines: It was one of the bidders that had expressed interest in Italian airline Alitalia and last year it collected a return of 10.5 times its investment in Viação Aérea Rio Grandense, or Varig, a Brazilian airline that went bankrupt in 2005.

MatlinPatterson is currently raising $5 billion for its third fund, according the Probitas Partners 2008 Private Equity Deskbook.