Vanguard future falling fast

Kansas City airline seeks financial help

? With admittedly little hope for returning to the air, bankrupt Vanguard Airline Inc.’s decision to reorganize rather than sell everything off has left one nagging question:

Why?

President and ceo of Vanguard Airlines Scott Dickson walks into a news conference at Kansas City International airport in Kansas City, Mo. The airline suspended scheduled service and filed for Chapter 11 bankruptcy on Tuesday. Dickson said the airline likely faces permanent

After all, the company, which bled money year after year, failed to get the funding it needed in nearly a year of begging the government and lenders for help.

While industry experts and company executives say a Chapter 11 filing leaves open the chance that an investor might take a chance on the long-struggling carrier, the prospects seem dim for Vanguard, which laid off nearly 90 percent of its employees when it shut down.

“Nobody credible’s going to give them money now,” said Darryl Jenkins, director of George Washington University’s Aviation Institute.

Even Vanguard President and Chief Executive Officer Scott Dickson a self-described optimist offered little hope in a letter to employees posted on the company’s Web site. “It is likely this is a permanent shutdown,” he wrote.

What Vanguard is hoping for, said Elizabeth Cattell, the airline’s vice president of marketing, is that the bankruptcy will actually attract a lender.

“Sometimes in Chapter 11, we’re looking for a debtor-in-possession lender who would come in, and sometimes it’s more attractive to lenders once you’re in 11,” Cattell said.

Vanguard has given itself a week to find an investor. Without one, the fire sale begins.

On Wednesday a day after the Chapter 11 bankruptcy reorganization filing a bankruptcy judge approved the airline’s request to use about $450,000 during the next week to find new financing.

Vanguard’s shutdown, which industry experts say could lead to at least slightly increased airfares on a few of the routes the airline served, came after a private equity arrangement fell through and the federal Air Transportation Stabilization Board rejected a final request for a loan guarantee.

Although the airline industry has been under immense financial pressure because of the economic downturn and the impact of last year’s terrorist attacks, Vanguard has always had financial difficulties.

The Kansas City, Mo.-based carrier has not reported a yearly profit since operations began in December 1994. Its last quarterly profit was in 1999, before former chief executive Jeff Potter was hired to turn the company around.

Dickson who replaced Potter in May 2001 after Potter returned to his former employer, Frontier Airlines agrees with analysts’ assessments that before Potter, Vanguard was unfocused, adding and eliminating flights with little or no strategy.

Potter came up with a business plan: Create a hub-and-spoke system, with Kansas City as the hub. The airline added new planes switching from old Boeing 737s to the newer and roomier MD-80s. Vanguard also converted to a computerized reservation system, allowing the airline to sell more effectively through travel agencies and Web sites.

But the changes cost Vanguard, which lost $26.03 million in 2000 and another $30.9 million in 2001.

Still, Dickson believed in Vanguard’s business plan. In the months before the airline filed for bankruptcy, revenue was up and more passengers were flying with Vanguard, he said.

What the company needed, however, was credit. The bills had piled up: In its bankruptcy filing, Vanguard listed $95.9 million in debts and $39.7 million in assets. Dickson blamed Vanguard’s difficulties in obtaining credit on the airline’s history and the 9-11 attacks.