UPDATE: Five parties spurned ATA offer

But FedEx Corp. in January unexpectedly cancelled ATA’s contract to carry military personnel, scuttling any sale and pushing ATA into liquidation.

The company filed the Chapter 11 bankruptcy petition last night in Indianapolis. While officials at the Indianapolis-based airline are still talking to potential buyers, they also shut down the airlines operations last night and say they are winding down the business.

“ATA had hoped that last-ditch financing could be obtained post-filing, but that does not seem possible,” Steven S. Turoff, ATA’s chief restructuring officer, wrote in a bankruptcy affidavit. “Thus, it will be necessary to effectuate an orderly liquidation of ATA.”

All operations were discontinued as of 4 a.m. today, the carrier said, meaning ticket holders will need to find alternatives. ATA had previously discontinued scheduled flights from Indianapolis. It was set to end domestic flights from Chicago’s Midway Airport on April 14.

The end for ATA comes 35 years after its founding by Indianapolis entrepreneur J. George Mikelsons. ATA grew to be the nation’s 10th-largest airline before it first filed for bankruptcy protection in 2004.

The company emerged in 2006 under the ownership of New York-based MatlinPatterson Global Opportunities Partners but never regained its footing. In 2007, the company posted an operating loss of $75 million and borrowed money from a sister airline to keep operations going this year.

MatlinPatterson formed a new holding company for ATA last year called Global Aero Logistics Inc. and last fall moved the holding company’s headquarters from Indianapolis to Georgia. The parent company is not affected by the bankruptcy filing.

Nearly 600 workers in Indianapolis and more than 2,200 nationwide are immediately out of a job, ATA said. The airline employed 2,300 in Indianapolis before its 2004 bankruptcy filing.

“We deeply regret the disruption and hardship caused by the sudden shutdown of ATA, an outcome we and our employees had worked very hard and made many sacrifices to avoid,” Chief Operating Officer Doug Yakola said in a statement.

In its filing, ATA asked U.S. Bankruptcy Court Judge Basil H. Lorch III to approve retention bonuses for 236 top employees. If those employees stay one month, they will receive bonuses that average $3,200 each. Key employees who stay longer will receive additional bonuses.

ATA’s bankruptcy filing did not specify the current value of its assets and liabilities. The company owes $365 million to secured creditors, according to Turoff’s affidavit. He estimated all the company assets could be liquidated for about $50 million.

ATA had flown military charters for nearly two decades and is the largest carrier for ferrying military personnel overseas.

It worked as a subcontractor for FedEx, paying the Memphis-based cargo carrier a commission for charter business it obtained for ATA. Military charters brought ATA approximately $335 million in operating revenue last year.

However, on Jan. 22, FedEx told ATA that as of October, FedEx no longer would permit ATA to fly charters under its federal contracts. The notification came a year earlier than ATA’s contract with FedEx was scheduled to end.

Since then, Turoff wrote, ATA tried to land other military charter business and also tried to end its “dispute” with FedEx, but nothing worked. Turoff did not describe the dispute.

ATA also was trying to sell its scheduled service business, which flew about 10,000 passengers a day under a code-share agreement with Southwest Airlines. That business generated $402 million in operating revenue last year.

But soaring fuel prices forced ATA on March 6 to announce that it would stop low-fare service out of Midway Airport in Chicago by April 14. ATA’s international service from the airport was to have ended June 7. Its other scheduled flights were between the West Coast and Hawaii.

ATA owns three airplanes and leases 26 more. In its bankruptcy filing, ATA asked Lorch to cancel those lease contracts.

Last month, Global Aero CEO Subodh Karnik resigned and was temporarily replaced by Global Aero Chairman John Denison. The company wouldn’t discuss Karnik’s departure.

Denison was ATA president and CEO from February 2005 to December 2006.

ATA pilot Kevin Friel said he wasn’t surprised by the announcement.

The company had been slashing costs to the bone. Safety wasn’t compromised, Friel said, but late-arriving parts kept planes on the ground, and functions including scheduling had suffered.