ATA chief joins list of creditors: Mikelsons' Betaco files claim for charter helicopter lease

March 7, 2005

In what burned creditors of ATA Holdings Corp. might savor as a sky-high irony, the chairman of the bankrupt airline himself is holding out his creditors' cup.

George Mikelsons says the parent of ATA Airlines Inc. owes him $179,064 for a helicopter he leased the carrier through his Betaco Inc. firm. His claim was filed Feb. 11 in ATA's bankruptcy reorganization in U.S. District Bankruptcy Court for the Southern District of Indiana.

It's one of many unusual claims that have trickled in, ranging from a man supposedly "disfigured" during in-flight turbulence-to an Illinois investment club that wants compensation for its decision to buy and hold ATA stock.

ATA filed for Chapter 11 on Oct. 26, listing assets of $745 million and liabilities of $940 million. Mikelsons and his executives blamed fare wars, soaring fuel costs and an expensive fleet expansion begun just before the 2001 terrorist attacks.

Ultimately, the buck stops at CEO Mikelsons' desk, however, and he's not likely to get much sympathy from creditors. Some of those are aircraft leasing companies who've also had their leases rejected by ATA. The Indianapolis-based carrier plans to return numerous leased aircraft. Its fleet is expected to shrink to about 45 planes from a high of 82 in recent years.

Had the airline kept paying on the Betaco lease, "there would probably be a roar of disapproval" from some creditors, figures Charles Greer, a veteran Indianapolis bankruptcy attor- ney who now runs a firm that consults with struggling businesses.

An attorney for ATA's creditors committee could not be reached for comment.

Even though Mikelsons is unlikely to receive full payment for an unsecured, non-priority claim, his filing is prudent procedurally, said Henry Efroymson, a partner at Indianapolis law firm Ice Miller.

"The filing of the proof of claim is simply for preservation of the claim" in the event there is money or negotiating room available, he said.

So far, "The way this case is going, it's highly unlikely there will be a distribution to unsecured creditors."

Mikelsons leased his Jet Ranger III to ATA's ExecuJet Inc. subsidiary for $7,000 a month, according to court records.

ATA used the helicopter for third-party charter flying, according to ATA's 2003 annual report, the last issued before bankruptcy.

"The company believes that the current terms of the leases and subleases with Betaco for this equipment are no less favorable to the company than those that could be obtained from third parties," the report said.

The report also says Betaco owns a Cessna Citation II, a Lear jet and a second helicopter that's used by an Indianapolis television station.

"The other three aircraft are still subject to leases that ATA is making payments on to Betaco. There will be a decision at some point as to whether the company will continue to utilize those aircraft," said Brian Hunt, ATA's general counsel.

Mikelsons' claim states that ATA has not made lease payments owed to Betaco on the Jet Ranger since Nov. 1. The $179,064 he is seeking is for the period of Jan. 13, 2005, to March 31, 2007, which is when the helicopter lease with ATA expires.

Betaco has taken heat in recent years as ATA has suffered financial losses and layoffs. In 2002, ATA began paying the salaries of workers aboard a yacht owned by Betaco and another Mikelsons company, totaling about $296,000 annually.

Mikelsons said at the time that much of his entertaining aboard the yacht involved ATA clients and business partners-ultimately for the benefit of ATA. He also pledged to reimburse ATA for the portion of the crew's time not used for the benefit of the airline.

Such insider dealings might raise howls from shareholders at some public companies, but they attracted little attention at ATA over the years. Mikelsons enjoyed good will in ATA partly because he founded the carrier in the early 1970s and because he owns about 70 percent of its now virtually worthless stock.

Technically, Mikelsons was already a creditor. His 8.2 million ATA shares were worth $105 million in early 2004; today, they'd be worth $7.4 million-assuming he could sell shares now worth less than $1 apiece.

Usually, shares of a bankrupt company's common stock are rendered worthless and may be replaced by new shares granted to higher-priority creditors.

Perhaps someone should tell that to the numerous shareholders who filed claims in ATA's bankruptcy.

Among them: The Slovene Investment Club of Palos Hills, Ill., filed a claim for $2,048, representing the value of ATA shares it held. Typically in a bankruptcy, common equity holders are "at absolutely bottom" of the priority list, Greer said.

Other small claims include Illinois Youth Soccer of Arlington Heights, Ill., which estimates ATA owes it $35,000 under obligations of a marketing agreement. The group pledged to make ATA its exclusive airline and promote ATA in return for 88 round-trip tickets and $9,000 to a soccer program annually.

Or there's the wee $63.08 that Brownsburg resident David Farnsworth wants ATA to pay relating to his departure from the company last year. ATA sent him packing with $6,176, but a month later insisted he was overpaid and threatened to sue the former employee if he didn't return it.

His attorney shot back with a letter that Farnsworth got the accumulated sick and annual leave pay he deserved-and that ATA owes him the $63.08 in addition.

But as the bankruptcy pecking order goes, those more likely to get some money include those with personal injury claims. At least that's the hope of the Chicago attorneys representing Lorenzo Sanchez, who alleges he was injured in 2002 on ATA flight 208 from Guadalajara, Mexico, to ATA's Chicago Midway Airport hub.

In an April 2004 case filed in U.S. District Court for the Northern District of Illinois, Sanchez claims to have "suffered and will in the future suffer disability and disfigurement" stemming from unspecified injuries during turbulence that buffeted passengers.

Generally speaking, injury cases may stand a better chance of tapping money because the proceeds often come from a bankrupt company's liability insurer, rather than from the company's estate, Greer said.

The same may go for Worker's Compensation funds. An attorney for former ATA flight attendant Betty Henry filed a $320,000 claim on behalf of the Hammond resident. Henry in 2003 tripped over broken pavement while on a layover in Italy and shattered her ankle, according to the filing. Her doctor last year recommended "light duty, sedentary" work.

Higher up in the bankruptcy food chain are professional firms, such as attorneys and accountants. Accounting firm South Bend-based Crowe Chizek and Co. filed a $20,200 claim for the audit of the airline's 401(k) plan and of a crew member fund.

Whatever is left over goes to these types of creditors after secured creditors-those at the top of the heap-are paid. The rest, if any, trickles down to the unsecured creditors.
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