With cash tight, ATA trading new planes for old: Smaller version of 737 can be loaded and unloaded more quickly, allowing for more flights per day

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Plans by ATA Holdings Corp. to slash its number of aircraft by nearly half include replacing its sleek, new jets with smaller, older Boeing 737s that can fly more trips daily, generating more cash than the larger planes that now dominate its fleet.

The Indianapolis-based parent of ATA Airlines wants to lease a dozen 737-300s and 737-500s-relatively stubby planes that date as far back as 1984.

Meanwhile, ATA is returning 18 of the 33 Boeing 737-800s it had at the end of 2004. The stretched 737s with leather seats had been the pride of ATA’s fleet during better times.

It was lease rates on those 737-800s that helped drive ATA into Chapter 11 bankruptcy reorganization on Oct. 26. The expensive leases became burdensome after the 2001 terrorist attacks drastically changed the economics of the airline industry.

Some of those 737-800s may wind up in Asia, where demand for the larger aircraft is strong among airlines in China and other fast-growing nations.

“One of the problems ATA would have is they had to slash their fares enormously to fill the [737-800],” said Mike Mooney, an analyst at Evergreen, Colo.-based Boyd Group.

“We always thought this was a direction they should go after Sept. 11,” Mooney said of the new focus.

ATA has returned 22 aircraft to leasing companies since filing bankruptcy. As of Feb. 28, it had 22 remaining 737-800s, according to its most recent financial report.

ATA’s 737-800s have 175 seats. The airline contemplates adding 137-seat versions of the 737-300 and 122-seat configurations of the 737-500s.

“It’s a smaller plane so you can turn it faster” at airports, said Sean Frick, ATA’s chief of restructuring.

Faster boarding also means ATA can fly the smaller 737s more often each day and squeeze out more cash. Increased frequency is key because the aircraft typically will fly from ATA’s Chicago Midway Airport hub to East Coast business destinations such as Boston, New York and Washington, D.C.

“Businesspeople want frequency,” said ATA’s spokeswoman, Roxanne Butler.

ATA wants cheaper lease payments.

Frick declined to specify how much lower leases would be on the older 737s vs. the 737-800s, saying negotiations aren’t completed.

In ATA’s favor is a market swarming with the older 737s. A number of airlines, including Atlanta-based Delta Airlines, are dumping certain older models.

It’s safe to say “those aircraft are leasing at substantially lower rates,” Mooney said. “Their lease costs will go way down.”

So should operating costs. Though the older 737s aren’t as fuel-efficient on a per-seat-mile basis, ATA might be able to do with one less flight attendant per plane, for example, Mooney said.

He said the airline should be able to move the ATA 737-800 pilots to the smaller, older planes. ATA may also be able to wrest additional pay cuts from pilots flying the smaller aircraft.

Meanwhile, ATA will “be doing some work” on the used 737s, Frick said. “It will be a decent-looking interior.”

Some of those planes could go into service by year-end, he added.

ATA also is looking into the possibility of leasing some Boeing 767s as part of its wide-body fleet used for military charter. They would replace the fleet’s outdated Lockheed L-1011s.

ATA has already unloaded two Saab 340 turboprops it owned and 15 it leased. The planes were used by its former Chicago Express commuter line, which earlier this month was auctioned to Indianapolis-based Okun Enterprises.

The firm is owned by real estate developer Ed Okun, who has remained tightlipped about his plans. He hopes to start service next month but must obtain federal approvals.

State officials hope Okun will restore intrastate service the commuter airline flew between Indianapolis and Evansville, Fort Wayne and South Bend.

Chicago Express had also fed Indianapolis passengers into Chicago Midway for ATA.

Earlier this year, ATA sold for $40 million the leasehold rights in six of its Midway gates to Southwest Airlines.

The Dallas carrier also is providing ATA $47 million in debtor-in-possession financing. Southwest is expected to generate tens of millions of dollars for ATA annually through an agreement to fly each other’s passengers to destinations served by one of the airlines but not the other.

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