Update: ATA, FedEx spar over airline’s failure

ATA Airlines Inc. says in a lawsuit filed yesterday that FedEx Corp. knew that its decision to drop ATA from its military-charter team would destroy the airline.

“ATA representatives … warned FedEx that its decision, if not reversed, would be the ruination of ATA,” according to the suit filed in U.S. District Court in Indianapolis. “FedEx told ATA it was terminating ATA even if it caused ATA to fail.”

But FedEx spokeswoman Sandra Munoz said today that her company does not understand why ATA shut down in April and sought bankruptcy court protection. She acknowledged that FedEx in January notified ATA that it would not be part of the FedEx team in the fiscal year that starts in October. But she said ATA was under contract to continue the military flights through September.

“Why they decided not to continue in that contract and decided to file bankruptcy is a surprise to all of us,” Munoz said.

ATA, a unit of Georgia-based Global Aero Logistics, had employed 2,230 before it abruptly shut down and filed for Chapter 11 protection. Any recovery from the lawsuit would benefit creditors, who are owed more than $700 million.

In bankruptcy court records, ATA said the cancellation came at an inopportune time, just as ATA was trying to line up additional capital. Chief Restructuring Officer Steven Turoff said in court papers that losing the business “was an unanticipated blow which … made the future viability of ATA suspect in the capital markets.”

ATA had been struggling for months with losses generated by its scheduled service, a problem exacerbated as fuel prices rocketed higher.

But ATA officials say the loss of the FedEx contract was pivotal, wiping out virtually all the airline’s military charter business. Through the first nine months of 2007, military charters accounted for about 45 percent of ATA’s $555 million in revenue.

In the lawsuit, ATA said that it and FedEx signed a “letter agreement” in 2006 spelling out that ATA would remain part of the FedEx team at least through September 2009. FedEx contends that its only contractual obligation was to keep ATA on board through September of this year.

ATA had built itself into the nation’s largest provider of military charters, ferrying members of the U.S. Armed Forces and their families to and from overseas deployments. It had been part of a FedEx-managed team providing the service for nearly two decades.

The lawsuit seeks more than $180 million in damages.

It says the loss of the military business was especially damaging because ATA recently had borrowed more than $50 million to purchase seven airplanes that were to be used for the military flights.

The lawsuit alleges that ATA lost the business because FedEx “acquiesced” to Northwest Airlines’ demand that it take over ATA’s allocation of flights.

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