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ATA sues FedEx over canceled military contract

June 11, 2008
ATA Airlines Inc. on Wednesday sued FedEx Corp., charging it wrongfully canceled a military-charter contract that generated hundreds of millions of dollars in revenue for ATA.

The suit charges that FedEx had been legally obligated to keep ATA on its military-charter team at least until September 2009. Even so, FedEx in January notified ATA that it would be dropping the carrier as of this fall, the suit says.

"ATA representatives then 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."

IBJ reported last weekend that the lawsuit was in the works.

ATA, a unit of Georgia-based Global Aero Logistics, had employed 2,230 before it abruptly shut down April 3 and filed for bankruptcy court protection. Any recovery from the lawsuit would benefit creditors. Court papers show they are owed more than $700 million.

A FedEx spokesman was not immediately available for comment this afternoon.

Before shutting down, 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.

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.

ATA contends the cancellation violated the terms of an agreement ATA struck with FedEx in September 2006 that should have kept ATA on the FedEx team through at least September 2009.

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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