A Change In Flight Plans -- Markair No Longer Considers Seattle Its Gateway Out Of Financial Trouble

Saddled with debt and mired in its second bankruptcy, MarkAir thinks a change of scenery might do it some good - again.

When the troubled Anchorage-based airline began passenger service in 1984, it flew exclusively in Alaska.

Eight years later, when it filed for bankruptcy the first time, the low-fare carrier began an all-out push into the Lower 48, making Seattle its secondary hub.

Today, as the airline attempts to climb out of its second bankruptcy in three years, MarkAir is on the move again, this time to a new home and hub at Denver International Airport.

By making the move, MarkAir is not only abandoning Alaska, it is also diminishing the role Seattle will play in its long-term plans. Once Mark Air's gateway to the continental United States, Seattle is now just one of a dozen cities the airline is struggling to maintain service in.

In the meantime, laid-off employees worry about recovering their back pay, current employees fret over their job security, and large creditors grow concerned about the airline's viability and asset base.

"We're committed to flying out of Seattle," said Tom Medland, Mark Air's director of sales and marketing. "But certainly, Seattle is less central to our overall strategy."

At present, MarkAir has only two daily flights serving Seattle-Tacoma International Airport, both to Denver. At its peak, it had as many as five out of Sea-Tac, heading to Anchorage, Los Angeles, San Francisco and Las Vegas.

Like it did during its first bankruptcy, MarkAir is trying to emerge from Chapter 11 reorganization by offering low-fare flights to major cities throughout the continental United States.

But this time, MarkAir has decided to fly exclusively in the Lower 48. Already, MarkAir has discontinued its Alaskan flights as well as its key Seattle-Anchorage route.

The abrupt decision transformed MarkAir from a north-south carrier with routes stretching from Alaska to San Diego to an east-west carrier spanning the continental United States. Now Seattle, once a centrally located hub along MarkAir's West Coast routes, is the westernmost stop in MarkAir's new strategy.

Steve Danishek, a travel-industry consultant, said MarkAir needed Seattle as long as the airline operated in Alaska. "But without Alaska, there's nothing keeping him (owner Neil Bergt) here."

Industry analysts said MarkAir's financial woes stem from its decision to fly its own planes on the Seattle-Anchorage route in 1991, as opposed to relying on an alliance with rival Alaska Airlines. That move triggered a major fare war with Alaska. And MarkAir lost.

MarkAir will be in U.S. bankruptcy court tomorrow, attempting to stave off liquidation by demonstrating that the airline can fly profitably with its east-west strategy.

Some creditors, including the Internal Revenue Service, have petitioned the court to order MarkAir to cease operations and sell off assets.

They remain skeptical that the airline's east-west strategy will yield positive results. Many industry analysts said MarkAir will face a similarly fierce fight now with United Airlines, which controls the Denver hub.

Worse yet, MarkAir will be taking on United with only six planes left in its fleet, a fleet that is now responsible for flying longer, less-frequent trips - a dangerous combination for a low-fare carrier, said Pacific Crest Securities analyst Bill Whitlow.

In 1993, the most recent full year for which results are available, Mark Air reported a net loss of $18 million, according to financial statements filed with the Federal Aviation Administration.

Anxious employees

Theresa Gleaves, a flight attendant for MarkAir, said some of the airline's Seattle-based employees were expecting the worst once the airline suspended its Alaska flights last month.

"Once they said they wouldn't fly in Alaska, we knew we were going to get hit," she said.

A week later, it happened. Mark Air announced it would be shutting down its 90-person Seattle reservations office in an effort to consolidate services in Denver.

The airline also decided to shut down its Seattle cargo operations. It reduced its passenger, sales and marketing staff by half to about a dozen employees. In Gleaves' department, about 20 of the airline's 70 Seattle-based flight attendants were let go.

Gleaves was spared. She said she is cautiously optimistic that MarkAir and Bergt can pull another rabbit out of the hat and turn the airline around.

However, "I wouldn't be surprised if (MarkAir) pulls out of Seattle altogether," she said.

MarkAir officials said that won't happen because the airline is committed to maintaining its two remaining flights from Sea-Tac to Denver.

In total, the airline laid off about half of its 1,200 employees nationwide since it filed for bankruptcy protection in April.

Julie Roesch, a Seattle-based flight attendant, was one of them.

Being laid off was bad enough, Roesch said, but on top of that, MarkAir refused to pay her the $1,400 it owed her in back wages.

"It just angers me that MarkAir can do this to its employees, who've worked so hard to keep the airline afloat," said Roesch, who is now working as a temp to make ends meet.

Roesch, who is considering a move to California in hopes of finding work there, said she and other employees were told to file a claim in U.S. Bankruptcy Court to reclaim their back wages.

She did just that, joining 150 other employees, 374 ticket holders and 122 other unsecured creditors who have filed claims thus far with the bankruptcy court.

"I'd be lucky if I got $50"

Like employees, hundreds, if not thousands, of MarkAir ticket holders were left in the lurch when MarkAir suspended a number of its routes.

Charles Arnold, who lives in Fort Collins, Colo., hoped to spend his honeymoon in Alaska. In March, he paid $700 for tickets to take him and his wife from Denver to Seattle with a connecting flight to Anchorage. But because the final leg of that route got discontinued, the couple was forced to spend an impromptu week here, Arnold said.

As he waited in line at Sea-Tac Airport to board his MarkAir flight back to Denver, Arnold said he hasn't decided if he would file a claim.

"My lawyer told me I'd be lucky if I got $50," he said.

According to attorneys familiar with the case, Arnold is probably right. There are a number of large secured creditors, including Seafirst Bank, the Alaska Industrial Development and Export Authority and several leasing companies - not to mention the IRS, which is owed $375,000.

Even the Port of Seattle is owed $245,000 for unpaid landing fees and passenger and facility charges at Sea-Tac. Port officials said if the courts allow MarkAir to continue operating on a long-term basis, they would place the airline on a repayment plan for that debt.

Some hope for employees

Still, there may be a glint of hope for Roesch and other MarkAir employees.

While attorneys for several of the creditors and bankruptcy-court officials declined to comment, Mary Jo Heston, a former trustee for the U.S. Bankruptcy Court's Northwest region, said there is a provision in federal law that allows priority wage claims to leap-frog the IRS's place in line.

Thus "if the IRS was in line ahead of the other secured creditors, then there could be a situation where the employees might see some of their money," said Heston, an attorney with Lane Powell Spears Lubersky in Seattle.

But that would only happen if MarkAir's Chapter 11 bankruptcy is converted into a Chapter 7 liquidation and the company is ordered to sell off its assets, she said.

The IRS will be asking the bankruptcy court to do just that tomorrow when MarkAir goes before Judge Herbert Ross in Anchorage.

Even if the judge orders the liquidation of the airline, John Delano, the deputy director of the Alaska development authority, said "there might not be anything left for the employees to pick at."

Delano said his agency is owed $18 million for a series of loans dating back to the mid 1980s. Seafirst is owed nearly $6 million.

"And there's not much to liquidate," Delano said, adding that Mark Air has already sold off a number of hangars and properties and that most of its six jets are leased.

For Debbie Fields and other employees of MarkAir who still have a job and are still being paid, Chapter 7 liquidation would be the worst resolution.

"We'd like to see the court allow us to stay in Chapter 11 so we can reorganize," said Fields, a supervisor in Seattle.

Fields said there is still a great demand for MarkAir's low-fare tickets and that the airline's 136-seat 737s are nearly full on each trip.

Vickie Parks, a Colorado resident who flew MarkAir to visit her mother in Renton, said she knew the company was in financial straits when she purchased her tickets because the fares were so low.

A round-trip ticket from Sea-Tac to Denver is selling for about $230, compared with about $270 for United. What's more, the United price, unlike MarkAir, requires a 21-day advance purchase.

But for Parks and her three traveling companions, the savings was worth it, even though MarkAir offers no meal service and charges for soft drinks.

Other MarkAir travelers interviewed at Sea-Tac weren't aware of MarkAir's bankruptcy status.

Shirley Bailey, who lives on Whidbey Island, learned of the bankruptcy filing only after checking her luggage at MarkAir's ticket counter at Sea-Tac.

She breathed a sigh of relief, though, when told that MarkAir's court hearing was tomorrow and she would be returning from Kansas City today.

"I'm just glad I have a way of getting home. I hope," Bailey said.

KEY DATES --------------------------------------

-- March 1, 1984: MarkAir is launched in Anchorage, flying only to Alaskan cities.

-- November 1991: Mark Air expands outside Alaska, establishes Anchorage-Seattle route.

-- December 1991: The airline's entry into Seattle triggers fare war with Alaska Airlines and other carriers.

-- June 1992: MarkAir files for Chapter 11 bankruptcy.

-- November 1992: Bankruptcy court judge allows MarkAir to continue operating by expanding further into the Lower 48.

-- January 1994: MarkAir establishes Seattle reservations office.

-- March 1994: The airline emerges from bankruptcy, offering service from Alaska to New York.

-- November 1994: Mark Air reports first profitable quarter since it went head-to-head against Alaska.

-- March 1995: The state of Alaska denies MarkAir's request for $40 million in loan guarantees; MarkAir says it will lay off 300 employees.

-- April 1995: MarkAir files for Chapter 11 bankruptcy again, announces it will no longer fly in Alaska and lays off an estimated 600 of its 1,200 employees.