- The Washington Times - Monday, December 3, 2001

The economic health of Atlantic Coast Airlines, though posting strong earnings last quarter, will likely depend on how well its contractors, United Airlines and Delta Air Lines bounce back from the September 11 terrorist attacks.
Atlantic Coast Airlines posted net earnings of $12.8 million (28 cents per share), a 379 percent increase for the quarter ended Sept. 30, compared with $2.67 million (6 cents) for the like quarter the year before. But the increase was partially due to the government giving Atlantic Coast Airlines $4.6 million in assistance after the September 11 attacks. The stock closed at $20.70 Friday.
The Sterling, Va., company laid off about 12 percent of its staff, made its executives take pay cuts, and placed a freeze on hiring after the September 11 terrorist attacks. Still, United feels confident enough in the regional jet company's future to expand its service into New Hampshire using Atlantic Coast Airlines' planes.
While Atlantic Coast Airlines is posting a profit, analysts say its continued success depends on Delta and United Airlines. Both companies have issued a contract with Atlantic Coast Airlines to provide the major carriers with airplanes.
Atlantic Coast Airlines profitability stems from their ability to provide United and Delta airlines with smaller-capacity planes that can easily fill up, says Gerald Brockman an analyst with Credit Suisse First Boston in New York.
"With the economy and September 11, less people want to get on [the larger planes]," Mr. Brockman says. "The RJ [the Canadair Regional Jet] is better, being a 50 seater or so. It's the right aircraft, economically speaking."
Furthermore, the regional jet provides a way for travelers to get to the major airline hubs. The company operates out of five airports nationwide.
"Our value as a regional carrier has become increasingly important to our partners," says Rick DeLisi, a spokesman for Atlantic Coast Airlines. "Through us, they're able to add more new jets."
But Mr. Brockman, who rates the company a buy, warns that should United or Delta go bankrupt, Atlantic Coast Airlines could fall apart.
"There's some uncertainty, as far as the contract's concerned. If I'm working for United or Delta, and they go bankrupt, the company will have no revenue," he says.
"Regional airlines expect to remain the most profitable and the fastest-growing in the industry. But the underlying growth and profit assumptions may seem unreal," says Jamie Baker, an analyst with UBS Warburg In New York, which rates the company a "hold."
Atlantic Coast Airlines' stock is trading a little high at $20, and that could pose problems if United or Delta need to squeeze some money out Atlantic Coast Airlines to keep themselves afloat, he says. They might re-evaluate the stock rating if Atlantic Coast Airlines "corrected" its price to about $15.
"We'd be more comfortable with them if their stock was at a lower level," he says.
The fact that Atlantic Coast Airlines is also on the payroll of United Airlines, which was in financial trouble even before September 11, also causes some degree of concern for Mr. Baker.
"If you were getting paid by United, wouldn't you worry if the phone rang and United was on the other end?"
But Mr. DeLisi is confident Atlantic Coast Airlines, and regional airlines in general, will not be neglected by their larger contractors.
"All the major airlines have found ways to rebalance their finances," he says.

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