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ValuJet plots return
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August 30, 1996: 7:22 p.m. ET
Discount airline could resume flying soon; stock rallies on news
From Correspondent Katharine Barrett
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NEW YORK (CNNfn) -- ValuJet Inc.'s stock soared by about 14 percent Friday in heavy Nasdaq Stock Market trading, closing up 1-1/2 to 12-1/2 after federal officials cleared the airline to soon resume flights.
On Thursday, federal aviation officials -- who grounded ValuJet in the wake of a May jet crash that killed all 110 passengers and crew aboard -- gave the carrier preliminary clearance to resume flying in early September.
However, the tentative approval carries a "show-cause" order that gives interested parties up to seven days to file a complaint if they disagree with the government's findings.
The Association of Flight Attendants union, which has claimed current ValuJet management cannot operate a safe airline, blasted the tentative approval and said it would file a complaint.
Transportation Department officials say they have already considered the flight attendants' claims, but concede that the union could still submit a second complaint.
ValuJet would have four days to respond to any such filing.
Once ValuJet receives final approval to resume flights, the carrier will return to the skies with severely clipped wings.
The Federal Aviation Administration has given the airline permission to begin flying with only nine aircraft -- substantially fewer than the 51 the carrier operated prior to the grounding.
Officials have also only authorized the slimmed-down airline to initially serve 18 cities, instead of the 26 ValuJet previously flew to.
ValuJet has said it will start out even smaller, initially serving just Atlanta and four as-yet unidentified cities.
The company cannot advertise or take reservations until it wins final Transportation Department approval to resume flying.
Despite all of the hurdles, analysts say ValuJet might eventually rebound from the May disaster.
Experts say the carrier's chances have been enhanced by the fact that it boasts a healthy cash cushion, partly raised through a $150 million bond sale in April.
Said ValuJet President Lewis Jordan: "Most smaller startup airlines would not have been able to withstand this kind of shutdown. I am pleased to say we still have a very strong balance sheet, which is good news for the flying public and for ValuJet employees. We can get through this difficult period."
ValuJet's stock has nearly tripled since hitting a low of 4-1/2 in mid-June.
Analysts predict the issue will enjoy another small jump in price when the first ValuJet plane takes off.
Jordan promised that the airline would continue offering affordable fares to the cities it serves, despite the cost of complying with FAA requirements imposed as part of the agency's authorization to return to service.
However, doubts remains as to whether ValuJet will ever fly as high as it did before May.
Since the crash and shutdown, the carrier has lost some ground against its main competitor, Delta Air Lines.
Delta is preparing to launch Delta Express, a discount division of its own, on Oct. 1 to link 10 Northeast and Midwest cities with five Florida vacation destinations.
Mark Alther, airline analyst at Salomon Brothers, said gaining market share lost to Delta could prove difficult for ValuJet. (115K WAV) or (115K AIFF)
Yet even with regulators limiting ValuJet's size, many on Wall Street see potential.
"I would think (ValuJet) hopes to grow at a 20 or 30 percent pace a year, instead of the 100 percent pace they were doing before the accident," said Glenn Engel, airline analyst at Goldman, Sachs & Co.
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