Bankrupcy_and_liquidation_likely_at_Independence

August 31, 2005 / Vaughn Cordle, CFA

Independence Air was doomed to fail the day they became independent.

It was a deeply flawed business model that did not take into account the reaction from competitors
and the resultant low yields. Having great marketing and a good product is not enough to overcome
fares that are too low to cover costs. Management foolishly rolled the dice with shareholders' money
and they were blinded by overconfidence, hubris, and a misunderstanding of the competitive
environment.

Shareholders had an opportunity to cash out when Mesa made a $513 million offer to buy the
company in October of 2003. Management should have taken the fair offer and moved on. They
mismanaged the value entrusted to them by shareholders and they took on a risk that they simply
did not understand.

As of August 31, 2005 the market value of the equity is $15 million and the company will most likely
be liquidated within a few months. The company was worth over $1 billion in 2002.