Upgrade Lifts FLYi From Low

The parent of Independence Air gets a much-needed boost after warning of a Chapter 11 filing.
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Shares of Independence Air parent

FLYi Inc.

(FLYI)

reversed some of Wednesday's steep loss after a Merrill Lynch analyst raised his rating on the stock from sell to neutral.

Independence Air is among the carriers United Airlines' parent

UAL

(UALAQ)

has asked to bid on some of its regional United Express business, and that could prove positive for the stock, wrote Merrill Lynch analyst Michael Linenberg in a research note. (Merrill Lynch does and seeks to do business with companies covered in its research reports.)

The stock was up 18 cents, or 13.9%, at $1.48 Thursday. On Wednesday, Independence Air shares tumbled 61 cents, or 31.9%, to $1.30 after the company warned it could seek Chapter 11 bankruptcy protection if it can't reschedule aircraft lease payments that come due in January.

"At the last close of $1.30, the stock is clearly discounting a very high bankruptcy probability," Linenberg wrote. "However, we think the United announcement alters the risk/reward profile of the security. Hence, we are raising our rating on Independence Air from sell to neutral ... but stress that this is a name to be considered by only our most aggressive accounts."

Late Wednesday, United Airlines said it was seeking bids for regional flights currently flown by Air Wisconsin. Before FLYi began a new life as low-cost carrier Independence Air this year, it operated as Atlantic Coast Airlines, providing regional service under contracts with United and

Delta Air Lines

(DAL) - Get Report

.

Given recent challenges, such as hurricanes and high oil prices, FLYi's board must seriously consider the company's course and contemplate returning to regional-jet contracts before it runs out of cash, wrote Linenberg.