Independence Air is struggling to make deposits for new Airbus planes and have enough liquidity to avert a Chapter 11 bankruptcy filing.

The carrier warned earlier this week that bankruptcy could become an option if new payment schedules or termination of aircraft leases can't be negotiated (DAILY, Nov. 10).

Indy Air failed to make $8.7 million in pre-delivery deposits to Airbus in October and November, and Airbus has the right to terminate the agreement or "pursue other remedies" as of yesterday, the carrier said in a Securities and Exchange Commission filing. The airline said it has enough cash to make the overdue payments but is talks with Airbus about terms of acceptance and future deliveries.

An Airbus spokeswoman said the company couldn't comment on aircraft contract negotiations, but she noted the company had a good relationship with Independence and the airframer would work with the carrier to ensure it has a successful future.

Independence has firm orders for 16 Airbus planes scheduled for delivery in 2005 and 2006, requiring initial deposits and progress payments totaling $125.5 million. The carrier said Airbus has agreed to finance a portion of the progress payments, and "subject to material adverse change provisions applicable at the time of financing," Airbus and the engine supplier -- International Aero Engines -- would provide backstop financing of up to 80% of the purchase price if Independence can't find third-party financing.

The carrier also has an $83 million lease payment due for its 87 regional jets in January, and is working feverishly to negotiate lease deferrals for the next two years, as well as early terminations of some leases. Indy thinks it has liquidity to meet those payments due in January, but it would be in danger of meeting future obligations.

The airline is trying to boost its balance sheet through the sale of four Bombardier CRJs, one owned Fairchild Dornier 328JET and aircraft parts. CEO Kerry Skeen recently said the carrier would feel comfortable moving four CRJs out of its network (DAILY, Oct. 28).