The flight of the Phoenix: A billionaire's bailouts couldn't save Midway Airlines. Can it rise from the ashes on millions of taxpayers' money?

• Author: Martin, Edward
• Position: Cover Story

With the jets silent, you can hear sparrows chirping in the parking decks. Beneath a mural of blue skies and white clouds in Terminal C, the ticket counter is empty. It's 2 o'clock in the afternoon of Sept. 12, and quiet has settled over Raleigh-Durham International Airport.

On the campus of SAS Institute in nearby Cary, two men sit down to talk. One, a tall, round-faced man with closely cropped silver hair, is Jim Goodnight, the software maker's founder and majority owner. The other is a Andre Boisvert, a blunt, voluble Canadian and former SAS president. He had left seven months earlier -- this meeting is personal. But Goodnight has other things on his mind. Such as the jets parked outside Terminal C. They have yellow tail-fins with a stylized M in dark blue, and along each fuselage, in blue script, is the word "Midway," as in Morrisville-based Midway Airlines Corp.

Goodnight had invested millions in the airline, expecting its fortunes -- and his 6.7 million shares of stock -- to rise with the Research Triangle's. He watched his money disappear like suitcases snatched from a baggage carousel. A month earlier, Midway had filed for Chapter 11 bankruptcy protection and fired 700 of its 2,400 employees.

"I guess you saw the papers this morning," Boisvert recalls Goodnight saying. The previous day, Tuesday, terrorists had flown hijacked jetliners into the World Trade Center and Pentagon. Wednesday morning, Midway directors had voted to shut down the airline, letting go its remaining 1,700 employees. With $700,000 a day in overhead, they had little choice. "Andre," Boisvert says his former boss told him, "I've learned my lesson. Don't ever get into the airline business."

Capitulation from a man that Forbes estimates is worth $8 billion surprises Boisvert. Goodnight, he knows, is unaccustomed to business reversals, and the $52 million he and SAS co-founder John Sall invested in Midway -- a two-thirds stake -- ranks as his worst. But Midway was dead, and there was nothing anybody could do.

Or was it? Three months later, on a blustery December day, a Boeing 737 bound for Florida lifts off to the cheers of spectators on RDU's observation deck. A much-smaller Midway was taking flight, courtesy of $12.5 million in government bailout money, with millions more in government-backed loans possibly to come. But even as the cheers faded, investors, analysts and Triangle travelers were asking how Midway could have fallen so far so fast. How could the once-dominant airline at RDU, with 2.4 million passengers in 2000, have collapsed?

Bad luck played a part. A snowstorm in December 2000 cost Midway $4 million. Bad management did, too. The airline piled on debt and accrued nearly $1 billion in lease obligations -- mostly for new planes -- just as competition cut fares, business travel tanked, and fuel and labor costs ballooned.

Chief Executive Robert Ferguson III ref used to be interviewed for this article. But he did field questions at a press conference when the airline inaugurated its discount-fare service in December. One was about his goals: "I have a vision," he snapped in response to a news reporter's question. "But that's for me to know."

There's one other theory -- that the bankruptcy was a strategic move to extricate the airline from poorly negotiated contracts and costly leases. Midway wouldn't be the first to do that. In 1983, Ferguson's predecessor at Continental Airlines, Frank Lorenzo, demanded $90 million in concessions from pilots and employees, then declared bankruptcy when they balked -- even though the airline had millions in the bank.

Boisvert, who had set up a separate division of the software company to oversee non-SAS investments -- Midway among them -- thinks that was a possibility, though not Goodnight's plan. "1 can tell you, Jim has quirks, and he and I didn't always get along, but this was no evil plot on his part, like, 'Let's push it into bankruptcy and buy it out for a song.' But Bob Ferguson was in a bind. Where did he come from? Continental. And what did Continental do? When it got in a bind, it went bankrupt, fixed itself and came back out."

Analysts say Midway's $318 million in assets combined with $232 million in liabilities at the time of its bankruptcy filing were a survivable ratio. From that, "you could infer that management intended to sit down and look at different contracts and routes and decide what they needed to phase out," says Judy Thompson, a Charlotte lawyer who represents American Airlines, which Midway owes more than $4 million. She is also vice president of the American Bankruptcy Institute.

In the end, Goodnight, who bailed out the airline twice and extended a $30 million line of credit, had begun to question whether Midway was expanding too quickly with too little forethought. Though...