If Independence Air [FLYI] is to survive, it must shed its heritage - its fleet of regional jets.

Even as Independence Air announced a new, reduced schedule that includes its first Caribbean location, analysts believe the carrier will most likely file bankruptcy papers before a new, stricter bankruptcy code takes effect Oct. 17.

Two aviation consultants both told Regional Aviation News that Chapter 11 would be hard for the carrier to avoid if it wants to continue operations. Both see dramatically reduced roles for the carrier's regional jets in any court-supervised reorganization.

In a schedule that will be implemented in phases this fall, Independence will reduce the number of cities served by its fleet of Bombardier [BBD] CRJ 200s. At the same time, the carrier's 12 Airbus 319s are being redeployed from West Coast routes to replace RJs on routes to major East Coast and Midwest business centers.

Independence earlier this year reduced its fleet of CRJ 200s from 87 to 58. The new schedule will not require all 58 RJs, said spokesman Rick DeLisi. "We plan on operating fewer of them going forward," he said, without disclosing how many will be parked.

After Oct. 30, Independence will stop flying to Indianapolis, Louisville, Cleveland and Newburgh, N.Y. In addition to an announcement to upgrade Boston to all-Airbus flights, Independence will now fly to Chicago O'Hare International four times a day with the Airbus 319s. Some of the Pittsburgh and Jacksonville, Fla., routes are being upgraded to Airbus service as well.

On Oct. 31, Independence will shift its New York City service from seven daily round trips with RJs into JFK International to two daily round trips to LaGuardia on the Airbuses. DeLisi said the carrier has applied for additional slots at LaGuardia.

Independence ended its Airbus service to Los Angeles last month and will end the service to San Diego this month. Service to Seattle and San Francisco will end Nov. 30, but the carrier will continue one round trip a day to Las Vegas.

On Dec. 16, Independence will start one daily round trip flight to San Juan, Puerto Rico, from its base at Washington Dulles International Airport.

By shifting the Airbus fleet from West Coast routes to predominately East Coast routes, Independence will reduce its fuel bills.

"It is part of our overall strategy to conserve on fuel and reduce overall system costs by flying the Airbus more frequently to nearer locations rather than less frequently to the distant West Coast destinations," DeLisi said. "Those markets have done very well for us in terns of attracting customers. We have had consistently been above average loads to all West Coast markets. The economy and fuel consumption involved in flying to the West Coast is becoming prohibitive to us at today's record high fuel prices."

In markets that Independence continues to service only with RJs, DeLisi said the carrier in many cases remains the only low-fare carrier in these smaller markets.

"They are taking the right steps," said George Novak, an aviation consultant with Washington-based Metis Group. "They are reducing the number of cities served. They are restructuring or relocating their fleet. These are all smart moves. Maybe they should have done these moves a couple of months ago.

"In fact, what they are doing at this time can be used as a model that can ultimately be profitable."

If FlyI does file for bankruptcy, Novak said there should be a further reduction of the fleet and the number of cities served.

"The RJ is their bread and butter, I can't imagine scuttling all the regional jets," he said.

However, another Washington-based aviation analyst who asked not to be named believes that Independence will only survive if it returns all of the CRJ 200s and becomes an all- Airbus operation.

"A mere shrinking of their operations as they have just announced does not seem sufficient for the long run. They need major surgery. Should they be able to convert to an all- Airbus operation, they may be able to make it work," this analyst says. "I don't think they can make it work with all those RJs."

Operating as a "traditional" low-cost carrier with 12 Airbus 319s, Independence Air would have sufficient mass to have economies of scale in operating an airline. "With a fresh start in accounting and new funding, they could be a success as a scaled-back, refocused Independence Air."

Independence has pioneered enough markets in the last year so it should know where its low-fare approach would work, the analyst added. "They have tested a number of markets. They can pick the markets that they should be able to run in with their Airbus service."

With Independence Air's emphasis on business markets rather than leisure markets, the analyst said that the carrier should be modeling itself after Southwest [LUV], JetBlue [JBLU] or AirTran [AAI], and continue to use Dulles as its hub. Spirit Airlines would not be a good model since it services primarily leisure markets and lacks a strong hub, he added.

To avoid a Chapter 7 liquidation, FlyI needs to attract new investors.

If the carrier can get enough debtor-in-possession (DIP) financing, before it files for Chapter 11, it should have enough flexibility to craft a new business plan and locate the right investor, the analyst said. With 12 to 20 Airbus 319s in its future - and without the RJs - "they can attract investors interested in a low-cost airline operating out of Dulles." He said with sufficient DIP financing, Independence would not be rushed to cut its RJ fleet before it can finely tune its business plan.

"They have the things to market to investors to say, 'This is worth the shot.' They have a very enthusiastic workforce. They have cool planes, good marketing and a loyal customer base," Novak said.

>>Contact: Rick DeLisi, FlyI, (703) 650-6550; George Novak, Metis Group, (202) 822-5080. <<