December 26, 2007 – THE news of transatlantic premium-only carrier MAXjet’s descent into Chapter 11 bankruptcy protection must be sending shivers down the spine of the handheld IFE industry.

The airline, which made the decision last Sunday in response to losses from soaring fuel prices and biting competition, entered service 12 months ago with a stock of digEcor handhelds deployed aboard its 767-200ERs. In October it decided to switch horses to e.Digital, alleging that digEcor had underperformed. The supplier was having none of it, declaring that MAXjet wasn’t paying its bills. The events of the last few days appear to bear out the digEcor version.

Now e.Digital has reluctantly joined the queue of MAXjet creditors while fervently hoping that another of its clients, London Luton-based Silverjet, doesn’t go the same way. The indications there are not quite as alarming, though some commentators chose to interpret a recent £22 million cash injection not as development money but as a financial lifeline following heavier than expected losses.

digEcor still has a foothold in the premium-only sector in the form of its relationship with Paris Orly-based transatlantic operator L’Avion, which is currently talking a good game. Earlier this month the carrier announced that it was adding capacity and increasing frequencies on its route from Paris to New York Newark. It currently offers digEcor digEplayer XT handhelds on a single Boeing 757-200 and has just ordered a new batch of 125 to cover the extra demand when it introduces a second aircraft next month.

A fourth handheld vendor, IMS, has been supplying the longest established premium-only carrier for more than two years now and is probably as relaxed as anyone in the business about the prospect of seeing regular cheques in the post. Earlier this year Eos, which operates four 757-200ERs between London Stansted and New York JFK, got its hands on $50 million to finance the acquisition of another two aircraft. “This new capital will enable us to continue growing to a scale that will lead to strong profitability,” chief executive Jack Williams said at the time.

That remains to be seen, but in the meantime the carrier seems vigorous enough - so much so that MAXjet had to go cap in hand to Eos for 500 seats to rescue passengers waiting to cross the Atlantic when it suspended all flight operations at the weekend.

If the underlying business is sound enough, Chapter 11 is just a breathing space in which the company carries on operating while it cleans up its act, cuts costs and refinances. The US majors have used the device time and again in recent years. But it spells the end for MAXjet, which is now liquidating its assets and settling the claims of creditors.

MAXjet competitors observing the failure must now be thinking “There but for the grace of God...” Culprit Number 1 is the recent inflation in fuel prices – MAXjet says its spending went from $1.91 a gallon in the first quarter of the year to $2.85 last week. This is something that the premium-only carriers, with their miniature fleets, are much worse placed than the big boys to counter with hedging programmes.

Pressure from another factor will ease slightly now that one player in the premium-only market is history, but it’s certainly not going away. This is competition, which came not only from L’Avion, Eos and Silverjet but also from incumbent full-service carriers rushing to sharpen up their own premium offerings. “Both have increased capacity and have been competing strongly on price for traffic to fill capacity, particularly in New York,” lamented MAXjet, adding that exchange rate trends, declining consumer confidence and general business uncertainty hadn’t helped matters either.

All in all, MAXjet’s misfortunes point to a lively ride in 2008 for those handheld IFE providers who don’t find themselves firmly wedded to carriers with the mass and experience to face down some increasingly unpredictable economic conditions.