SeaPort Airlines, an 8-year-old commuter carrier that tried to carve a niche serving subsidized routes to small regional airports, will ground its flights Tuesday as it faces liquidation in bankruptcy.

The airline's bid to reorganize collapsed this month after the airline learned it would lose a key contract and a line of credit helping keep it afloat. A judge on Tuesday ordered the airline's Chapter 11 bankruptcy to be converted to a Chapter 7 liquidation effective at noon on Wednesday.

An attorney for the airline's creditors said its fleet would be grounded by 6 p.m. Tuesday.

"This is certainly not the result hoped for by SeaPort's employees or its creditors who have patiently cooperated as the company has tried to reinvent itself," said Douglas Pahl, a partner at Perkins Coie LLP and attorney for the airline's unsecured creditors. "This is further evidence of the difficulties facing those attempting to service rural, underserved communities."

Employees would be paid through Tuesday, Pahl said.

In a statement posted on its Facebook page, the company said customers with tickets for future flights can apply for a refund through their credit card company.

"This is a very sad day for our employees, shareholders, and the communities we serve," SeaPort President Tim Sieber said in the statement. I would like extend my heartfelt appreciation to the employee team that I have been honored to lead and who delivered industry leading operational performance. While we made great strides, a successful financial reorganization did not appear possible and we were forced to make the difficult decision to cease operations."

SeaPort was founded in 2008 and was named for its flights between Portland and Seattle's Boeing Field. It later restructured its business around serving small airports from regional hubs.

It most recently operated flights between Portland and Pendleton and it served several smaller airports from a hub in Memphis, Tennessee. The commuter airline previously said it planned to continue operating as it refocused its efforts around its hubs in Portland and Memphis.

It also recently served North Bend from Portland International Airport, but stopped flights on that route in March.

In a court filing, the airline said it would lose its contract to fly the federally-subsidized route between Portland and Pendleton to a competitor. It had planned to cease operations at Portland International Airport as it continued its reorganization, but it lost a key line of credit and was unable to find replacement financing to continue operations.

The East Oregonian newspaper reported Pendleton had decided to replace SeaPort with Boutique Air, a San Francisco-based airline.

The airline operated five leased aircraft, two of which were stationed in Portland and three of which were stationed in Memphis. It sought permission from the court to complete operations Tuesday so each plane would be at its home base when it entered Chapter 7 bankruptcy proceedings.

The Federal Aviation Administration fined the airline $500,000 earlier this year for operating three planes that hadn't been inspected. The airline said then it wouldn't affect the reorganization effort.

-- Elliot Njus

enjus@oregonian.com

503-294-5034

@enjus