(Updates with details of planes in second paragraph.)
Feb. 6 (Bloomberg) -- Global Aviation Holdings Inc., the biggest charter-flight company for U.S. military troops, plans to reorganize by getting rid of more than half of its aircraft, citing the end of flying missions to Iraq and Afghanistan.
Of 30 aircraft leases, the company would like to reject 16 “excess aircraft” to save about $40 million a year. The leases are all for planes made by Boeing Co. and include six MD-11 freight aircraft, three MD-11 passenger aircraft, two 747-400 freight aircrafts and five 757-200 passenger planes. Engines are made by General Electric Co., Pratt & Whitney and Rolls-Royce Holdings Plc, according to papers filed today in U.S. Bankruptcy Court in Brooklyn, New York.
Global Aviation, airlifting for the U.S. military since the Korean conflict in 1951, began military passenger flights in 1990 and provided charter services for the presidential campaigns of George W. Bush, Secretary of State Hillary Clinton and President Barack Obama. A decline in flights to Iraq, the anticipated withdrawal of troops from Afghanistan and a reduction in rates paid by the military led to the bankruptcy filing, Chief Financial Officer William A. Garrett said.
“While Global Aviation has navigated fluctuations in demand in the past, the current decrease, coupled with high labor and fixed costs, excess aircraft and an over-leveraged balance sheet, requires Global Aviation to restructure,” William said in court papers.
Global Aviation, based in Peachtree, Georgia, sought court protection yesterday with affiliates including its two airlines, World Airways and North American Airlines. To cut costs, the company plans to relocate North American Airlines, now based at New York’s John F. Kennedy International Airport, to Peachtree. It also plans to renegotiate labor contracts with unionized employees and expand government contracts.
At a hearing in Brooklyn today, the company plans to seek court permission to use lenders’ cash collateral. Global Aviation has $29 million of cash on hand and failed to get a loan before filing for bankruptcy, according to court papers.
“Circumstances leading up to the commencement of these Chapter 11 cases require interim approval of cash collateral to act as a bridge” until Global Aviation can get a post- bankruptcy loan, the company said in a filing.
A customer withheld a $20 million payment before the bankruptcy, reducing its cash, and the company didn’t have enough time to negotiate a loan before entering bankruptcy, Global Aviation said.
Global, with annual sales of more than $1 billion and more than 1,800 employees, listed assets of $589.8 million and debt of $493.2 million as of Dec. 31. Chapter 11 allows companies to continue operating and either reorganize or sell assets through a court-supervised auction.
At a first-day hearing, which started this afternoon, Global Aviation also plans to ask a judge for permission to continue its insurance policies, honor pre-bankruptcy obligations, pay employees and take other steps to ensure it remains in operation.
Separately, the company faces an adversary case filed today in bankruptcy court by an employee who says she and other workers were fired without cause around Jan. 3 without receiving 60 days’ notice, as required under the Worker Adjustment and Retraining Notification, or WARN, act.
Kirkland & Ellis LLP was hired as the company’s bankruptcy counsel, and Rothschild Inc. is a proposed financial adviser.
Global Aviation’s 14 percent notes, which had last traded at 44.44 cents on the dollar Jan. 25, jumped 1.2 percent to 45 cents on the dollar at 12 p.m. today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They traded as high as 118.5 cents on the dollar in the past year.
The case is In re Global Aviation Holdings Inc., 12-40783, U.S. Bankruptcy Court, Eastern District of New York (Brooklyn).
--With assistance from Steven Church in Wilmington, Delaware. Editors: Stephen Farr, Glenn Holdcraft
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