(UPDATED 2:25 P.M. ET with details on creditors)
Western Global Airlines, which operates chartered cargo jets for the U.S. military and other customers, on Monday filed for Chapter 11 bankruptcy protection and announced it will restructure with the help of $77 million in financing from creditors, including bondholders with more than 85% of the outstanding senior unsecured notes.
A bankruptcy restructuring has been expected for weeks because of collapsing revenues, a heavy debt load and the decision by credit rating agencies to pull their coverage over the company’s lack of financial transparency. Bloomberg previously reported that Estero, Florida-based Western Global Airlines was arranging debtor-in-possession financing to support ongoing operations under a court-approved bankruptcy plan.
Western Global founder and CEO Jim Neff reinvested in the company along with new investors and existing stakeholders, according to the announcement. The reorganization will reduce the company’s debt by more than $450 million, or 86%, and give the cash-strapped airline capital to operate its aging fleet of 20 freighters, two-thirds of which are currently out of service.
“WGA will continue to operate as usual and provide reliable and safe service to its customers throughout the reorganization process and going forward. The company, the founder, the plan investors, and the ad hoc group (bondholders) are focused on moving through this process expeditiously and thoughtfully to the benefit of employees, customers, and other stakeholders,” Western Global said.
Neff on June 29 also purchased the company’s $115 million of outstanding senior secured debt for $45 million in a competitive process, a move that reduced repayment pressure from lenders but also angered creditors that were moved to the back of the line for any claims on the company’s assets. Under the restructuring, Neff has agreed to forgo some of the statutory rights he would otherwise maintain as a holder of the distressed debt and pass on the $70 million benefit to other stakeholders, including employees participating in the Employee Stock Option Plan. Western Global employees own 37.5% of the company under the 3-year-old retirement plan.
Unsecured debtors include U.S. Bank ($419.1 million in outstanding loans); aircraft maintenance company Lufthansa Technik (owed $10.4 million); GE Engine Services (owed $7.4 million); Delta TechOps ($4.9 million for maintenance); Eurocontrol ($388,000 for navigation fees); the Shreveport Airport Authority ($292,573 for facility rentals and other fees); and the city of Chicago ($191,000 for landing and other fees at O’Hare), according to court documents.
Radiant Global Logistics in March sued Western Global for nonpayment of $556,000 in freight transportation services.
The bankruptcy filing shows Trans-Caribbean Cargo with a $6.7 million claim against Western Global. Trans-Caribbean Cargo is a Miami-based freight forwarder that “suffered substantial monetary and reputational damage when WGA breached its contract to fly cargo” between Miami and South America in 2020, Geoffrey Travis, a partner at Shutts & Bowen, the company’s outside counsel, said in a message to FreightWaves. Trans-Caribbean sued and won an arbitration judgment in May, but Western Global has not paid any portion of the damages.
A former Western Global employee, who spoke on condition of anonymity because of the ongoing legal issues facing the company, said Western Global abandoned several long-term customers to grab larger, more lucrative business from Amazon at the height of supply chain disruptions caused by the pandemic.
Eighteen other companies affiliated with Neff filed for bankruptcy protection along with Western Global. The filing seeks to have the bankruptcy cases consolidated and jointly administered by the court. A holding company comprised of Neff family members, including his wife, Carmit, owns Western Global Airlines.
Western Global’s business has significantly declined in the past year from the peak shipping demand triggered by the coronavirus pandemic, making it more difficult to make debt payments and leading to a liquidity crunch. The overall market is down 7% to 10% over the past 16 months and airlines are reporting sharply lower revenues for cargo. Amazon, Western Global’s largest customer, ended its contract in January. The company, which began operating in 2014, has a fleet of aging MD-11 and Boeing 747-400 freighters that are expensive to operate and maintain. Fifteen of its 20 aircraft are older than 25 years and the average fleet age is 28.4 years. WGA owns all of the aircraft, except for one 747 that is leased from a company controlled by Neff, plus two spare airframes.
“As the founder and CEO of Western Global Airlines, I have always understood the unique value proposition that WGA brings to the world as a reliable, responsive, and low-cost international air cargo provider,” said Neff. “I am — and always will be — loyal to WGA and its employee team. As such, my number one priority is preserving the long-term viability and value of WGA and protecting our employees. All my objectives regarding the company align with this overriding goal. The plan we have outlined in the restructuring agreement reflects my continued dedication to and belief in WGA, along with the overwhelming support of our key financial stakeholders. I am confident that this plan will tremendously strengthen our financial position and ensure a better future for WGA, our people, and our customers. As always, we have the utmost gratitude to our employees, loyal customer base, and industry partners for their enduring support and appreciate the continued collaboration with our largest financial stakeholders.”
Western Global has filed motions with the U.S. Bankruptcy Court in Delaware seeking certain relief to maintain regular operations, including paying employees and vendors.
Three employees, who are seeking class-action status, last year sued Neff and his wife for allegedly profiting from a bond sale made to finance a loan to employees buying into the company. The lawsuit alleges the sale price for the employee stock ownership plan (ESOP) was based on 20 times the company’s fair market value and that when Western Global issued a bond offering that shot up to 10.375% because there were no takers, Neff bought the bonds himself and stuck the employees with heavily devalued shares.
Western Global acquired the fleet it had previously been leasing for $40 million annually from a company owned by Neff when all the companies were folded together so the airline had collateral to secure the ESOP debt. Eliminating the lease payments improved the liquidity of the company and allowed employees to gain equity in the combined business.
Western Global noted that ESOP participants didn’t purchase their shares but rather were granted them at no out-of-pocket cost and that participation is voluntary.
Western Global said its restructuring adviser is FTI Consulting.
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