Western Global Airlines has struck a deal with creditors for $77 million in financing that would allow it to keep operating while it restructures its debt in a potential bankruptcy, Bloomberg reported on Monday.
Speculation about a potential Western Global bankruptcy has increased in recent months after Moody’s and Fitch withdrew credit ratings for the Estero, Florida-based cargo airline because of concerns it could default on its sizable debt. The company has seen revenue shrink amid a protracted downturn in freight demand and the loss of its largest customer, Amazon, in January while operating an aging fleet of Boeing 747-400 and MD-11 freighters that is expensive to maintain and operate.
Western Global is likely to file for bankruptcy protection as soon as this week, Bloomberg said, citing sources close to the situation. The deal for $77.3 million debtor-in-possession financing at a rate of 9% above the normal benchmark interest rate for derivatives includes a roll-up of debt held by founder and CEO Jim Neff, with bondholders and other creditors providing about half of the financial lifeline.
The current secured overnight financing rate is 5.31%.
Neff will be able to retain control of the company once it emerges from bankruptcy, the Bloomberg sources said.
The news organization reported in June that Western Global was exploring restructuring options with creditors.
Flight tracking sites show Western Global is only operating a third of its fleet. The company leases four 747-400s and 17 MD-11s from leasing companies controlled by Neff. Three of the jumbo jets and four to five MD-11s are in revenue service, with the rest parked or in storage. The company’s home base is Southwest Florida International Airport in Fort Myers. A Western Global pilot commenting in an online chat room said the company in February indicated it planned to hold three aircraft as operational spares and use the bulk of the fleet for parts.
The union representing Western Global pilots argues that attrition because of poor work conditions is contributing to the company’s operational challenges.
“After 10 years of profitable operations and successful growth, the company is currently navigating financial challenges driven by unforeseen industry-wide factors, including the conflict in the Ukraine, the weakened global economy and particularly air cargo demand, spiraling costs, and the recurrence of COVID-19 pandemic in China, which disproportionately impacted WGA and its customers. Notably, up until the end of 2022, WGA delivered profitable operating results every year since its founding in 2013,” Western Global said in a July 19 statement.
“The company continues to believe that maintaining its operations and infrastructure is in the best interests of all stakeholders. Accordingly, WGA is working diligently with its advisors to explore all value-maximizing alternatives and take the steps necessary to address its financial position,” the company added.
Neff in late June purchased the airline’s distressed debt from secured creditors at 40 cents on the dollar to keep the company afloat, angering unsecured bondholders who were shoved down in the pecking order for claims on the company’s assets, according to Bloomberg.
Three current and former employees are suing Neff and his wife for allegedly profiting from a bond sale made to finance an employee loan for a 37.5% stake in the company. Several pilots participating in an online chat forum say Neff used those proceeds to buy off the secured creditors at a fire-sale price.
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 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.
The lawsuit, which seeks class-action status, is scheduled for trial next May.
Western Global, in its statement, said “Jim Neff purchased the outstanding loans held by WGA’s senior secured lenders in a competitive process independently conducted by the lenders. This was a positive step in an effort to protect WGA and provide the company additional time and resources, and the company immediately benefited from improved lending conditions. As a result of the purchase by Jim Neff, WGA has been positioned to continue to provide its customers with the safe and effective services they rely on.”
The all-cargo operator also faces a lawsuit by Radiant Global Logistics for defaulting on payments for logistics services.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
RECOMMENDED READING:
Western Global Airlines sued for nonpayment of logistics services
Western Global Airlines grounds cargo jets as bankruptcy rumors swirl