Global Aviation Holdings Inc, the largest commercial provider of chartered flights for the US military, has filed for bankruptcy protection, citing the US pullout from Iraq, defence spending cuts, and high debt and labour costs.
The parent of North American Airlines Inc and World Airways Inc filed for Chapter 11 protection in a Brooklyn, New York, bankruptcy court, less than two weeks after the Pentagon outlined a 2013 budget plan to reduce spending by $487 billion over the next decade.
Flying soldiers and cargo make up more than three-fourths of Global Aviation's revenue. The United States has withdrawn its troops from Iraq, and US Defence Secretary Leon Panetta last week said the United States intends to end combat operations in Afghanistan before the end of 2013.
"Every individual major defence contractor that we work with has been downsizing," said Wayne Plucker, an aerospace and defence industry analyst at the consulting firm Frost & Sullivan in San Antonio. In the nine months ended September 30, Global Aviation lost $60.3 million on revenue of $775.1 million, compared with a year-earlier loss of $6.9 million on revenue of $877 million.
Global Aviation said it has also struggled with excess debt and "unsustainable" labour costs. It said its restructuring effort was "derailed" on December 27 when a federal appeals court in Chicago threw out a $71.3 million award against FedEx Corp, a decision now being appealed.
"While Global Aviation has navigated fluctuations in demand in the past, the current decrease, coupled with high labour and fixed costs, excess aircraft and an overleveraged balance sheet, requires Global Aviation to restructure," Chief Financial Officer William Garrett said in a court filing.
Based in Peachtree City, Georgia, Global Aviation said it employs 1,782 people. On Sunday it advised 140 workers that they would be let go by April 5. Executive salaries are being cut by 10 percent. An affiliate of MatlinPatterson Global Advisers LLC holds a 92.5 percent equity stake in Global Aviation; the distressed debt specialist took Global Aviation predecessor ATA Holdings Corp out of bankruptcy in 2006, court filings show. Global Aviation and eight affiliates, including North American Airlines and World Airways, filed for protection with the US Bankruptcy Court for the Eastern District of New York. The company said it had $589.8 million of assets and $493.2 million of debts as of December 31.
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