Global Aviation Holdings Inc., the holding company for a group of charter and cargo air carriers, is seeking to reject 16 of the 30 "extremely burdensome" aircraft leases to which it is party.
The parent of North American Airlines Inc. and World Airways Inc., both of which might be best known for ferrying U.S. military passengers and equipment to foreign theaters, Global Aviation said it is seeking to save more than $40 million annually through the rejection of leases under Section 365 of the U.S. Bankruptcy Code on what it has identified as excess aircraft. With the end to the war in Iraq and the withdrawal of a significant number of American troops from Afghanistan, the company said demand for its services has declined dramatically, and as such, it needs to re-size the fleet. The company does not own any aircraft.
"After reviewing the terms of the aircraft leases, the debtors have determined they are of no utility and value to them," Global Aviation said in a Feb. 6 bankruptcy court filing. "In particular, the debtors entered into many of the aircraft leases when the United States military was at the height of two wars. The debtors anticipated that the excess aircraft would continue to be needed to service certain governmental contracts. These demands, however, have diminished, and the excess aircraft is no longer necessary to the debtors' operations." The company noted that the excess aircraft had mostly been removed from service and had been occupying "expensive" storage space.
"The aircraft leases that the debtors propose to reject are the epitome of burdensome leases that the Bankruptcy Code seeks to allow debtors to reject," Global Aviation argued. CFO William Garrett characterized the leases as "extremely burdensome" in his bankruptcy court declaration.
The list of rejected leases includes details regarding the equipment lease counterparties and/or notice parties, but it does not specify between the two roles. It also does not indicate whether the counterparties own the leased aircraft or are managing them on another entity's behalf.
American International Group Inc. unit International Lease Finance Corp. is identified as the counterparty and/or the notice party in connection with seven of the 16 rejected leases. M&T Bank Corp. unit Wilmington Trust Co. is listed as the notice party in connection with five of the aircraft linked to ILFC. In previous airline bankruptcy cases, such as that of American Airlines parent AMR Corp., Wilmington Trust has been identified solely as the owner trustee in connection with numerous rejected leases.
The seven aircraft under lease include four Boeing 757-200s and three MD-11s, two of which are configured as freighters. While two of the leases were scheduled to expire in April, according to court documents, the MD-11s were scheduled to be under lease until June 2017 or later. ILFC Holdings Inc., the successor holding company to International Lease Finance Corp., reported in its most recently amended registration statement on Form S-1 that it held six MD-11s and 59 757-200s in its 931-plane operating lease portfolio as of Sept. 30, 2011. ILFC also ranks as one of Global Aviation's largest unsecured creditors related to $2.9 million in trade debt.
Global Aviation companies also rejected three leases for which General Electric Capital Corp.'s GE Capital Aviation Services LLC is listed as the counterparty and/or notice party, including two MD-11 freighters and one 757-200. The leases on the MD-11s had been scheduled to expire in April 2012 and April 2016; the 757-200 lease expires in May 2014. One of the GECAS 757-200s has been subleased to US Airways.
The company also moved to reject two BBAM Aircraft Management LLC leases, both of which relate to MD-11s in passenger configurations. Formerly known as Babcock & Brown Aircraft Management through April 2010, BBAM is 85% controlled by members of its senior management and 15% owned by FLY Leasing Ltd. The two leases were scheduled to expire in November 2013 and February 2014.
Global Aviation listed Aircastle Ltd.'s Aircastle Advisor LLC as the notice party and Wells Fargo & Co. unit Wells Fargo Bank Northwest NA as the apparent counterparty on two leases of Boeing 747-400 freighters, with expiration dates of March 2018 and November 2018. The company said it increased its 747 cargo fleet by two aircraft in early 2011 in anticipation of increased market demand only to find that global economic pressures caused that demand to fall short of earlier expectations. It ultimately entered what amounted to wet leases for the new aircraft in the second quarter of 2011, whereby the airline provides the aircraft, crew and the maintenance services and insurance thereon to other commercial carriers.
Global Aviation also is rejecting a lease due to expire later this month on an MD-11 freighter from AerCap Holdings NV's AerCap Leasing USA II Inc. Notice for another MD-11 freighter lease expiring in October 2016 will be sent to an entity with a Renton, Wash., address called CBSA Partners LLC.
The company said its fleet of nine MD-11 freighters has been "significantly underutilized," resulting in lease rejections for six of those aircraft. A review of registration data for the MD-11 freighters indicates that they have an average age of approximately 19 years.
Court documents also indicate that Global Aviation plans to secure unspecified modifications to other aircraft leases.
The company plans to reorganize under Chapter 11 with a goal of emerging in a financially sound status from the bankruptcy process. It reported $245 million in long-term debt in the CFO's declaration, including $146.5 million under certain 14% senior secured notes due August 2013 and a $98.1 million second-lien term loan due September 2014.
Global Aviation's common stock is 92.5% owned by an entity associated with MatlinPatterson LLC. Affiliates of Blackstone Group LP's GSO Capital Partners LP hold the second-lien term loan and 2.6% of Global Aviation's stock.
The case is pending in the U.S. Bankruptcy Court for the Eastern District of New York.
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