Past Due

March 8, 2003

By Jodi Prill, Associate Editor

Since summer 2002, two of the nation’s major airlines have filed for Chapter 11 bankruptcy protection in order to restructure their existing debt and reemerge as profitable players in the industry. Among the companies listed as creditors in both the US Airways and United Airlines Corporation bankruptcy filing are FBOs that provide services such as fueling, maintenance, and ground handling to the airlines.

AIRPORT BUSINESS recently canvassed FBOs around the U.S. and found that the problem does not seem to be impacting a vast number of fixed base operators. However, there are some that are affected.

Any company that is owed money prior to an airline filing for bankruptcy protection becomes part of a creditors committee in the court proceedings. Chapter 11 filing also makes funds available to the airline to continue day to day operations. In other words, the airline is expected to keep up with payments for services provided following the filing.

UAL Corporation spokesman Joe Hopkins explains, "We filed a number of what are called first day motions, one of which was approved by the judge, [that] allows us to spend money for the ordinary conduct of our business. So, something like services from an FBO or purchasing fuel or ground handling or anything unique that we may need at an airport that we can’t provide for ourselves, we have the [ability] to pay for that. So from the standpoint of the FBOs, if United calls on them for various services, they can be assured that we have the authority to pay for those services, despite the bankruptcy filing."

While US Airways is nearing the end of its filing, UAL has yet to file a reorganization plan with the court. Hopkins says United’s initial plan is to be proposed to the court four months following the initial filing, which would be April 9. He adds that a recent statement from chairman Glenn Tilton says the company is ahead of schedule. Until then, however, it is not known what amount of the company’s pre-petition debt will be repaid.

The Experience of Three Operators

Jeff Baum, Wisconsin Aviation, Inc., Watertown, WI, says his company is one of many to which US Airways owes – pre-bankruptcy. While he would not get into the amount of money owed, he did say that in relation to the rest of his business, "the amount of business we do for US Airways is a relatively small amount." Wisconsin Aviation continues to perform services for US Airways at Dane County Regional Airport in Madison, and Baum says that the carrier has been timely with payments since the bankruptcy filing.

"All FBOs are going to have to watch their relationships with the airlines they deal with," Baum says. "When looking at plans and growth the last two years, the airlines are not a high growth area."

North Coast Air, based at Erie (PA) International Airport, can relate to Wisconsin Aviation’s experience. Cindy Saurwein, general manager, says US Airways owes the FBO more than $11,000 for pre-bankruptcy services, including fueling, on-call deicing, on-call maintenance, and ground services.

She explains that the FBO had to go through a claim filing process, which includes listing which part of US Airways was in debt to her company and the dollar amount. Like Wisconsin Aviation, North Coast Air is still performing services for the airline and it is receiving payment for those services.

Saurwein says she is "pretty confident" North Coast Air will be repaid in full. "I’m hoping for the whole sum, but that’s probably the best outlook – that doesn’t necessarily mean that will be so," she says.

US Airways later contacted Saurwein with an offer to repay some 25 percent of what is owed. Saurwein says, "Now we’re trying to negotiate that to hopefully get more. It may not seem like a lot to other companies, but we’re a small FBO and to us, that’s a big chunk of money."

Saurwein says that services for the airlines are a significant portion of the FBO’s revenue. "Considering most airports, it’s probably pretty small, " she says. "But it’s large for us."

Derk Burge, ground support/ facilities manager at Flightcraft, Inc. in Eugene, OR, says his FBO performed fueling services for United Airlines until the airline stopped service there on January 7. "They pulled out the mainline service and contracted with SkyWest (a United Express carrier) to pick up those routes that United was flying."

Burge adds that business generated from services provided to the airlines is down some 30 to 40 percent for the FBO since 9/11.

Dave Castelveter, US Airways spokesman, says the airline’s reorganization of debt may include the company being "relieved from a portion of those financial obligations."

Before we made a conscious decision to go into Chapter 11 bankruptcy, we first tried to work with every stakeholder in the company to reduce our debt obligations so that the company could survive without a court process. We went to every vendor, supplier, and employee in the company to try to reduce our cost structure by about $1.2 billion a year. Unfor-tunately, the economic conditions did not change, they didn’t get better and we felt that the best approach at this time was Chapter 11, and on August 11, 2002, we filed."