Military airline Southern Air Inc. filed for bankruptcy on September 28, as reported by the Wall Street Journal and other media, allegedly due to the withdrawal of U.S. troops from Afghanistan that caused the company to face an extreme loss of revenue and the global recession.
The parent company of Southern Air Inc. filed for the bankruptcy protection in U.S. Bankruptcy Court in Wilmington.
The U.S. Department of Defense, according to the court records, reduced the number of jets it had previously used since they decreased the number of troops they were sending into Afghanistan.
The carrier has 11 jets in all. Since the demand for jet use has drastically dropped the company plans to reorganize. Instead of focusing on the jets, the carrier will now put its focus on their cargo carrying company, DHL Worldwide.
In the past, 40% of Southern Air's revenue came from its work for the government. In the second quarter the company earned 34 percent less than expected, at $44.9 million, according to court records.
As well as the loss of military contracts, Southern Air also claims that a loss of commercial business has further crippled the company. Chief Executive D.M. said that they had been operating under a "stagnant international freight market, a direct result of the worst global economy in decades and a generally negative economic outlook."
D.M. also said, according to court papers, that this will probably be the company's fifth year without growth in the air-cargo section of the business alone.
According to court documents, the company reported $428.2 million in revenue, and a net loss of $159.8 million, for the first 12 months that ended on July 31.
Southern Air claims that the "above-market" lease payments for their Boeing cargo jet fleet will be renegotiated with the bankruptcy.
Some of the cost-cutting measures the company will be forced to make – including downsizing operations – may cost some of their 611 employees their jobs.
The company is awaiting approval for a $25 million bankruptcy loan from bankruptcy Judge Christopher S. Sontchi.
Global Aviation Holdings Inc., another military transporter, filed for bankruptcy protection earlier in 2012. The cause for Global's bankruptcy was also blamed on the withdrawal of U.S. troops from Afghanistan.
Oak Hill Capital Partners, a private-equity firm, purchased majority ownership of Southern Air in 2007. Southern Air began their operations in Miami in 1947.
In 2007, at the time Oak Hill Capital made the purchase, the company was extended a $300 million loan from the Canadian Imperial Bank of Commerce. The bank is currently owed an estimated $288 million in secured financing obligations and approximately $31.1 million for trade debt.
Assets were estimated at $206.9 million, and liabilities at over $485 million, as of July 31.
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