Western Global Airlines executives are considering various options, including the possibility of declaring bankruptcy for the company, due to a lack of liquidity and difficulties in meeting its financial obligations, as reported by Bloomberg.
The same media had previously reported that the cargo carrier was engaged in confidential discussions with some of its creditors regarding its financing needs. However, no statements were made by company representatives and no definitive decision has been reached, so the situation could change in the coming days or weeks.
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Western Global Airlines is affected by declining air cargo demand
The situation faced by Western Global Airlines stems from the decline in air cargo demand. The activity has experienced a slowdown in recent months after a significant surge and peak reached between 2020 and 2021.
According to Moody’s Investors Service, the company also faced challenges in retaining a portion of its pilot workforce. As a result, it ceased operations on some of its routes to Asia, where some of the major air cargo markets are located.
Moody’s downgraded Western Global Airlines’ rating on March 23 due to what it referred to as a «deterioration in liquidity position» and concern that nearly two-thirds of its revenue came from three clients: Amazon, Kerry Logistics and KPS World Transportation.
By late September 2022, the airline had only about 27 million dollars in cash and 21 operational aircraft. The characteristics of its fleet, consisting of Boeing 747-400 and McDonnell Douglas MD-11 aircraft that incur high operating and maintenance costs, also do not contribute to improving the situation.
Additionally, all its assets are now encumbered, limiting the capacity to obtain new financing and adding pressure on its finances.
Class action lawsuit against shareholders
Meanwhile, employees have filed a class action lawsuit against shareholders James and Carmit Neff and their family trusts, according to The Loadstar. They claim that an employee stock ownership plan had «drastically overpaid» for the shares bought from both of them, amounting to «over 500 million».
Currently, the company must make quarterly interest payments of around 4 million dollars, as well as an additional semi-annual payment of 21 million in coupons to bondholders due on August 23, according to Fitch Ratings. On the other hand, it has already utilized its entire 45.5 million dollars renewable credit line and all its aircraft are subject to legal claims by creditors.
Due to all these circumstances, creating a true «perfect storm», Western Global Airlines faces a very delicate financial situation, and it is unclear whether it can settle its debts and recover.
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