Southern Air executives have pledged to rebuild the ailing carrier.
Chief executive Dan McHugh says he can reduce two-thirds of US$285m of debt while the airline is under Chapter 11 bankruptcy protection.
Critics have pointed to previous attempts to resolve Southern Air’s financial position under Chapter 11 protection and questioned the failure to address debt levels since founder Jim Neff sold the company – becoming a minority stakeholder.
One industry watcher observed wryly: “How many times can an airline file Chapter 11 and still survive?”
In a statement Mc Hugh says: “The actions we are taking will dramatically change and improve our capital structure, eliminating the substantial cost burden of legacy debt and other costs from our acquisition in 2007.
“It follows our operational transition over the past 18 months from a high-maintenance and labour- intensive fleet, to a modern, fuel-efficient fleet of 777s and 747-400s serving global customers and operating in more reliable, lower cost route structures in key global trade lanes.
“These initiatives support our long-term business strategy and response to the extreme industry changes over the past few months, including major cutbacks in spending by the US Department of Defense.
“The worst global economy in a generation has also impacted the international freight market, with 2012 shaping up to be the fifth consecutive year of no net growth in air cargo demand. With this backdrop, taking decisive action today to resolve our debt issues and other legacy costs is a positive step and will allow us to move forward with new resources.
“With a stronger capital structure and more competitive and streamlined business model, we will have the capability to invest in and grow Southern Air for the future. We fully expect to continue normal business operations, fulfilling all customer requirements as scheduled and providing uninterrupted high quality air cargo services during our restructuring process,” McHugh concludes.
The company said its pre-arranged restructuring has the support of its key financial stakeholders, which includes Oak Hill Capital Partners.
Southern Air has secured a commitment for $25 million in financing from lenders, providing it with liquidity during the restructuring process and it expects to meet its business obligations.
It is anticipated that employees will be paid in the normal manner, and health and welfare benefit plans will continue, according to a spokeswoman.