DHL partner Southern Air files for bankruptcy protection

US cargo airline Southern Air has filed for bankruptcy protection, but said today it fully expects to continue normal business operations. DHL, for whom Southern Air operates four Boeing 777 aircraft on round-the-world routes, said today the situation will not have any impacts on its operations.

Southern Air said today it was suffering with the “worst global economy in a generation” hitting the international freight market hard, with a fifth consecutive year of no net growth in air cargo demand.

Connecticut-based Southern Air, which has been operating since 1947, has sealed an agreement with lenders to restructure $285m of its debt, filing voluntary petitions to the US Bankruptcy Court in Delaware as it reorganises.

The deal should reduce the company’s debt by more than two thirds, it said.

Southern Air said today it has also moved to “aggressively” reduce its costs and streamline its business model to respond to the global economic slowdown.

Daniel J McHugh, the Southern Air chief executive, said the reshuffling of the company’s finances would “dramatically” improve the firm’s capital structure, cutting out “substantial” costs remaining from its acquisition in 2007 by private equity firm Oak Hill Capital Partners.

The Southern Air chief said: “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.”

Southern Air said it has a $25m commitment of new financing from its lender group to provide liquidity during the restructuring process, in order to continue business as usual, and meet customers’ shipping commitments.

“The Company plans to make timely payment for goods and services provided during its restructuring in the normal course of business under the terms of existing supplier agreements,” the company confirmed in a statement. “It is anticipated that employees will be paid in the normal manner, and health and welfare benefit plans will continue.”

However, in a statement to suppliers, Southern Air said that payments it owed to suppliers before making its Chapter 11 filing were “generally not permitted until the court has approved a plan of reorganization”.

The company told its suppliers that the agreements it has with its lenders means the debt restructuring process should be completed fairly quickly.

DHL

Southern Air signed a multi-year contract last year with DHL to operate more 777 Freighters for the integrator.

The company had two 777 freighters flying for DHL on Cincinnati-Bahrain-Hong Kong routes from 2011, and this spring added two of the long-range aircraft to fly from Hong Kong to Los Angeles and Leipzig.

A spokesman for DHL Express told Post&Parcel today: “Southern Air Cargo, which provides airlift to support our intercontinental flight operations, has notified us of its decision to initiate Chapter 11 proceedings in order to safeguard the long-term stability of its operations. This decision will not have any impact on DHL’s flight operations or capabilities.”

Transforming

McHugh said his company had been transforming its operations over the past 18 months from a high-maintenance and labour-intensive fleet into a “modern, fuel-efficient” fleet of Boeing 777 aircraft and 747-400s.

He said the restructuring of debt would allow Southern Air to move forward to continue investing in and growing the company for the future.

Southern Air said its Germany subsidiary is not included within the bankruptcy restructuring process, and will continue without interruption.