Airline fears fiscal crash
February 10, 2007
Great Lakes Aviation recently settled overdue rent payments with Boeing Capital Corp., but the airline still owes more than $10 million to Raytheon Aircraft Co., according to documents Great Lakes filed with the U.S. Securities and Exchange Commission.
Clovis Civil Aviation Board Chairman Roger Hatcher said he does not believe the company’s debt will impact its ability to provide air service in Clovis.
“I do feel certain that the (U.S. Department of Transportation) wouldn’t have approved Great Lakes for essential air service if they felt their debt load was unmanageable,” Hatcher said.
Great Lakes did not return Clovis News Journal phone calls seeking comment.
The Clovis Civil Aviation Board unanimously endorsed Great Lakes Airlines over Pacific Wings Airlines during a Jan. 31 meeting.
Both applied for a federal subsidy to provide essential air service in Clovis and Silver City.
The U.S. Department of Transportation should determine which airline receives the subsidy — designed to ensure small communities are served by certified air carriers — in March.
The Clovis City Commission is set to endorse an airline Thursday, and public input is a factor in the award of the subsidy.
According to a report featured on the U.S. Securities and Exchange Commission Web site, Boeing freed Great Lakes from a debt of more than $10 million in December. Great Lakes paid Boeing $1.15 million in return for the debt discharge, the report reads.
Great Lakes owed Boeing for overdue rent payments under a lease agreement for two Embraer aircraft, the report reads.
Great Lakes did not believe it could recover from its default of the lease agreements,
according to a quarterly financial report for the period that ended Sept. 30.
Great Lakes has been engaged in ongoing negotiations to satisfy debt with Raytheon since December 2002, the unaudited report reads. The airline leases its Beechcraft fleet through Raytheon.
That September report indicates Great Lakes failed to make full scheduled payments of principal and interest to Raytheon throughout the first nine months of 2006.
Unpaid debts to Raytheon equal $10.6 million, according to the report.
If the situation isn’t resolved, Raytheon could take possession of Great Lakes aircraft, the report reads.
Overall, Great Lakes has about $72 million in long-term debt, according to the report.
A representative from Boeing Capital Corp. said it is typical for companies to have outstanding debts with Boeing as the company leases planes to airlines.
“They pay Boeing just like you pay to lease a car,” said Donna Mikov, Boeing Capital Corp. director of communications.
Mikov said Boeing Capital Corp. has more than 400 planes that are leased or invested in by other companies. She declined to discuss Great Lakes’ dealings with Boeing.
Great Lakes “is at risk that one or more of the company’s debt obligations will be accelerated, thereby forcing the company to seek legal protection from its creditors or discontinue operations,” the September financial report also reads.
Hatcher said Great Lakes assured him that its debts were under control and that the report contained outdated information.
Pacific Wings President Greg Kahlstorf said his airline is debt-free.
“Every piece of equipment we have we purchased with our own cash,” Kahlstorf said.
Pacific Wings has pitched offering nine-passenger Clovis flights for an annual federal subsidy of about $1.49 million; Great Lakes has pitched offering 19-passenger Clovis flights for about an annual subsidy of about $2.45 million.
That, combined with Great Lakes financial situation, makes Pacific Wings a more sound choice for Clovis air service, he said.
Kahlstorf said he is “stunned” that people “would prefer a company that can’t assure they are going to be around tomorrow.”
Hatcher said he believes Pacific Wings and Great Lakes are good companies. He said his January endorsement of Great Lakes stemmed from federal standards that require pressurized airplanes with passenger capabilities of more than 15 on essential air service routes, unless communities indicate they want other service via writing.
Great Lakes flies 19-seat, pressurized planes.
Hatcher said he would like both airlines to come to Clovis, but believes Great Lakes deserves the federal subsidy because it meets outlined standards.
Hatcher said it would be “almost impossible” to regain 19-passenger flights at the Clovis Municipal Airport if Great Lakes were dismissed in favor of Pacific Wings.
Pacific Wings, he said, could offer flights at Clovis with no subsidy and fill a niche with chartered flights.