Delaware Bankruptcy Litigation
Southern Air Files Chapter 11 Petitions for Bankruptcy in Delaware
On September 28, 2012, Southern Air Holdings ("Southern Air" or "Debtor"), along with various related entities, filed chapter 11 petitions in the United States Bankruptcy Court for the District of Delaware. As stated in its Declarations in Support of Chapter 11 Petitions and First Day Relief (the "Declaration" or "Decl."), Southern Air describes itself as a "long-haul, wide-body air cargo" provider for governments and commercial users. Decl. at *2-3. Going in to bankruptcy, the company employs 611 full-time employees. Southern Air is part of the United States government's "Civil Reserve Air Fleet." Pursuant to agreements with the U.S. Department of Defense, Southern receives air cargo contracts from the government and in turn agrees to pledge its aircraft in times of national emergency. Decl. at *3. Southern Air also has air cargo contracts with the United Kingdom Ministry of Defense. Decl. at *4.
Aside from its military contracts, Southern Air provides air cargo services to commercial customers, the largest of which is DHL Worldwide Express. Most of Southern's commercial contracts are known as "ACMI Contracts" whereby the Debtor provides aircraft, crew, maintenance and insurance. Decl. at *4. In 2011, Southern entered into a large contract with DHL whereby Southern uses its Boeing 777 fleet to ship DHL's cargo. The company considers its relationship with DHL as "the cornerstone of [its] commercial air cargo transportation business." Id. Southern derives over 56% of its revenue from commercial air cargo transportation. Its contracts with DHL make up over 63% of its commercial air cargo revenue. Id.
Southern Air Transport was started in Miami, Florida in 1947. In 1999, Southern Air was incorporated in Delaware and continues with the operations of the business that started in 1947. The company is headquartered in Norwalk, Connecticut. Southern Air is a privately held company with no publicly traded debt. Decl. at *5-6.
Southern Air attributes its bankruptcy to a significant reduction in air cargo spending on the part of the United States Department of Defense. This drop in spending is due, in part, to the reduction in military personnel in Afghanistan and the mandatory budget cuts that are expected to be implemented by Congress. Decl. at *10. The drop in government spending hurt Debtor's revenues for the second and third quarters of this year. By that, Debtor's revenue from government contracts for the second quarter of 2012 were off by 34% from the amount budgeted for the quarter. The Debtor estimates that its revenue from government contracts will be 37% under budget for the entire year. Id. In addition to a drop in demand for government air cargo, Southern Air is also having to deal with what it describes as a "stagnant international freight market  which is a direct result of the worst global economy in decades." Id.
Southern Air began restructuring efforts back in 2010 by modernizing its fleet of aircraft. This included retiring less fuel efficient 747s and leasing the more fuel efficient Boeing 777. The company's pre-bankruptcy restructuring efforts were not enough to overcome the poor performance experienced in 2012. In the months leading up to filing for bankruptcy in Delaware, Southern Air began discussions with certain lenders and investors regarding debtor in possession financing while the company reorganized under chapter 11. Decl. at *13. Those negotiations led to the execution of a "Support Agreement" in September pursuant to which the company would file a plan of reorganization and support agreement withing ten days of filing for bankruptcy. Decl. at *15.
The Southern Air Holdings bankruptcy proceeding is before Judge Christopher S. Sontchi under case no. 12-12690. Southern Air is represented by the Delaware law firm of Young Conaway Stargatt and Taylor. A link to Southern Air's bankruptcy petition is available here.
For readers seeking more information concerning Delaware bankruptcy proceedings, below are prior posts I have written that address various bankruptcy-related issues:
Jason Cornell is a partner with the law firm Fox Rothschild LLP. Jason is admitted and practices before the United States Bankruptcy Court for the District of Delaware. You can reach Jason at 302 427-5512 or firstname.lastname@example.org.