Midwest outlines financial options ...Chapter 11 would have to be soon if airline is to find new financing By RICK BARRETT rbarrett@xxxxxxxxxxxxxxxxxxx Last Updated: June 24, 2003 Midwest suggested that such a filing could come by mid-July. In a memo to employees, Midwest's senior leadership said the airline could emerge from Chapter 11 "with significantly reduced debt and a new opportunity to rebuild our financial stability." But reorganization could cost the airline millions of dollars in legal fees and lost business, including a 40% drop in airfare bookings, the memo said. "Chapter 11 is a very expensive process," the memo notes. "The court may make decisions that adversely affect employee groups. . . . If the company's liabilities are greater than its assets, stock can become worthless. In most instances, the company's plan of reorganization under Chapter 11 will cancel all existing shares of stock so that new stock can be issued for distribution to new investors and creditor groups." Earlier this month, Midwest officials said the company might be forced to file for Chapter 11 protection in federal bankruptcy court if it does not get concessions from aircraft lessors, banks and labor unions by midsummer. Tuesday, company officials said they still hoped to avoid filing for reorganization, although "it would not be far off," should the action be necessary. "We have a small window of opportunity to complete the restructuring we began in February," the memo noted. In February, Midwest suspended payments on more than 35 airplanes, placing the airline in default of its financial agreements for the first time in its 19-year history. "For some months, we have had more cash flowing out of our business than coming in," the memo continued. "One factor that will help us determine if we should file for Chapter 11 is our cash on hand. A company contemplating Chapter 11 must have sufficient cash to weather the Chapter 11 case and its additional costs. Additionally, our current bank facility (line of credit) expires August 30. We need to complete our restructuring at least six weeks before that date to allow enough time to arrange for a new line of credit. That brings us to a point in midsummer." Airline could gain concessions Midwest officials said their ability to gain concessions from aircraft leasing companies and banks is enhanced by the prospect of filing for reorganization since contracts and leases could be rejected in bankruptcy court proceedings. "It provides an enormous incentive for creditors and contract holders to reach agreement with us," the memo noted. Midwest has strengthened its cash reserves in recent months after the reserves had declined at what company officials had acknowledged was an alarming rate. It has done well with three-day airfare sales, including one that ended Tuesday. "We definitely are better off," said Carol Skornicka, Midwest senior vice president. "We are in a position where we think that we could enter Chapter 11 with enough cash to emerge successfully. We are still OK on that score." Bankruptcy courts have permitted airlines undergoing reorganization to honor prepaid tickets and frequent-flier programs. United, US Airways and others have operated in Chapter 11 without causing problems for their customers. But some travelers are nervous about airline reorganizations, even if it means no changes in flight schedules while the airlines solve their financial problems. There's a powerful stigma attached to a Chapter 11 filing, and that is one reason why companies want to delay such a move for as long as possible. "One of our consultants said we could expect nearly a 40% drop in bookings almost immediately" following the announcement of a Chapter 11 filing, Skornicka said. In the memo, Midwest said it had already reduced operating costs by $7 million a month but added that it must find more savings if the company is to become profitable again. The company needs $600,000 a month in savings from its union employees through a combination of work rule changes, productivity improvements or wage reductions, the memo noted. Monday, Midwest's stock price plummeted more than 15%, to $2.30, in trading on the New York Stock Exchange. Tuesday, the price regained everything it lost Monday and closed at $2.72. "I would not read anything into Monday's stock price decline," said Darren Bagwell, airline industry analyst for Thrivent Financial for Lutherans, an Appleton financial services company. "It doesn't take a whole lot to get fluctuations" in a company's stock price when it trades at less than $3 per share, he said. *************************************************** The owner of Roger's Trinbago Site/TnTisland.com Roj (Roger James) escape email mailto:ejames@xxxxxxxxx Trinbago site: www.tntisland.com Carib Brass Ctn site www.tntisland.com/caribbeanbrassconnection/ Steel Expressions www.mts.net/~ejames/se/ Mas Site: www.tntisland.com/tntrecords/mas2003/ Site of the Week: http://www.carib-link.net/naparima/naps.html TnT Webdirectory: http://search.co.tt *********************************************************