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Fascinating details of the finances, customers and owners of Western Global Airlines (WGA) are beginning to emerge as the US cargo carrier considers filing for bankruptcy.

There is something of a perfect storm at the airline, which saw Moody’s Investors Service last week withdraw its rating after a series of downgrades.

The employees have filed a putative class action against shareholders James and Carmit Neff and family trusts, claiming an employee share ownership plan had “drastically overpaid” for stock purchased from the Neffs, who “walked away with more than half a billion dollars”.

In 2020, the Neffs formed an Employee Stock Ownership Plan, which bought a 37.5% stake for $510m – giving the carrier a valuation of $1.3bn – which “far exceeds the fair market value”, according to the lawsuit, which compared valuations of Atlas Air and ATSTG and noted that, on that basis, WGA would be worth $375m. Atlas Air recently sold for $5.2bn, to put it into context.

The valuation was based on just two quarters of data from 2020 – the two most profitable in the airline’s history – of $74m in Q2 and $37m in Q3 – more than double its previous best year. A “temporary . . . outsized performance,” according to a ratings agency.

The Neffs transferred 16 aircraft, previously leased to the carrier, as part of the transaction, netting them between $20m and $22m in annual lease payments between 2018 and 2020.

To buy the shares, the ownership plan borrowed from Western Global – which did not have enough, so it issued $400m in junk bonds at an interest rate of more than 10%, costing some $40m a year to service.

“It is unclear whether Western Global can survive such an enormous debt burden. Yet [the] defendants did not even factor this new debt into their valuation of the company,” notes the lawsuit.

It adds: “Western Global has a very old fleet that will need to be almost entirely replaced over the next decade. Its pilots, mechanics and loadmasters are paid well below market wages, and the monies the company will need to devote to debt service may make it difficult, if not impossible, to retain a high-quality workforce.”

According to Moody’s, Western Global also faced a pilot shortage, which meant it has been unable to fly westbound routes to Asia as it did not meet minimum pilot requirements.

The first round of the lawsuit has been won by the employees. The Neffs moved to ‘compel arbitration’, but the judge disagreed and they are appealing.

Both the lawsuit and Moody’s also expressed concern about WGA’s customer base. Moody’s noted that its top three customers accounted for 64% of its revenue – but also that its major customers often changed, with short contracts typically between six and 12 months long.

In Q3 22, WGA’s top three customers were Amazon, Kerry Freight and KPS World Transportation. But in 2020, more than half its revenue came from the US Department of Defense, UPS, FedEx and Amazon.

In March, Moody’s also pointed to a “deteriorating liquidity position”. WGA cancelled an order for two 777Fs this year, for which it had paid a deposit of $13m for delivery in 2025.

Moody’s said: “The company’s $47.5m revolving credit facility, expiring 15 February 2025, will likely remain fully utilised even after the company receives a return of certain deposits associated with its now aborted agreement to purchase two 777-F aircraft…

“Furthermore, all of Western Global’s assets are encumbered, limiting its ability to raise new funding on favourable terms. Additionally, declining operating block hours in recent quarters have contributed to weakness in Western Global’s revenues and cash flow.”

It said that up to September 2022, expenditures on its four 747Fs and lower aircraft utilisation had let to “negative free cash flow of $52m”. Its cash position at the end of September was a “relatively low” $27m. The company had $400m in aircraft assets and managed a fleet of 21 aircraft (17 MD-11Fs and four 747-400Fs) at 30 September 2022.

WGA was reportedly in talks with creditors last month. Talks are under way again, but the carrier may have to file for bankruptcy, according to Bloomberg.

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