News / New loan keeps Western Global in the air – but only for now

Troubled cargo airline Western Global Airlines has secured a loan, giving it the necessary breathing space to restructure.

But the Florida-based carrier is expected to file for Chapter 11 bankruptcy protection shortly.

Speculation about bankruptcy has been rife since Moody’s withdrew its credit rating for the airline in late June, saying it had “insufficient or otherwise inadequate information to support the maintenance of the ratings”.

The ratings agency had downgraded Western Global earlier this year, citing a liquidity shortage.

In mid-July, the airline’s management blamed its predicament on “a convergence of unforeseen dynamics” that had “disproportionately impacted” it.

It said: “After 10 years of profitable operations and successful growth, the company is currently navigating financial challenges driven by unforeseen industry-wide factors, including the conflict in the Ukraine, the weakened global economy and, particularly, air cargo demand, spiralling costs and the recurrence of Covid-19 pandemic in China, which disproportionately impacted WGA and its customers.”

It added that “until the end of 2022, WGA delivered profitable operating results every year since its founding in 2013”.

The slowdown in airfreight demand has hit freighter operators hard, and it has been exacerbated by a surge in bellyhold capacity as passenger traffic soared post-panmdemic. Rates and load factors have slumped, and early this year leasing rates for passenger aircraft finally overtook freighter leasing rates – a gap that has grown steadily since.

A particularly harsh blow to Western Global was the loss of Amazon as a customer in January.

Recently the carrier has run a skeleton operation. Out of a fleet of four converted B747-400 freighters and 16 MD-11Fs, only two of the 747s and three MD-11s have been flying, the remaining fleet grounded. Earlier, management had cancelled an order for two B777 freighters.

The availability of fresh financing gives the company much needed breathing space. It has secured $77.3m, at 9% above the secured overnight financing rate, which currently stands at 5.31%.

The company has not commented on any expected bankruptcy protection filing or details of the financing.

While the availability of fresh money allows some elbow room to restructure, Western Global is not out of the woods yet. For one thing, it faces a couple of lawsuits.

Washington-based Radiant Global Logistics has filed a $750,000 claim against the carrier, accusing it of reneging on contracts to move aircraft components last autumn. According to the lawsuit, the airline has not paid 41 invoices and owes the logistics firm more than $556,000, plus interest.

And Western Global CEO Jim Neff and his wife have been sued by three employees over allegedly profiting from a bond sale to finance an employee stock ownership plan. Allegedly, Mr Neff used the proceeds to buy out the carrier’s secured creditors in late June.

Like his peers in the industry, the Western Global CEO must be hoping for airfreight demand to take off in the months ahead, but he likely has a greater sense of urgency. Market predictions at this point, however, remain rather downbeat.