Judge ‘troubled’ as Island Air seeks cash infusion
Bankruptcy Judge Robert Faris expressed concern Wednesday about Island Air’s dire financial condition and gave the company a one-week extension to use its cash and provide more evidence of its financial situation before he decides how to proceed with the case.
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Bankruptcy Judge Robert Faris expressed concern Wednesday about Island Air’s dire financial condition and gave the company a one-week extension to use its cash and provide more evidence of its financial
situation before he decides how to proceed with the case.
“I’m very concerned about the cash situation, and in the absence of this substantial cash infusion (by a potential investor), the debtor can’t go on for long whatever happens,” Faris said during a hearing. “I’m very troubled by how close the situation is here.”
Island Air attorney Ted Pettit said the company, which filed for Chapter 11 reorganization on Oct. 16, continues to talk with potential investors that could provide the company financial breathing room. He said the airline, which has about
400 employees, made its payroll this week and plans to pay aircraft insurance premiums totaling $93,000 for Nov. 15, 17 and 30 to avoid cancellation.
The next hearing is set for 9:30 a.m. on Wednesday and Faris said he wants to find out by that time whether the airline made its insurance payment due that day and where it stands in securing financing. Faris also said he wants the airline to put together, before then, as much information thatas can on its cash situation and immediate cash needs.
“Until the cash comes in from the investor, it’s a much shorter-term problem so as much current information that can possibly be provided will be very
helpful,” he said.
Pettit tried to paint an
optimistic picture for the state’s second-largest airline and said that revenue
continues to improve as
it heads into the holiday
“We’re continuing to
improve on the revenues,” he said. “If you compare the five days prior to filing with the first five days of November, we’ve got a 28 percent increase,” he said.
He blamed some of Island Air’s financial constraints on $2 million-plus that has
been withheld by credit-_card processors and a glitch in the company’s new reservation system that led to some money flowing into the wrong accounts.
“I’m not contesting that we don’t need additional
financing, but for now we’re moving along fine without missing any critical payments.”
Island Air, though, hasn’t made any lease or maintenance reserve payments since the end of June and owes at least $4.58 million to Ireland-based aircraft lessor Elix 8 Assets Ltd. for use of the airline’s three planes.
The airline has argued that a deferral agreement it reached with Elix doesn’t require any payments until January. But Elix says that Island Air’s leases have been terminated for the three Bombardier Q400 aircraft that are the only planes remaining in Island Air’s fleet. Island Air said
it is entitled to use the
aircraft because of its
deferral agreement and that it filed for bankruptcy before the leases legally could be terminated.
The hearing next Wednesday will give Faris the opportunity to determine whether Elix terminated the leases prior to bankruptcy and, if Island Air is going to be allowed to use the aircraft, whether it needs to pay or offer collateral to Elix for “adequate protection.”
Attorney Thomas Kreller, who represents Elix 8 and Wells Fargo Bank Northwest, the trustee for the
aircraft lessor, said by telephone in court Wednesday that Island Air “has taken advantage of and
enjoyed the deferrals that are built into the deferral agreements based on various conditions.”
“We contest whether those conditions were satisfied,” he said.
Kreller said a budget filed Oct. 27 by Island Air with projections through March shows that revenue over that time will fall short by about $2.1 million to meet its administrative expenses.
“The (potential investor) solves a short-term liquidity problem but ultimately it digs a deeper hole,” Kreller said.