Midway Airlines Seeks Chapter 11 Shield
Midway Airlines, the first carrier to be certified under airline deregulation, Tuesday filed for federal Chapter 11 bankruptcy court protection, the third carrier to fall victim to the turmoil in the industry since the beginning of the Persian Gulf crisis.
The Chicago-based carrier, which cited financial woes from the high price of jet fuel during the Gulf War and a drop in passengers because of the recession, said it intends to maintain its flight schedule while attempting a reorganization, including service from Chicago to Los Angeles and Orange County.
All tickets will be honored and there will be no employee layoffs, Midway added.
The airline said it had arranged for a $40-million secured line of credit from Continental Bank, which will finance current operations while the carrier reorganizes. Chapter 11 allows a company to continue operating under protection from creditor lawsuits while it works out a plan to settle debts.
“Everything stays the same,” Chairman and Chief Executive David R. Hinson said in a prepared statement. “We may have to shrink in the future because no one can predict what the airline environment will be.” For now, the carrier said it intends to only drop service to the U.S. Virgin Islands and the Bahamas on May 1.
Hinson said Midway’s economic difficulties “subsequent to the (Iraq invasion of Kuwait)” had made it impossible to raise capital, ultimately requiring the bankruptcy filing made late Monday night. “The Gulf War had extracted $50 million in high fuel costs and lost revenues,” he added.
“We greatly regret having to take this step,” Hinson said, “but it is the prudent course and, in our judgment, the only course that will enable Midway to continue operations, restructure its finances in an orderly way, and survive as one of the remaining two post-deregulation airlines.”
Midway’s flight to bankruptcy court follows that of Continental and Pan American World Airways in the past four months. Citing the Gulf War, Houston-based Continental in December filed for the second time in eight years. Pan Am filed in January. Also in mid-January, Eastern Airlines, which failed to successfully reorganize after nearly two years in Chapter 11, was forced to liquidate because of the recession and the fear of flying spurred by the Gulf crisis.
In an interview, Hinson said Midway was also hurt by “distress” ticket sale prices that Eastern promoted during its final days. He said Midway competed with Eastern on 40% of its routes and was hurt badly by having to match the Eastern discounts.
Although other U.S. carriers have not had to make the trip to bankruptcy court, the combination of war and recession has taken its toll. Trans World Airlines recently defaulted on $75.5 million in bond payments, and its unions and some politicians are soliciting new investors in an effort to help the ailing carrier.
Overall, the world’s airlines lost more than $2 billion in the first two months of 1991 because of the war, the International Air Transport Assn. said in a separate report Tuesday.
Midway began operations on Nov. 1, 1979, (after the 1978 deregulation allowed new carriers to enter markets) with three airplanes flying from Chicago’s Midway Airport to three destinations. Midway and Phoenix-based America West are the only remaining creations of deregulation.
Its base at Midway, which is more convenient to downtown Chicago than O’Hare and is restricted in the number of new flights, has given Midway an edge in the market.
“If the economy improves,” said Raymond Neidl, airline analyst with Dillon, Read & Co. “(Midway) should be able to survive since they have their own niche in Chicago.”
Transportation Secretary Samuel K. Skinner said at a meeting with reporters in Washington on Tuesday that he believes that Midway will ultimately “emerge from Chapter 11 bankruptcy reorganization and be a valuable player in the Midwest.” He said Hinson had told him Monday night that liquidation is not contemplated.
He said he is “hopeful that the worst is over for the airline industry” since travel has picked up and fuel costs have declined.
