PS Group May Lose Leases; Stock Falls
PS Group said Monday that it will take a $15.6-million after-tax writedown during the third quarter to cover the “probable termination” of leases for two 747-200 aircraft that are being operated by bankrupt America West Airlines.
The announcement caused PS Group’s stock to plummet by $5.75 to $38 on Monday. PS Group, which traded as high as $72.25 earlier this year, is now trading near its 1991 low of $35.50. The writedown “would place (PS Group) in noncompliance with certain financial covenants” of a $170-million credit agreement with a number of banks, according to the company. PS Group is “seeking waivers or amendments” from its lenders, according to the company.
PS Group also announced that it has withdrawn plans for the sale of up to 1.725 million shares of common stock. PS Group filed for the offering with the federal Securities and Exchange Commission in April.
PS Group’s stock has risen dramatically during the past year, driven largely by the appearance of noted investor Warren Buffett, who now holds more than 20% of PS Group’s stock. However, PS Group’s stock has tumbled in recent months upon word of possible regulatory problems that could delay a waste-metal recycling plant in Illinois.
PS Group, the former parent company of Pacific Southwest Airlines, has run into problems in recent months with the aircraft-leasing business that generated $49.4 million, or 17%, of the company’s $288.5 million in 1990 revenue.
The San Diego-based company has leased aircraft to three airlines--Pan American, Continental and America West--that now are in bankruptcy court. Those three airlines generate about 40% of PS Group’s aircraft leasing revenue. A third airline, USAir, which accounts for the rest of PS Group’s leasing business, is financially ailing, according to airline observers.
America West, which entered Chapter 11 proceedings earlier this year in U.S. Bankruptcy Court, has the option of assuming or rejecting the two 747 leases. The airline “has preliminarily indicated that rejection of the two 747s is likely,” according to PS Group.
