A second trip into bankruptcy protection appears inevitable for Trans World Airlines. For months, carrier executives have been trying to corral creditors into supporting an ever changing plan that would see the airline enter bankruptcy with a pre-packaged debt restructuring for the second time in three years.
This time, however, noteholder, shareholder and lessor approval appears to be coalescing around a plan that will result in a $500 million debt-for-equity swap. The airline hopes to finish selling its proposal by the end of June for a July bankruptcy filing. Creditors are being offered a mix of new, less-valuable notes, preferred and common stock, and millions of dollars in ticket vouchers. Support for the plan appears solid.
Pre-packaged bankruptcy is a voluntary filing which attempts to give the creditors as much say in the restructuring as possible. But it is also hoped that the filing will mean that TWA moves in and out of protection quickly, thereby gaining the advantages of debt relief during the restructuring but minimising the negative implications.
Revenue loss due to passengers booking away from the carrier is the main effect TWA needs to avoid. Already, the airline has said that negative publicity surrounding its financial difficulties pushed first quarter net losses up to $122.8 million on $692 million in revenues.
But many analysts are questioning TWA's ability to survive - with or without bankruptcy. Cash is not plentiful at the carrier, its yield system-wide has dropped, largely because it slashed capacity in the high-yield international markets over the past year, and revenues are down.
Source: Airline Business
