Ravn Is $90 Million In Debt And Could Be Forced To Shut Down For Good
The article originally appeared on Alaska Public Media.
According to documents filed in federal court, Alaska’s largest rural airline is $90 million in debt and could be forced to sell its assets and shut down permanently. This would put rural travel and supply lines in peril unless the government or new investors come to the aid of the bankrupt company.
As the coronavirus pandemic batters the aviation industry, the teetering Ravn Air Group may have obtained a $12 million loan that leaves “some hope that there may still be a rescue,” Tobias Keller, a Ravn attorney, said April 7 at a bankruptcy hearing in Delaware.
“Ravn is actively working with government officials to secure funding. And if funding were obtained, we may be able to come up with a restructuring,” Keller said. But without relief, he added, the loan will give Ravn a “brief runway” to prepare for an “orderly liquidation.”
The developments at the April 6 hearing raise new questions about the fate of Ravn, and about what might replace it in the more than 100 Alaska communities it served before the pandemic.
Ravn provided the only scheduled passenger service to more than 20 of its destinations, and dozens of its communities lack any road access. Its 72 planes are grounded, and its workforce of 1,300 has shrunk to 39.
The company is majority-owned by a pair of East Coast private equity companies, and often criticized by customers and leaders in rural Alaska, who say Ravn was rarely responsive to local concerns. Officials with Ravn and the private equity companies, J.F. Lehman & Company and W Capital Partners, did not respond to requests for comment.
Some of Ravn’s communities, meanwhile, are in limbo, sorting through immediate, serious problems as they wait to see if the company will resume service, or whether it will have to be replaced by other airlines.
On the Bering Sea island of St. Paul, for example, there was a woman pregnant with twins who needed to fly to the mainland on April 9. But the only way to Anchorage right now was chartering a plane at a cost of $9,000 or more, said Amos Philemonoff, the president of the local tribal government there.
“I think everybody’s feeling apprehensive without any air service out here, and apprehensive as well about what the future holds,” Philemonoff said. “All we’ve got is conjecture at this point. I don’t know what to believe at this point without sitting in the bankruptcy proceedings.”
A “liquidity crisis”
At stake is a company with more than $200 million in annual revenue. Ravn’s bigger planes flew from Anchorage to a network of regional hubs, and then its smaller ones would fly from those hubs to remote villages. Destinations ranged from the North Slope, to the Yukon-Kuskokwim Delta, to the major Aleutian fishing port of Dutch Harbor.
Ravn was formed out of several smaller Alaska airlines during an era of industry consolidation that was hastened, in part, by legislation championed by former U.S. Sen. Ted Stevens.
The company’s statewide breadth offered customers the convenience of booking tickets on its different airlines through a single platform, and it also gave the company access to what appeared to be a diverse, resilient market. If demand dropped off in one region of the state, the company could count on others to sustain it.
But when the pandemic hit, Ravn’s reach became a vulnerability as the spread of the disease prompted Gov. Mike Dunleavy to restrict travel across the entire state. Another issue was Ravn’s dependence on passenger service, which generates 54 percent of the company’s revenue, according to bankruptcy filings.
The coronavirus arrived at a time when Ravn was already vulnerable. According to filings, "The company tends to run at a loss during the winter and spring, and strong financial performance in the summer and fall tourist season is “essential” to Ravn’s survival," Chief Financial Officer John Mannion said in a sworn statement.
As concern about the pandemic spread, bookings dropped sharply. Rural hubs and villages started telling Ravn, along with other airlines, to stop carrying passengers in an effort to limit the spread of the coronavirus, Mannion said. By mid-March, the company faced a “liquidity crisis,” he added.
At the end of March, even after two rounds of layoffs and service cuts, the company didn’t have enough cash to make its payroll. It also couldn’t find investors, given reduced demand combined with uncertainty about when the pandemic would relent, Mannion said.
No government aid yet
Before filing for bankruptcy, the company spoke to “high-ranking representatives” of the state and federal government for help, Mannion said. While Dunleavy administration officials had contact with Ravn, “the governor’s office can’t approve loans or offer any financing,” Jeff Turner, a spokesman for the governor, wrote in an email.
Turner said Ravn, like any other business, would have to approach the state’s economic development agency, the Alaska Industrial Development and Export Authority, for financing. AIDEA spokesman Karsten Rodvik said the authority has not received a formal application or request from Ravn.
At the federal level, grants under the recently passed relief bill, the $2 trillion CARES Act, can only go toward paying workers, not to pay down the company’s debt. For that reason, Ravn had initially appeared uninterested in seeking such grants, according to U.S. Sen. Dan Sullivan.
“At the end of the day, the investors and bank syndicate and private equity group that ultimately owned Ravn didn’t seem to want any additional help,” Sullivan told participants in an online Alaska Chamber conference last week. “That might be a lesson for all of us Alaskans: don’t count on the Wall Street guys to look out for our concerns.”
Ravn ultimately did apply for CARES Act relief last week. It also held an hour-long phone call late last month with aides to Alaska’s Congressional delegation, and representatives from the U.S. Department of the Treasury, according to a letter by the delegation to Treasury Secretary Steven Mnuchin.
But it’s uncertain when Ravn’s federal aid applications could be granted or how soon money could be released, Mannion said in his statement.
A spokesman for Sullivan, Mike Anderson, said in an email that the senator and his staff have worked “relentlessly” to make sure Ravn and other Alaska airlines can take advantage of the federal assistance to pay employees.
“His primary concerns are that rural Alaska is provided necessary services, and that Alaskans keep their jobs,” Anderson said. “He continues to hope that during this national crisis, Ravn is able to find a way to rehire the Alaskan employees and serve Alaskans who most need their services.”
Lenders wanted liquidation
By the time the pandemic arrived, Ravn had borrowed $91 million from its group of unnamed lenders, according to the company’s bankruptcy filings. That debt is looming over the bankruptcy proceedings, where many of the lenders think they would be better off if Ravn’s assets were sold immediately, David Neier, an attorney for the lenders, said at the April 6 hearing.
That’s in part because Ravn’s property that can be sold to pay back the $90 million is only worth about one-third of that amount, Neier said.
Adding another $12 million loan on top of that, which the judge authorized at Tuesday’s hearing, “was extremely difficult and extremely contested” among the lenders, Neier added. The lenders were troubled by the fact that half of the money was going toward paying wages that had already been earned by Ravn employees, rather than protecting the value of Ravn’s assets that could be sold to pay down the company’s $90 million debt, Neier said.
While the bankruptcy buys Ravn time to plan its next steps, even that process is being complicated by the pandemic itself. Two people working with the company can’t get to Alaska because the state requires travelers to quarantine themselves for two weeks after arriving, Neier said.
“There’s very little information that’s been able to get collected,” he added.
As the bankruptcy case plays out, state and federal officials say they’re committed to restoring flights to the places that have lost them. In the Yukon-Kuskokwim Delta, remaining air carriers have been working to replace Ravn’s service, but that has had the effect of reducing flights in other communities that weren’t immediately impacted by the company’s shutdown, Tiffany Zulkosky, a spokeswoman for Yukon-Kuskokwim Health Corporation, said in an email.
It could take weeks or a month for other airlines to add the planes and pilots needed to keep up with demand, she added. In the meantime, YKHC has chartered flights to move patients and supplies, though that option is “cost-prohibitive and not a long-term solution,” Zulkosky said.
In the long run, residents of communities served by Ravn should expect service to return, whether it’s provided by Ravn or a successor company, said Danny Seybert, who used to run PenAir, one of Ravn’s airlines, before PenAir went through its own bankruptcy. The aviation industry is defined by turmoil, Seybert added.
“Alaska is littered with failed airlines. And for every failed airline that goes away, somebody else steps up and starts another,” he said. “In every single case, the market comes back with people who step in and step up and take care of the markets, some sooner than others.”