By Vince Sullivan

Law360 (April 7, 2020, 10:11 PM EDT ) The Chapter 11 case of regional airline Ravn Air Group Inc. got off to a turbulent start Tuesday when lenders providing post-petition financing said their commitment to the loans was in doubt after a local Alaskan leader threatened to commandeer the debtor's air fleet.

During a first-day hearing conducted via video and telephone conference, an attorney for prepetition lending agent BNP Paribas, which is also leading a $12 million debtor-in-possession financing facility, said the mayor of a remote Alaskan region issued a proclamation after the debtor's Chapter 11 petition was filed saying he needed to seize Ravn Air's facilities to continue critical air freight services for the area.

David Neier of Winston & Strawn LLP said some of the lenders participating in the DIP loan have balked at continuing to fund Ravn Air after the seizure threat by the mayor of the North Slope Borough because there was no guarantee the assets that secure the loans would still be available.

"The precedent it sets is that, under the guise of police powers, various local government officials could somehow seize the collateral of the lenders and just start using it without paying for it," he told the court.

The issue arose Monday when the mayor proclaimed he may need to seize the airplanes to maintain air freight services to far-flung Alaskan settlements that include Utqiagvik — formerly known as Barrow — which is the northernmost populated area in the U.S. and relies on services provided by Ravn Air to survive more than 300 miles north of the Arctic Circle. Its 4,000 residents depend upon air freight services for food, medicine and other necessities, according to debtor attorney Tobias Keller of Keller Benvenutti Kim LLP.

Ravn Air shut down all of its operations and laid off the majority of its employees over the weekend after a dramatic drop in passenger revenue due to COVID-19 and its related travel restrictions. Neier said the lenders are sympathetic to the residents of Alaska who depend on Ravn Air and that some other resolution is in the works.

"COVID-19 is a very serious issue and we want people to have medicine and have access to packages that include food deliveries," he said. "The idea of just seizing assets without paying for them when we're willing to consider some limited operations which are paid for by the state or some municipalities is just unacceptable."

A representative from the Alaska attorney general's office said the actions taken by the local official are not legal for several reasons.

"The state of Alaska has a very clear position on this. Under substantive state law, boroughs don't have the authority to commandeer property," Assistant Attorney General Robert Schmidt said. "As a matter of bankruptcy law, everything they've sought to commandeer is part of the bankruptcy estate. And the last time I checked, North Slope Borough is not authorized by the Federal Aviation Administration to operate an airline or air cargo operation."

State officials are in talks with Ravn Air and its lenders about the state funding operations in the short-term using the debtor's facilities and employees to resume essential services to the remote regions of Alaska, Schmidt said, and that the borough's actions have been "royally counterproductive."

"It is a humanitarian need for these communities in the North Slope Borough and the rest of the state that they have substitute air service as quickly as possible," Schmidt said. "That will require that Ravn allow the state to sublet or otherwise allow for use of equipment currently held by Ravn."

U.S. Bankruptcy Judge Brendan L. Shannon said he would approve the interim DIP order authorizing Ravn Air to borrow up to $6 million in new money, saying there was no obligation for the company to borrow or for the lender to fund the loan if they weren't comfortable with the conditions of the collateral.

If the loan is made, Keller said the funds will be used primarily to make payroll for its more than 1,000 employees who have been laid off, but who are owed wages for hours already worked.

The court also approved a typical slate of first-day motions, including authorizing the debtor to jointly administer its case and the cases of its affiliates and to continue with its insurance programs and pay tax obligations.

Ravn Air operates three separate air service companies — RavnAir Alaska, PenAir and RavnAir Connect — that provide passenger, charter, freight, mail and mail bypass services throughout the state. The company runs more than 400 flights daily and ferried more than 75,000 passengers a year before ceasing operations Sunday.

It came to court after travel restrictions due to the COVID-19 outbreak reduced its passenger load by more than 80% last month and its revenue dried up almost overnight. It owes about $90 million in secured debt held by a group of lenders led by BNP Paribas.

Ravn is represented by Victoria A. Guilfoyle, Stanley B. Tarr and Jose F. Bibiloni of Blank Rome LLP, and Tobias S. Keller, Jane Kim and Thomas B. Rupp of Keller Benvenutti Kim LLP.

The lenders are represented by David Neier of Winston & Strawn LLP, and William P. Bowden and Gregory A. Taylor of Ashby & Geddes PA.

Alaska is represented by Robert Schmidt.

The case is Ravn Air Group Inc., case number 1:20-bk-10755, in the U.S. Bankruptcy Court for the District of Delaware.

--Editing by Adam LoBelia.

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