Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Sign up for our Delaware newsletter
You must correct or enter the following before you can sign up:
Thank You!
Law360 (April 28, 2020, 9:42 PM EDT ) Dallas-based Superior Air Charter LLC sought Chapter 11 protection in Delaware on Tuesday, carrying into bankruptcy about $75 million in unsecured debt and reporting that the COVID-19 pandemic had grounded its 10 remaining aircraft and indefinitely dried up demand for services.
In a court declaration, Edward T. Gavin, Superior's chief restructuring officer and a managing director of Gavin/Solmonese LLC, said the company turned to Chapter 11 to provide time to either reorganize or liquidate its business.
SAC — described by Gavin as never profitable — operated prior to the filing on a thin margin as a charter affiliate of JetSuiteX LLC, a regional air carrier with flights to airports in southern California as well as Phoenix, Arizona, and Las Vegas.
JetSuite holds a $15 million, no-interest share of SAC's unsecured debt, with another $50 million of the debt held as unsecured balances on non-refundable "jet-cards," Gavin said. The cards were described as pre-purchased $100,000 to $500,000 "SuiteKey Agreements" giving most holders a two-year right to short-notice charter seats to and from locations mostly in California, Nevada, Arizona, Utah, New Mexico and Colorado. About 40 percent of buyers hold non-expiring balances.
"The debtor could ill afford the economic destruction that the worldwide coronavirus (COVID-19) pandemic would come to cause across a spectrum of industries," Gavin said. "In short, it decimated the debtor's operations, with potential customers no longer able or willing to seek out the debtor's services."
It was the second Chapter 11 prompted by COVID-19 in recent weeks among small air carriers, with regional Alaskan airline RavnAir Group seeking protection in March and proposing a pivot to liquidation on Monday after failing to secure government assistance.
Initial steps for SAC's Chapter 11 include a court request for approval of a $3.6 million senior secured debtor-in-possession loan, to be provided by JetSuiteX Inc. and Delux Public Charter LLC, a non-debtor affiliate of JetSuiteX, at 5 percent interest.
The bankruptcy borrowing proposal calls for $1.4 million to be made available on an interim basis under a loan that will mature by Oct. 30.
Although most of the company's roughly 100 employees were furloughed this month, Gavin indicated that the charter company's cash management in bankruptcy will be complicated by a management services agreement calling for sharing of some work and expenses with Delux Public Charter, a non debtor affiliate. DPC recently agreed to reduce Superior Air's share of those expenses, however.
Also complicating the case is litigation over what Gavin described as reliability problems that affected aircraft acquired for a JetSuiteX effort to expand operations into East Coast destinations. Although the company's declaration did not provide details, federal court records show that SAC is a defendant in a suit in the U.S. District Court for the District of Kansas in a parts-related dispute with Textron Aviation Inc. involving JetSuiteX and Cessna aircraft acquired by the company.
SAC, in a counterclaim naming Cessna Finance Corp., Textron, Cessna Aircraft Company and Donald Beverlin, cited reliability problems involving the aircraft and an alleged corrosion problem involving lavatory toilet chemicals that could find their way to other parts of the aircraft.
That counterclaim was dismissed in November 2019, however, with a motion for reconsideration pending.
"Coupled with steadily accumulating liabilities (including costly litigation relating to the unreliable planes acquired for east coast operations), the presently bleak outlook for the travel industry (and economy at large) would otherwise sound the death knell for the debtor were it not for the intervening Chapter 11 case," Gavin said in the declaration.
The case was assigned to U.S. Bankruptcy Judge Christopher S. Sontchi.
Superior Air Charter LLC is represented by Evan T. Miller, Daniel N. Brogan and Sophie E. Macon of Bayard PA.
The case is In re Superior Air Charter LLC, case number 1:20-bk-11007, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Emily Kokoll.
For a reprint of this article, please contact reprints@law360.com.
