Graham Warwick/WASHINGTON DC
US cargo carrier Kitty Hawk faces a potentially fatal financial crisis after discovering that aircraft acquired when it bought American International Airways (AIA) need more maintenance than expected.
The company, based in Dallas, Texas, faces a $35 million bill to overhaul engines for its freighter fleet of Boeing 747s and Lockheed L-1011 TriStars. Kitty Hawk expects to be unable to pay by the 15 May $17 million interest on the $340 million loan secured to buy AIA in 1997. It admits "bankruptcy is an option"
Under the requirements of the loan, Kitty Hawk must keep a certain number of engines airworthy at all times. "We have fallen below that number," the carrier says.
Most of the engines concerned are Rolls-Royce RB211s, powering the six TriStars acquired with AIA. Kitty Hawk says these aircraft have become progressively harder to maintain, and it "may not make sense" to overhaul the engines.
As a result, the company is "evaluating the viability" of the TriStar fleet. This could end in Kitty Hawk writing off the book value of the aircraft, put at $124 million in 1997.
Kitty Hawk was forced to reduce the book value of 13 ex-AIA Stage 2 McDonnell Douglas DC-8 freighters which it cannot fly in the USA and which it has been unable to sell. "We thought we knew what we were buying," Kitty Hawk says of its AIA acquisition. "We did not anticipate the level of maintenance required." The company continues to operate normally as it negotiates with lenders.
Source: Flight International