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No `Maydays' Yet, But Midway Starts Sputtering

No `Maydays' Yet, But Midway Starts Sputtering

Will Midway Airlines Inc. be the next troubled carrier to taxi into bankruptcy court? That may be up to its lenders. Midway has already stopped making payments on its aircraft leases, and lessors say the airline has presented them with a drastic restructuring plan designed to stave off bankruptcy. The plan is dismal news for Midway's creditors. Many have already been stung by bankruptcy filings at Eastern, Pan Am, and Continental. But given the turmoil in the airline industry, it may be an offer they can't refuse.

Midway's own privately circulated restructuring documents show that cash is already so scarce--less than $30 million--that the carrier failed to make lease payments in January. If creditors don't approve Chief Executive David R. Hinson's emergency plan, Midway will post a $27 million cash deficit by March, according to internal projections. Chapter 11 almost certainly would follow. "We have no plans to file for bankruptcy," Hinson insists. But, he adds: "You can't tell what will happenin the next two or three months." It wasn't so long ago that Hinson and Midway were flying high. Determined to expand beyond his hub at Chicago's convenient Midway Airport, Hinson plotted to build a nationwide route system served by sleek new planes. During a 1989 spending spree, he shelled out $210 million for Eastern's Philadelphia hub and other assets, ordered aircraft worth $900 million, and aggressively expanded service to the West Coast.

CHOPPY. But that left Midway strapped even before the gulf crisis jacked up fuel prices. Deep discounting by ailing rival Eastern on Florida routes didn't help. Since last fall, rising costs, bitter fare wars, and sluggish traffic helped create more than $100 million in 1990 losses.

Last July, Lehman Brothers Inc. and Salomon Brothers Inc. rounded up $50 million in equity to shore up Midway. But investors fled when the gulf crisis hit. That forced Hinson to sell the money-losing Philadelphia hub to USAir Group Inc. for $67 million--a price puny enough to cause a $33 million fourth-quarter write-off. When war broke out, spooking passengers, Hinson had little choice but to appeal to his creditors.

Hinson won't comment on the specifics of Midway's plan. But documents first appearing in Commercial Aviation Report, an industry newsletter, reveal the company has unilaterally halted lease payments for aircraft, jet engines, and facilities through May. Hinson has also suspended progress payments to McDonnell Douglas Corp. and Dornier for aircraft ordered in 1989. Those moves should boost cash to $26 million by June.

Once lease payments resume in the spring, Midway is asking lessors to accept reduced rates until December, 1992 (table). And since it no longer needs planes to serve Philadelphia, Midway plans to ground its fleet of 10 Boeing 737s. In return, Midway will issue 10-year notes covering the deferred payments--$110 million--with interest starting next year. Hinson will also take responsibility for finding other airlines to lease the 737s.

STAYING HOME. Meanwhile, Hinson will reorganize operations. Shelving plans for a nationwide route system, Hinson will refocus Midway's efforts at home. "The Chicago operation is profitable," he insists. He hopes to save money on spare parts, maintenance, and pilot training by standardizing his fleet around McDonnell Douglas DC-9s and MD-80s.

Lessor help is crucial. "We're trying to help Midway through its problems," says Richard H. Grove of Polaris Aircraft Leasing Corp. "But nothing is resolved yet." Midway may have the upper hand. As ailing carriers trim their fleets, the market for used aircraft has collapsed. Unable to sell the planes, lessors may have to take what they can get.

Even if Hinson does manage to restructure, Midway's long-term future is unclear. With only $665 million in revenue, Midway is at a size disadvantage. And a long recession would be its worst enemy. Hinson had dreams of taking on the big guys. Now, he can only focus on survival.


Faced with soaring costs and sluggish revenues, Midway has projected a cash deficit of $27 million by March unless it can restructure its bank loans and aircraft leases. Here's what it is offering its lenders:

-- Stop some loan and all lease payments from Jan. 1 through Apr. 30, with payback of deferred amounts to begin in the second quarter of 1992

-- Reschedule loans and leases, cutting monthly lease payments for MD-80 aircraft by 25%, for DC-9s by 55%, and for some 737s by 95%

-- Ground the fleet of 10 Boeing 737s and nine DC-9-10s

-- Possibly defer delivery of new McDonnell Douglas aircraft