Oct 6, 2008 11:16 pm US/Central
Sun Country Files For Bankruptcy Protection
MINNEAPOLIS (AP) ―
Sun Country Airlines filed for Chapter 11 bankruptcy on Monday, just days after the founder of its parent company, Petters Group Worldwide, was charged in a multimillion dollar fraud investigation.
Sun Country plans to continue operating on its normal schedule, airline Chairman and CEO Stan Gadek said Monday.
Last week, Gadek said Sun Country was having cash flow problems and couldn't turn to its parent company for a short-term loan -- as it normally would during the slow travel period -- because of the federal investigation.
"We were forced to take this action as a result of recent events at Petters Group Worldwide," Gadek said in a statement Monday.
Petters Group founder Tom Petters faces federal charges of mail fraud, wire fraud, money laundering and obstruction of justice in what authorities say was a years-long scheme to defraud investors of more than $100 million. Court documents indicate as much as $3 billion might be tied to the fraud. Petters, who is in custody, resigned before his arrest last week.
An attorney for Petters, Jon Hopeman, has said Petters denies wrongdoing.
Petters Group became the sole owner of Sun Country last November, after co-owning the carrier since October 2006.
Separately Monday, federal judge Ann Montgomery froze the assets of Petters Group and several entities, saying: "There is probable cause to believe that the amount traceable to certain of the Defendants' fraudulent activities is at this time $3 billion."
Montgomery appointed attorney Doug Kelley as receiver to run the entities.
Ray Neidl, a stock analyst with Calyon Securities Inc., said he's not surprised by Sun Country's Chapter 11 filing in these times of high fuel prices and uncertain credit markets. Neidl said roughly a half-dozen small airlines filed for bankruptcy last spring, and he saw Sun Country as one of the smaller, private carriers that would do the same in the fall.
The filings in U.S. Bankruptcy Court in Minnesota are for Petters Aviation LLC and its subsidiaries, including MN Airlines Inc., which does business as Sun Country Airlines. The documents show that Petters Aviation has at least $38.4 million in unsecured claims, while MN Airlines has unsecured claims of at least $3.62 million.
In an interview on WCCO-AM, Gadek said it was "business as usual" at the airline and customers wouldn't see a difference.
He said he had been involved in two other bankruptcies but said Sun Country's is different because it's not "as a result of a broken business model." Gadek said the airline was profitable in July and August.
Asked whether he had been pursuing outside capital, Gadek said he had spent most of his time since the Petters investigation broke into public view negotiating with vendors for flexibility to get through the next 90 days. But vendors didn't want to get involved because of concern about litigation, he said.
The Chapter 11 filing "allows us to stand on our own, uncouple from the organization and move forward," he said.
Sun Country warned its employees on Thursday that they should be prepared for potential major layoffs or even a shutdown as early as Dec. 1. But the airline said it issued that letter to comply with legal requirements, and that it has no plans to shut down or slash its work force.
Still, earlier in the week, Sun Country told employees that half their pay would be deferred until after the first of the year.
Capt. Buddy Scroggins, chairman of the Sun Country Airlines group of the Air Line Pilots Association, said the bankruptcy filing sets a legal framework for how the company will operate and reduces some uncertainty after last week's raid on the Petters Group headquarters.
"Bankruptcies have become an unfortunate fact of life in the airline industry since 9/11, but most of the airlines that have entered Chapter 11 in the past decade have been able to reorganize successfully," Scroggins said in a statement. "Sun Country's pilots will do our fair share to help the airline emerge from bankruptcy as a stronger and more profitable company."
Sun Country, based in Mendota Heights, has 858 employees during the regular season, and up to 1,110 workers during peak travel times. The carrier operates nine aircraft -- all 737s.
Sun Country flies to 10 cities year-round, including Las Vegas; New York; Orlando; Cancun, Mexico; and Los Angeles. It serves 18 cities on a seasonal basis, including Anchorage, Alaska and tourist destinations such as Mazatlan and Puerto Vallarta in Mexico.
Chapter 11 bankruptcy allows a company to reorganize its finances with protection from creditors.
Bob Daly co-founded Sun Country as a charter airline in 1982 and returned with a group of investors in 2002 to rescue it from financial difficulty that followed its shift to scheduled service. Daly, who is no longer associated with the airline, said he thought there was "a good chance" the airline would be around until well into 2009.
"What's going to happen after that depends upon the long range financial arrangements that are made," Daly said.
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