Delaware Chapter 11: Ravn Air Group, Inc.

Rafael X. ZahralddinShareholder, Director, and Practice Chair, Elliott Greenleaf

Introduction

On April 5, 2020 (the “Petition Date“), Ravn Air Group, Inc. (“Ravn”, or the “Company”) and seven of its affiliates (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.

The Debtors are represented by Keller Benvenutti Kim LLP as lead counsel and Blank Rome LLP as Delaware counsel. The case has been assigned to the Honorable Brendan Linehan Shannon. The response date for the committee questionnaire is April 16, 2020 at 4:00 pm.

Background

Ravn was formed through the combination of five Alaskan air transportation businesses in 2009, creating the largest regional air carrier and network in the state. Prior to the Petition Date, Ravn operated under three primary brands, RavnAir ALASKA, PenAir, and RavnAir CONNECT. The Company owns and, until COVID-19-related disruptions, operated seventy-two aircraft at twenty-one airports and seventy-three facilities, serving 115 destinations in Alaska with up to 400 daily flights, carrying over 740,000 passengers annually. The Company provides air transportation and logistics services to the passenger, mail, charter, and freight markets in Alaska. Key customers include companies in the oil & gas industry, the seafood industry, the mining industry, and the travel and tourism industries. Passenger service provides the largest revenue stream, generating 54% of the Company’s total revenue, followed by mail and bypass mail (23%), charter (12%), freight (5%), and other (6%).

Due to Alaska’s harsh winter climate, the Debtors’ businesses are highly seasonal. Operations tend to consume cash during the last and first quarters of each year, when they must cover capital costs and costs associated with maintenance. The business model relies heavily on cash flow received during the summer tourism season in the second and third quarters of the year. Strong financial results in the summer and fall months are essential to the Debtors’ survival.  On March 12, 2020, Alaska announced its first case of coronavirus. Prior to that, travel restrictions had already been instituted around the world, which caused airlines across the country to experience substantial revenue losses as a result of decreased sales and canceled flights. On March 12, 2020, airline bookings for the Company dropped dramatically, with an 80-90% decrease in passenger revenue for all three of its airlines. On March 20, 2020, the State of Alaska issued an advisory to all Alaskans to cease any non-essential in-state personal, business, or medical travel, which resulted in an unprecedented drop in passenger traffic and revenue, placing the Company in a negative cash flow situation. By mid-March 2020, the Company faced a liquidity crisis and announced flight and route reductions, temporary layoffs, and pay cuts. However, while these measures have helped conserve the Company’s cash, they were not enough to put it in a cash-flow positive or neutral situation, and Ravn quickly found itself in need of additional financing (See John Mannion Affidavit in Support).

Financial Condition

The Debtors have a term loan of up to $95 million and revolving loans of up to $15 million with a group of senior secured lenders whose administrative agent is BNP Paribas. As of March 31, 2020, the Debtors owe approximately $90,907,954.51 (exclusive of interest and fees) to their secured lenders which is secured against substantially all the assets of the Debtor.

DIP/Cash Collateral Motion

The Debtors are seeking a senior secured, super-priority debtor-in-possession loan and security agreement with BNP Paribas, consisting of a $12,000,000 term loan that will be funded in a series of draws, plus advances to pay the roll-up amount of up to $24,000,000, plus accrued interest and other fees and amounts owing under the respective loan documents. This financing, along with the use of cash collateral, will provide the Debtors with much-needed liquidity to fund operations and the costs of these cases and permit, among other things, the restart and/or wind-down of the Debtors’ business and confirmation of a plan. The Debtors have an immediate need to access cash collateral, which will allow them to finance the administration of these cases, protect their assets, pay employee wages, satisfy other working capital and operational needs, and allow them to seek additional capital through the CARES Act or otherwise, all of which they feel are necessary to preserve their options and protect the value of the their assets. The Debtors have prepared an eleven-week cash-flow budget.

Lease Rejection Motion

The Debtors have filed a motion to reject, effective as of the Petition Date, multiple aircraft and equipment leases and a service agreement, which is an executory contract. By eliminating the obligations on these contracts, they estimate they will save approximately $325,000 in monthly expenses.

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TOTAL SECURED DEBT

Approximately $90,907,955 is owed to BNP Paribas and its associated lenders.

TOTAL UNSECURED DEBT

At least $11.5 million is owed to the creditors on the Debtors’ top unsecured creditors list attached to the petition.

FIRST DAY RELIEF FOR AUTHORIZATION TO PAY AND PAYMENTS

INSURANCE POLICIES MOTION

Interim Relief

An amount not to exceed $1.5 million.

Final Relief

Unspecified but may include an additional

$750,000. Debtors seek authorization to revise, renew, roll over, replace, extend, supplement, or otherwise modify their insurance coverage as needed.

TAXES AND FEES MOTION

Interim Relief

An amount not to exceed approximately $320,000 in the aggregate.

Final Relief

Unspecified; Debtors seek authorization to pay certain taxes due and owing in the ordinary course of business.

EMPLOYEE WAGES AND BENEFITS MOTION

Employees: Prior to COVID-19, over 1,300 non-union. As of the Petition Date, thirty-nine.

Relief Requested

Total unspecified, but at least $6.8 million is estimated outstanding as of the Petition Date.

Prepetition Compensation and Deductions: An amount not to exceed $6.7 million.

Paid Time Off: Unspecified; Debtors seek authorization to continue to accrue PTO.

Prepetition Business Expenses: An aggregate amount not to exceed $100,000.

Health Benefits: Unspecified; Debtors seek authorization to pay outstanding prepetition amounts.

Voluntary Benefits: Unspecified; Debtors seek authorization to pay any outstanding prepetition benefits.

Withholding: Unspecified; Debtors seek authorization to continue distributing withholdings, including those withheld prepetition.

No payment shall exceed the statutory cap of $13,650.

If we can be of service, please contact me.

Rafael X. Zahralddin-Aravena

Commercial Bankruptcy and Commercial Restructuring Chair

Elliott Greenleaf, P.C.

The I.M. Pei Building

Wilmington, Delaware 19899

Direct: 302-384-9401

Cell: 302-545-2888