Hostile creditors throw Sun Country into bankruptcy
Tony Kennedy
Star Tribune
Published Jan 9 2002
A month after collapsing from insolvency, Sun Country
Airlines was dragged into bankruptcy court Tuesday by
airplane-leasing firms that want the Mendota Heights-based
carrier liquidated.
The unwelcome Chapter 7 petition filed in U.S. Bankruptcy
Court in Wilmington, Del., demonstrates impatience with Sun
Country's unrealized plan to find new capital and reopen as a
small charter airline with cooperation from creditors.
The Sun Country plan, which would require court approval
under Chapter 11, hasn't materialized because investors
haven't been found.
"Our strategy was to wrap up a deal and go into [bankruptcy]
court with a plan of reorganization," said Sun Country
spokeswoman Tammy Lee.
Instead, Sun Country was beaten to court by Pegasus Aviation
Inc., Pegasus Aviation Lease Asset Securitization Trust and
Riverhorse Aviation Group Inc. The California-based lessors
of Boeing 727s formerly flown by Sun Country are owed more
than $3 million and they want to be paid from the proceeds of
a forced liquidation of the airline.
San Francisco-based Pegasus and Santa Monica, Calif.-based
Riverhorse did not return phone calls Tuesday.
Sun Country ran out of money and abruptly halted its flight
operations Dec. 7, dismissing all but seven of its 900 employees.
Since then, most creditors and some employees have waited for
Sun Country CEO David Banmiller to strike a deal with
potential investors. He has been looking for new owners since
early November.
Lee said a liquidation of Sun Country "is not in any of our
creditors' best interests."
She said lawyers for Sun Country will try to move the case from
Delaware to Minnesota. If investors can be found to restart the
airline, Sun Country will seek to change the involuntary
Chapter 7 case into a voluntary Chapter 11 reorganization.
Under Chapter 11, some debts can be forgiven if a company
proves to creditors that a reorganization will reward them with
more than a liquidation.
Under procedural rules in bankruptcy court, Lee said, Sun
Country can keep searching for new owners for the next 30 to
90 days.
Lee declined to reveal the airline's current debts or assets, or
say how much cash is on hand to meet the idle carrier's daily
expenses. Ongoing costs include payments to the remaining
staff, bankruptcy lawyers and Lee's salary as a public-relations
consultant.
According to Sun Country's third-quarter financial report, the
airline was more than $70 million in debt on Sept. 30.
On Dec. 14, Lee said Sun Country was out of money. She said a
$784,000 stabilization grant from the federal government,
received Dec. 12, would be used to pay employee medical bills
already in the company's self-insurance pipeline.
Sun Country has operated only a few round-trip charter flights
since closing its doors, partly to retain its
government-regulated certificate to fly.
The union for Sun Country flight attendants is suing the airline
for nonpayment of insurance, accrued vacation and severance
benefits. In an important development in the case, the Mark
Travel Corp. of Milwaukee has agreed to extend insurance
benefits to ex-Sun Country employees under the Consolidated
Omnibus Budget Reconciliation Act (COBRA).
Under COBRA, laid-off employees pay for the extended
coverage, but it saves them from striking out on their own in
search of individual policies. COBRA wasn't available from
Sun Country because the airline's health insurance plan was
canceled Dec. 20.
Milwaukee-based Mark Travel is owned by Bill La Macchia,
who also owns Sun Country. Randi Becker, a spokeswoman for
Mark Travel, said it was important to La Macchia to arrange a
backup plan.
"We're living up to that responsibility," Becker said.
Barbara Harvey, a lawyer for Bloomington-based Teamsters
Local 2000, which represents flight attendants, said Mark
Travel has been dismissed as a defendant in the lawsuit because
of its cooperation on the insurance matter.
Harvey said the shutdown of Sun Country, followed by the
Chapter 7 bankruptcy filing, "is a real tragedy for the flight
attendants and for the Minneapolis-St. Paul flying public."
But she said the court action Tuesday came as no surprise.
"They were living totally on borrowed time," Harvey said,
noting that Sun Country's death has been "slow, painful and
ambiguous."
Among its unpaid creditors is Minneapolis-St. Paul
International Airport, which is owed $470,000 for unpaid fees
and missed rent payments on hangar and terminal facilities.
Tom Anderson, general counsel for the Metropolitan Airports
Commission (MAC), said Tuesday that airport officials still
hope to see Sun Country return to the air, even as a
scaled-down operation.
"We want them to be able to succeed, but we also will be
pushing for payment of what they owe us," Anderson said.
Meanwhile, Anderson said MAC officials are making
arrangements to open four idle Sun Country gates at the new
Hubert H. Humphrey terminal for charter flights operated by
other carriers. Demand for charter flights peaks at this time of
year.
-- Tony Kennedy is at tonyk@startribune.com .
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