Failed Saipan Air Partner Files For Chapter 11 Bankruptcy

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Arizona-based Swift Air reportedly owes $1.3 million

By Alexie Villegas Zotomayor

SAIPAN, CNMI (Marianas Variety, June 29, 2012) – Owing to serious liquidity problems, significant fuel price increases and issues relating to its agreement with Saipan Air, Swift Air LLC is seeking Chapter 11 bankruptcy protection.

The financially distressed Swift Air, which terminated its agreement with Saipan Air on June 24, filed a voluntary petition for relief under Chapter 11 on June 27, in the U.S. Bankruptcy Court for the District of Arizona.

Swift Air continues to operate as a debtor-in-possession as per U.S. Bankruptcy Code §§ 1107 and 1108.

Section 1107 states that a debtor in possession shall have all the rights — other than the right to compensation under section 330 — and powers, and shall perform all the functions and duties — except the duties specified in sections 1106 (a)(2), (3), and (4) — of a trustee serving in a case under this chapter.

Under Section 1108, trustee can operate a debtor’s business.

During petition date, debtor represented by Swift Air managing board member Hank Tobert, listed Saipan Air, Inc. or Tan Holdings Corp. as among the list of creditors holding the 20 largest unsecured claims.

Swift Air owes Saipan Air $1.276 million.

Saipan Air was supposed to make its maiden flights, having sold tickets to China and Japan on July 1, but it had to cancel the launch owing to Swift Air abrogating their agreement on June 24.

Swift Air uses four leased aircraft to provide charter flights, and as of petition date had contracts with seven professional sports teams to provide air charter transportation.

It leased two 757 aircraft from International Lease Finance Corp. whom it owes $12.6 million.

It applied for an amendment to its Part 121 Certificate with the Department of Transportation so that it could add these two aircraft to its fleet.

Swift Air was planning to use these two additional aircraft to satisfy its agreement with Saipan Air, LLC.

Earlier, in Dec. 2011, under new ownership, Swift Air was considering seeking a $5 million loan arrangement with a secured lender so it could continue to fund its operations.

The beleaguered company was anticipating that it could use this additional money during the crucial months between April to September, when its primary clients — professional sports teams — wouldn’t be securing its services.

But this financing never materialized.

What complicated its situation is the delay in the approval of its Part 121 Certificate amendment, resulting in failure to meet its obligations with Saipan Air.

On Saipan, Swift Air’s failure to comply with its obligations disappointed Tan Holdings Corp., which intended to make its maiden flights to Japan and China on July 1.

In an interview on Tuesday, Tan Holdings Corp. spokesman and chief legal counsel Steven P. Pixley said they were seeking legal remedies, and may possibly file a complaint in the U.S. District Court for the Northern Mariana Islands for breach of contract, fraud and misrepresentation.

He didn’t disclose when they would file the complaint.

He told Variety that they made two wire transfers to Swift Air as security deposits: $900,000 on April 9 and $360,000 on May 29.

According to Pixley, Saipan Air was expecting the delivery of three airplanes from Swift Air: two Boeing 757 and one Boeing 727.

Pixley said that Tan Holdings-owned Saipan Air may possibly look for another partner.

The Chapter 11 petition comes with it an automatic stay that suspends all judgments, collection activities, foreclosures, and repossessions of property against the debtor.

This stay provides breathing room for the debtor to resolve its financial difficulties.

Saipan Air is listed as Swift Air’s second largest creditor, next to International Lease Finance Corp.

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