Contractor Global Aviation Files for Bankruptcy Amidst Military Cuts
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Contractor Global Aviation Files for Bankruptcy Amidst Military Cuts

February 16, 2012


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Global Aviation Holdings Inc., which provides more chartered flights for the U.S. military than any other company, has filed for bankruptcy protection under Chapter 11, according to a recent report from the Reuters news service.

In its bankruptcy filing, Global Aviation listed a number of different reasons for its decision to seek debt relief through bankruptcy. These reasons included the U.S. pullout from Iraq, cuts in defense spending by the federal government, and high debt and labor costs.

Global Aviation, which is the parent company of North American Airlines Inc. and World Airways Inc., filed in a U.S. Bankruptcy Court in Brooklyn, New York, just two weeks after the Defense Department announced that it plans to reduce military spending by $487 billion over the next ten years.

Sources indicate that more than 75 percent of Global Aviation’s revenue comes from transporting soldiers and various forms of cargo overseas. As the U.S. plans to pull its troops out of Afghanistan before the end of 2013, and as the country is winding down its combat operations in Iraq, Global Aviation saw rapidly declining demand for its chartering services.

And the company immediately felt the impact of the government’s shifting war policies. In the nine months spanning from January to September 2011, Global Aviation lost a total of $60.3 million, which was a much larger drop than the $6.9 million the company lost in 2010.

Of course, the end of the Afghanistan and Iraq wars and less spending on military actions were not the only factors that doomed the company’s finances. The company also claims that "unsustainable" labor costs prevented Global Aviation from escaping its various debts.

In a court filing, William Garrett, the company’s chief financial officer, said that "high labor and fixed costs, excess aircraft and an overleveraged balance sheet" eventually forced Global Aviation to restructure its operations.

Despite its bankruptcy filing, Global Aviation intends to continue doing business while the company restructures, although executive salaries will be cut by 10 percent, and the company plans to fire 140 of its 1,782 employees.

Corporate bankruptcy laws in the United States allow companies to continue doing business while they restructure, which is why many companies like Global Aviation choose to seek debt relief through bankruptcy courts.

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