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12 23Sat09202014

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Back Local News Trustee says Freedom Air sale will not fly

Trustee says Freedom Air sale will not fly

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AVIATION Services' proposal to sell Freedom Air is not a viable option as the amount owed by the company is much higher than the proposed sale price, according to the U.S. trustee overseeing the Chapter 11 bankruptcy case.

The U.S. trustee has also requested Freedom Air to immediately cease operations due to the lack of adequate insurance.

Freedom Air, which is $1.7 million in debt, is proposing to sell its shares for $1.5 million – a fall-back option which U.S. Trustee Curtis Ching said came a little too late.

"The debtor's cash losses are substantial and ongoing. The debtor does not have a buyer," Ching said, reiterating the motion for the court to dismiss Freedom Air's Chapter 11 petition, which might result in the carrier's eventual shutdown.

Ching said Freedom Air does not have sufficient funds, on its own, to continue operating during the time it takes to consummate a sale.

"Even if the trustee were able to find a buyer and close a sale for $1.5 million by the end of March 2014, a wildly optimistic scenario on both timing and sales price, there would be no funds available for general unsecured creditors," the trustee told the court.

In a motion filed earlier, Aviation Services asked the District Court of Guam to approve its proposed agreement with Potomac Aviation Inc., which it has hired to help in the sale process.

"The broker must find interested parties, allow potential buyers a period of due diligence, negotiate offers, and reach an acceptable deal. Buyers typically need some time to finalize their financing arrangements. The debtor must seek and then obtain court approval," Ching said, noting the process will not happen quickly.

"Even at an accelerated pace, it will take months," he said.

No insurance

The trustee also argued that Freedom Air's recurring and imminent termination of its hull insurance for its planes and general liability insurance aptly illustrates its financial woes.

Since the commencement of the case, Kudlich Insurance Services has issued three notices of cancellation due to non-payment – first on Nov. 5, 2013, then on Jan. 15. The third notice was issued on Feb. 6 and is effective on Feb. 19.

"With hypothetical sales proceeds of $1.5 million, all proceeds would be used to pay secured claims and post-petition administrative expenses. There would be no funds to pay more than $173,000 in priority tax claims owed to Guam Revenue and Taxation and the IRS and no funds to pay pre-petition priority wages," Ching argued.

"There certainly will be no funds to pay the millions owed to general unsecured creditors. As stated in the U.S. Trustee's motion, the debtor through its post-petition losses has now consumed the net value of the company."

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