If and when the court decides on the bankruptcy petition filed by Freedom Air, one of the company’s creditors, the Commonwealth Development Authority, is confident it would be able to recover any and all obligations of the airline company.
CDA executive director Manuel Sablan said the agency is a “secured creditor” that would be given priority by the court.
“CDA has priority lien on Freedom Air’s assets, so we’re a secured creditor. This means that whatever happens to this [bankruptcy] case, we’re on the priority list of creditors that must be paid by the company. CDA has to be accommodated,” said Sablan.
CDA loaned $900,000 to the airline company in March 2012, with a 7 percent interest per annum.
Sablan disclosed that prior to filing for bankruptcy in September last year, Freedom Air had been paying CDA the monthly interest. Those payments, however, stopped as soon as the carrier sought relief with the bankruptcy court.
Besides CDA, the bankrupt Freedom Air also owes the Commonwealth Ports Authority over $1.2 million in unpaid lease, passenger facility charges, and other fees. CPA, however, is an unsecured creditor, which means it has the lowest claim on the company’s assets.
“That’s the difference. If you are a secured creditor, your claim has to be paid off before any unsecured creditors,” explained Sablan.
Last February, Freedom Air filed in Guam’s bankruptcy court its opposition to a motion filed by the Office of the U.S. Trustee to dismiss the bankruptcy case. Instead, Freedom Air asked for a Washington, D.C.-based broker to sell the company. Freedom Air, which does business as Aviation Services Inc., also recently filed in court a proposed agreement between the airline and its broker.
The Office of the U.S. Trustee earlier filed a motion to dismiss Freedom Air’s Chapter 11 petition, stating that the debtor is suffering from substantial and continuing losses since the start of the case and lacks a reasonable likelihood of being rehabilitated.
According to Sablan, CDA’s counsel is on top of the issue and provides the board regular updates on the bankruptcy case.
CDA chief said the agency is holding first lien on Freedom Air’s assets and the value of those assets, if liquidated, would be sufficient to pay off its obligations to CDA.
Sablan explained that when a company files for Chapter 11 reorganization, it must submit for court approval a plan on how it intends to settle all its obligations.
According to Sablan, once CDA successfully collects the principal loan plus interest, the money will be placed in the agency’s loan revolving fund and would be made available for lending.
However, Sablan said that CDA wants to see the continued operation of the local carrier because its services are vital and beneficial to the CNMI.
Freedom Air’s activities are now inactive in the CNMI after the company lost its aviation insurance coverage on March 8.
Pacific Aviation LLC earlier expressed its desire to acquire Freedom Air, with plans to rejuvenate the family-owned carrier, which has been in business for almost 40 years.