Liquidity

3 Months Ended

Mar. 31, 2020

Text Block [Abstract]

Liquidity and Management's Plan, COVID-19

2. Liquidity

The Company’s ability to meet its liquidity needs is dependent upon generating cash flows from operations in the future in amounts sufficient to meet its obligations and repay its liabilities arising from normal business operations when they come due. There can be no assurance that the Company’s operations will be sufficiently profitable, or that additional funds will be available, to meet its future liquidity needs.

Impact of the COVID-19 Pandemic

In January 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of a novel coronavirus (COVID-19). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic.

In response to the significant reduction in demand for airline travel due to the COVID-19 pandemic, United announced and implemented large scale reductions in its domestic and international flight schedules and the flight schedules of its regional airline partners, including the Company. Given the fluid nature of the pandemic, the extent and length of the reduction in demand for air travel are unknown, although the Company expects reduced demand relative to historical levels to continue for the foreseeable future. The COVID-19 pandemic has also led local, municipal, county and state governments in the United States to adopt “shelter-in-place” and “stay-at-home”  orders, as well as to impose travel restrictions, which may continue to be disruptive to the economy, and continue to depress passenger demand for air travel. The Company has experienced, and expects to continue to experience, a significant reduction in operating revenues as a result of the reduction in its flight schedules from United. On October 1, 2020, Air Wisconsin furloughed approximately 305 employees primarily due to the decline in air passenger demand and reduced utilization of the Company’s aircraft. These furloughs could make it more challenging to recommence operations at the level of such operations prior to the COVID-19 pandemic. If passenger traffic does not return to pre-COVID-19 levels, there may be excess capacity in the airline industry that could lead to long-term reduced utilization or inefficient scheduling of the Company’s aircraft, which may have further adverse effects on its business, results of operations, and liquidity.

The COVID-19 pandemic continues to evolve. As such, the ongoing impact that the pandemic will have on the Company’s financial condition, liquidity, and results of operations is highly uncertain. Management is actively monitoring the impact on the Company’s operations, suppliers, industry, and workforce. The Company is taking actions based on currently available information to address the changing business environment; however, it cannot predict what changes in circumstances and future developments may occur or what effect those changes or developments may have on its results of operations, financial condition, or liquidity.

Since a portion of the Company’s revenue is fixed due to the structure of the United capacity purchase agreement, the impact of the COVID-19 pandemic on the Company’s financial position may be partially mitigated or offset. However, if United ceases to pay the full amount required under the agreement, whether due to its own financial disruption resulting from the COVID-19 pandemic, a dispute with the Company, or otherwise, the Company could experience a significant adverse effect on its results of operations, financial condition, and liquidity. While fixed revenue remains mostly unchanged as it is based on a fixed contractual rate and number of covered aircraft, variable revenue earned based on the number of block hours and departures has been significantly reduced, and the Company may experience ongoing or further reductions. The travel restrictions and other initiatives adopted to limit the spread of the virus have had, and will continue to have, a material adverse impact on the demand for air travel. As a result of this decline in demand, and the subsequent capacity reductions by United, the Company operated approximately 1,759 block hours in June 2020, or approximately 88% less than in June 2019. While the Company’s monthly block hours have been gradually increasing since June (2,206 block hours in July, 4,076 block hours in August and 5,205 block hours in September), the Company expects to continue to experience significantly reduced block hours relative to historical levels (14,043 block hours in July 2019, 14,041 block hours in August 2019, and 13,336 block hours in September 2019) for the foreseeable future.

Cost Reduction Initiatives

In response to these developments, the Company has implemented cost reduction initiatives seeking to mitigate the impact of the COVID-19 pandemic on the Company’s operations, financial condition and liquidity, while also protecting the safety of the Company’s customers and employees. These measures include, but are not limited to, the following:

(1) Reducing or deferring employee-related costs, including:

(i) Offering voluntary short-term unpaid leaves to employees and furloughing certain employees,

(ii) Suspending all non-scale pay increases and bonuses for salaried employees,

(iii) Instituting a Company-wide hiring freeze,

(iv) Offering reduced-guarantee lines of flying, and

(v) Deferring the employer’s portion of employees’ social security tax payments.

(2) Reducing other non-employee costs in the current fiscal year, including:

(i) Delaying planned non-essential heavy airframe maintenance events primarily as a result of reduced flight schedules,

(ii) Delaying maintenance events associated with engines and rotable parts primarily as a result of reduced flight schedules,

(iii) Seeking concessions from third-party suppliers, and

(iv) Reducing or suspending certain discretionary spending.

Deferral of Interest Payments

The Company’s primary lender agreed to defer approximately $5,000 of interest payments otherwise due to be paid during the period from March 31, 2020 through September 29, 2020, with all deferred amounts due in a lump sum payment on September 30, 2020, pursuant to the terms of a letter agreement dated March 30, 2020. All deferred amounts were paid on September 30, 2020. See Note 6 for additional information.

CARES Act

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

In addition to the cost reduction measures discussed above, on April 6, 2020, Air Wisconsin applied to a lender for a $10,000 loan (SBA Loan) under the small business Paycheck Protection Program (PPP) established under the CARES Act and administered by the Small Business Administration (SBA). The entire loan amount was received by Air Wisconsin on April 13, 2020. The application for these funds required Air Wisconsin to certify in good faith that current economic uncertainty made the loan request necessary to support the ongoing operations of Air Wisconsin. Air Wisconsin was also required to certify that the loan funds would be used to retain workers and maintain payroll, or to make mortgage payments, lease payments, and utility payments. The SBA Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments were originally deferred for six months after the date of the loan, but the deferral has been extended to 2021. The SBA Loan may be prepaid at any time without penalty. Under the CARES Act, Air Wisconsin can apply for and be granted forgiveness for all or a portion of the SBA Loan. Such forgiveness, if any, will be determined, subject to limitations, based on the use of the loan proceeds for specified purposes, provided that not more than 40% of the forgiven amount may be for non-payroll costs. While Air Wisconsin believes that its use of the loan proceeds will meet the conditions for forgiveness of the SBA Loan, there can be no assurance that Air Wisconsin will obtain forgiveness of the loan in whole or in part.

In addition, on April 20, 2020, Air Wisconsin entered into a Payroll Support Program Agreement (PSP Agreement) with respect to payroll support (Treasury Payroll Support) from the U.S. Department of Treasury (Treasury) under the payroll support program (Payroll Support Program) provided by the CARES Act. Pursuant to the Payroll Support Program, Air Wisconsin has received approximately $42,200 in the aggregate through October 1, 2020. The PSP Agreement contains various covenants, including that the proceeds from the Payroll Support Program must be used exclusively for the payment of wages, salaries and benefits, that Air Wisconsin cannot involuntarily terminate or furlough any employee prior to October 1, 2020, and that Air Wisconsin cannot reduce any employee’s pay rates or benefits prior to October 1, 2020, without that employee’s consent. The PSP Agreement also gives the Treasury the right to conduct audits, examinations, and evaluations of Air Wisconsin’s compliance with the terms of the agreement.

Through notices given pursuant to the federal Worker Adjustment and Retraining Notification (WARN) Act, Air Wisconsin informed approximately 871 employees that they might be furloughed on October 1, 2020, due to the COVID-19 pandemic and the resulting decreased demand for air travel. On October 1, 2020, Air Wisconsin furloughed approximately 305 employees.

In light of the measures discussed above that the Company has implemented to mitigate the impact of the COVID-19 pandemic on its operations, financial condition and liquidity, the Company currently believes its available working capital and anticipated cash flows from operations will be sufficient to meet the Company’s liquidity requirements for at least the next 12 months from the date of filing this Quarterly Report.