|
Kitty Hawk hit by bad news
|
 |
April 12, 2000: 11:44 a.m. ET
Analysts worry of bankruptcy after freight carrier warns it will miss debt payments
By Staff Writer Chris Isidore
|
NEW YORK (CNNfn) - Shares of air cargo carrier Kitty Hawk Inc. plunged Wednesday after the company warned late Tuesday that a significant deterioration in its financial position means it will miss a debt payment due next month.
The news prompted Wall Street analysts to warn investors that the company faces a significant risk of bankruptcy. Company officials were not available for comment on those statements Wednesday morning.
The Dallas-based carrier issued a series of warnings Tuesday including: new write-downs for aircraft that will result in a restatement of its 1999 earnings; that it will post a larger-than-expected first-quarter loss due to rising fuel costs and soft demand for freight; and its new chief financial officer had quit after less than two weeks on the job.
 Shares of the Dallas-based carrier (KTTY) fell 3-5/8, or about 78 percent, to 7/8 in trading early Wednesday. Analysts rushed to change their rating to the rare "sell" recommendation, as they warned that shareholders are likely to be left with virtually no value if bankruptcy fears prove to be true.
"Although cats have nine lives, we believe Kitty may be running out of time," wrote Ed Wolfe, analyst with Bear Stearns, Wednesday morning, as he downgraded his rating on the stock. "If no one extends a life line to Kitty Hawk, there is a real possibility that Kitty Hawk, in its present form, will no longer be in operation six months down the road."
Ray Neidl, analyst with ING Barings, also downgraded the stock to a "sell," although he believes the company will be able to reorganize and continue operations.
"I think there's a good need for the product and a good asset," said Neidl. Still, Neidl added that there is no good reason the company should have seen a drop in freight levels at a time of strong demand for freight by other types of carriers.
 The company's core business is flying a network of freighter flights in and out of a Fort Wayne, Ind., hub on weeknights, providing capacity for freight that needs to move long distances overnight. Freight forwarders, which consolidate pallet-sized freight shipments for a number of companies, use Kitty Hawk because its scheduled service is geared to freight. Forwarders prefer that to giving the shipments to passenger airlines that carry cargo in their planes' bellies.
Forward Air, CNF may benefit
Wolfe said one of the beneficiaries of Kitty Hawk's problems could be Forward Air Corp. (FRWD: Research, Estimates), which despite its name is a trucking company that also handles freight shipments on an airport-to-airport basis for forwarders, although on a time-deferred basis. Another beneficiary could be CNF Inc. (CNF: Research, Estimates), a transportation company that operates heavyweight air cargo carrier Emery Worldwide, because Emery could pick up some of Kitty Hawk's contracts if it ceases operations, especially some of the business Kitty Hawk now carries for the U.S. postal service.
Wolfe raised his ratings on Forward Air to his highest buy rating, Wednesday and its shares rose 2-15/16, or 12 percent, to 23-7/8. CNF edged up 1/2 to 32-5/8.
Company officials give bleak outlook
While company officials were not available for comment on their problems Wednesday morning, the company's Tuesday evening statement was bleak.
"Sharply higher fuel prices and softer-than-expected demand for scheduled freight in the first quarter 2000 ... have seriously eroded cash resources, with the result that the company expects to be unable to pay timely the May 15, 2000 interest payment of $17 million," said the statement.
"The company gives no assurance that it will be able to sell or refinance sufficient assets to be able to make a timely interest payment or cure its engine maintenance noncompliance, or that its cash position will not imperil its ability to fulfill other obligations necessary for continuation of its operations."
The company said that its outside auditors, Ernst & Young LLP, has informed the company that their audit opinion will include a "going concern modification," suggesting that it has questions about its viability.
The company said that Paul Tate, who became its senior vice president and chief financial officer on April 1, resigned from those positions effective immediately, although he will continue as a consultant to the company.
The company said that it is evaluating the economic viability of its Lockheed L-1011 fleet in the context of recent unscheduled major maintenance requirements for the L-1011 engines. The company said that could lead to a write-down of those assets, which were assessed in 1997 at a value of $127 million.
In 1999, the company reported net income of $23.5 million, or $1.38 a diluted share, which was an increase of 41 percent. Its revenues rose 4 percent to $731.4 million.
Before Tuesday's announcement, analysts surveyed by earnings tracker First Call had predicted the company to lose 39 cents a share in the first quarter, up from a 12-cent-a-share loss in the year-earlier quarter. That estimated loss had been widened after an earlier warning from the company in March. 
-- Click here to send email to Chris Isidore
|
|
|
|
|
|
Kitty Hawk Inc.
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
