World Airways, the Dulles-based charter airline, yesterday proposed a sweeping restructuring of its finances aimed at stanching six straight quarterly losses, but not before announcing that second-quarter earnings will be even worse than Wall Street had projected.
World would restructure its debt and its lease costs, retiring older planes and trying to set up a stock ownership plan with its pilots.
Even with these and other steps, World Chairman Hollis Harris announced that losses in the second quarter probably will be 5 cents to 10 cents per share greater than the 40-cent market forecast.
"Despite the positive strides we are taking on several fronts, World Airways continues to face significant challenges," Harris said.
World, headquartered at Dulles International Airport, charters or leases 12 wide-body McDonnell Douglas MD-11 and DC-10 aircraft worldwide. It has a rich history dating to before the Vietnam War, and remains a major military airlift charter carrier. But it has fallen onto hard financial times in recent years.
First, World reached agreement with its former parent company, WorldCorp, to settle debts totaling about $1.8 million. Under the agreement, WorldCorp will return about 10 percent of its stock in the airline in exchange for loan forgiveness.
WorldCorp's ownership percentage would be reduced to 40 percent from its current 49.8 percent. World Airways also would have the right to acquire additional stock for cash.
WorldCorp, which leases eight MD-11 aircraft to the airline, also agreed to reduce rent for the planes and to extend the lease one year through February 2006. In exchange the leasing company would obtain warrants to acquire $1 million shares of World common stock for $2.50 per share. World Airways shares closed yesterday at $1.60, down 12 1/2 cents in trading on the Nasdaq stock market.
World also said in its announcement that it is in negotiations with the lessor of its other two MD-11 aircraft for a similar rent reduction.
The remaining four World aircraft, four older DC-10s, will be retired early. The company said two DC-10s will be returned to lessors in May and July, and the other two will be returned by the first quarter of 2000.
Gil Duarte, World's chief financial officer, said no decision has been made yet on whether to replace the DC-10s with newer aircraft.
The company said it also had reached a tentative agreement with its pilots, represented by the International Brotherhood of Teamsters, to establish an employee stock ownership plan. Under the agreement, the pilots would acquire newly issued World common stock.
The agreement is subject to a membership vote, approval of the board of directors, a review by a Teamsters consultant and the approval of final terms.
Duarte declined to give any other details.
In an effort to restructure its debt and equity, World said it is in discussions with investment banking firms to assist in "revitalizing" the company's debt and equity capital structure. Alternatives include reducing debt and raising new capital, the announcement said.
If the company raises new capital, it "would use it to enhance working capital and growth of the aircraft fleet in the future," the announcement said.