Emergency landing

14 Emergency landingRestore Asia Pacific 2008

“As our role was to try to preservevalue, we needed to get the planesand crew home to Hong Kong asquickly as possible,” recalls Middleton. “We had one plane on the ground in Namibia, one en route to Vancouver and a third en route toLondon. We were not afforded theluxury of time, and therefore had tothink and act extraordinarily quickly.”

Asset recoveryWorking in multiple locations, thevariety of issues that needed to beresolved demanded the immediatedeployment of professionalspossessing a range ofskills includingrestructuring, corporate finance, tax and IT advisory. This team had

to work closely with a number ofaviation specialists.

“Calling on KPMG’s global network of firms, we were able to hit theground running,” says Middleton.“Within a couple of hours of theappointment, our teams were briefed,deployed and working closely withmanagement to achieve our initialgoals. As daylight broke in London and Vancouver, teams were beingdeployed there also.”

At the same time, with almost 25,000passenger tickets issued, call centreswere inundated. “We deployed our in-house public relations team toassist with the management of thesecentres,” explains Middleton. “Theimmediate needs of passengers dueto fly also had to be addressed andalternative arrangements with otherairlines made.”

When the time arrived for the aircraftin London to embark upon its returnflight to Hong Kong, KPMG faced a

The unique regulatory and commercialcomplexities of the aviation industry cancombine to create some of the moredemanding restructuring assignments.So on 9 April this year, when Oasis, anairline with four aircraft and just under700 staff, announced it was insolvent,Eddie Middleton and Patrick Cowley,the partners at KPMG in China who hadbeen appointed as provisionalliquidators by the Hong Kong Court,were looking forward to the challenge.

Soon after their appointment, theChairman announced that alloperations had been suspended. Atthat moment, three of the four mostvaluable assets still happened to be inthe air or outside Hong Kong.

When Oasis Airlines collapsed recently, two partners at KPMG in China wereappointed to preserve the assets of thebusiness. Restore reports.

15 Emergency landingRestore Asia Pacific 2008

The British Airports Authority (BAA)expressed thanks for KPMG’s,“commercial, timely and practical”approach, which led to “the bestpossible outcome – passengers on a plane to where they had booked to travel – and an agreed way forward”. BAA’s Sarah Hunteradds: “The 'team' approach with

which KPMG joined debates andconversations is, in my personalexperience, rare.”

The Namibian plane was under a ‘wetlease’ and there was no immediatereason to request its return. Lines ofcommunication were quicklyestablished with the aircraft’sfinanciers. It would have been easy forthem to enforce their security rights

myriad of hurdles – no fuel, no in-flight service, airport and airspace charges due and no money,to name but a few. Critically, ofcourse, the Hong Kong Governmenthad to be persuaded that theappointment of provisionalliquidators had no impact onpassenger safety. Any oneunresolved issue couldhave caused the aircraft to be impounded.

“Being able to turn to ourUK firms’ colleagues inLondon meant we couldposition people at theairport to manage the operation,”explains Cowley. “All the pieces ofthe jigsaw puzzle had to be put inplace in order to do anything withthe aircraft.”

The plane, carrying a few passengersand the London-based crew,eventually departed London soonafter midnight and landed safely inHong Kong the following day.

and take control of the plane, but thatcould have jeopardised its saferecovery and ultimately the return forOasis’ stakeholders.

“We had to work closely with thefinanciers in all aspects of therecovery of the aircraft anddemonstrate to them that their

immediate interests were alsobeing addressed,” says Cowley.

The plane flew from Windhoek to Frankfurt as scheduled.However, the mortgagee bankdemanded the aircraft be broughtback to Hong Kong.

“We had no choice but to notify AirNamibia that the plane would bereturning to Hong Kong the followingnight, rather than fly back toWindhoek,” explains Cowley.

“The Gatwick problems suddenlyseemed so small in comparison, and itwas a great relief when she toucheddown safely in Hong Kong.”

“The team approach with whichKPMG joined debates andconversations is rare”Sarah Hunter, British Airports Authority

16 Emergency landingRestore Asia Pacific 2008

By day three, all four aircraft and alloverseas crew were safely back inHong Kong.

Returning valueAt this stage, Cowley and Middletonstill hoped that the airline could berescued. “We were inundated with calls from potential investorsfrom all over the world, who wereinterested in everything from spare parts to the whole airline,” says Middleton.

Despite serious negotiations with anumber of parties, the industry’sregulatory requirements, coupled with the extent of the airline’sliabilities, made it impossible toachieve a rescue.

“There were simply too many hurdlesto get over, and a self rescue wasn’tpossible due to financial constraints,”remarks Middleton.

Suddenly, traditional insolvency issues,such as retention of title and liens,were “front and centre”, as Cowleyputs it, with liens being exerted overthe aircrafts’ maintenance records.“Without these, the aircraft could notfly or be sold,” adds Cowley.

The liquidators used a section of theCompanies Ordinance that requiresanyone holding documentation andrecords belonging to the company tohand them over. This was donewithout prejudice to the lien.

Creditor concernsWith around 25,000 creditors,Middleton and Cowley applied to theCourt for a ‘regulating order’ releasing

Key issues in aviationAirline insolvency cases have some considerable challenges for aninsolvency practitioner, and numerous factors suggest the Oasisexperience is unlikely to be an isolated one.

• Fuel replaced labour as the largest single cost item for the globalairline industry in 2006. In the six months up to the beginning of June 2008, 24 airlines went out of business or filed for bankruptcy protection worldwide, according to the International Air Transport Association.

• Continued excess capacity and losses make consolidations andalliances even more crucial. Despite Delta’s merger with Northwest,over-regulation remains the biggest single hurdle to consolidation.

• Perceived limitations on competition draws regulators to amend orblock alliances such as the proposed Iberia/American Airlines/BritishAirways venture. Carriers should analyse the possibilities formaximising returns whilst minimising regulatory interference.

• Demand shocks caused by terrorism (9/11, London bombings) andpandemics (SARS, potentially Asian bird flu) have increased thefinancial vulnerability of the sector and are a major contingency riskthat carriers now have to plan for.

• The impact of ticket taxes, levies and infrastructure pricing continuesto put pressure on airline margins.

• Government ownership of airlines, bankruptcy protection and varyingairport and flying rights across the globe mean airlines appear to becompeting on an unfair playing field.

them from the statutory obligation tohold a creditors meeting.

“With so many creditors spreadacross the globe, we felt that thecosts and logistics of trying to hold aphysical meeting would not be thebest use of the creditors’ money,”says Middleton. “The Court agreedwith us.”

Two planes have now been sold, withthe remaining aircraft in the hands ofreceivers appointed by the mortgageebanks. KPMG even successfullyrealised value from Oasis’ option topurchase a fifth plane, for which adeposit had already been paid.

“We are aiming to deliver rapid valueto stakeholders, and want to returnvalue to creditors as quickly as wecan,” Middleton assures.

“Paramount to the success of theengagement was the ability to deploy the appropriate skill sets and specialists in the right locationsquickly. It was also essential to work cooperatively with allstakeholders, in particular with the airline’s own people, to align our goals.”

Patrick CowleyRestructuring Services KPMG in Chinapatrick.cowley@kpmg.com.hk

Eddie Middleton Restructuring Services KPMG in Chinaedward.middleton@kpmg.com.hk

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Ground control: Eddie Middleton (left) and Patrick Cowley (right), KPMG’s insolvency specialists in charge of the liquidationprocess at Oasis Hong Kong Airlines.