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The company also said on 24 December 2007 that its non-executive chairman Ken Woolley and two non-executive directors, Paul Kehoe and Roger Flynn, had resigned with immediate effect.

“After a vigorous period of assisting the management team to find alternative financing means, Paul Kehoe and Roger Flynn are resigning as the Company no longer requires Non-Executive Directors with United Kingdom public-market expertise,” the airline said.

It added that Woolley was resigning due to potential conflicts as a creditor of the company under the Chapter 11 process.

Unexpected increase in the cost of operations 

MAXjet blamed rising fuel prices, other operating cost increases, competitive pressure and a decline in consumer spending for its precarious financial position. In the current financial climate it had found it impossible to raise additional funding to keep the business afloat.

The current liquidity issues have arisen since the company’s admission to AIM in June 2007 as a result of the combination of a number of factors that have negatively impacted revenues and unexpectedly increased the costs of operations. 

Rising fuel costs have had a significant impact on sector economics. Fuel costs in the first quarter of 2007 averaged $1.91 per gallon. Fuel costs have since risen to $2.85 per gallon as of 19 December 2007. The average fuel price for the 2007 financial year is expected to be $2.27 per gallon. 

The late delivery of the airline’s fourth and fifth aircraft, including the cost of rebooking impacted passengers in premium cabins on other airlines or on short-term charters, negatively impacted 2007 cash flows.

'Open Skies' agreement 

MAXjet’s board said that other unforeseen costs, including increased crew salaries and travel costs, airport services and catering, and unscheduled maintenance further contributed to the company’s deteriorating financial position.

Competitive pressures have also increased. This has been driven both by new entrants in the all-business class carrier sub-sector and by incumbent multi-cabin airlines.

Following the ‘Open Skies’ agreement, which lifted restrictions on other than four designated airlines to operate transatlantic flights, both increased capacity and have been competing strongly on price for traffic to fill capacity, particularly in New York.

]General economic conditions have also changed. The directors said they believed that exchange rate trends, declining consumer confidence and general business uncertainty had resulted in a decline in the quality of advance bookings.

Financing round 

The company’s revenues were significantly and negatively impacted by the cancellation of the Washington route in October as a result of unsustainably low load factors and passenger yields.

During November and December, the Los Angeles route also performed below expectations, despite a positive start in late August, September and October.

MAXjet said that no single factor could be identified as having caused the majority of the difficulties. It added that the company’s bankruptcy filing is required as a result of all of these factors.

It had been seeking to secure additional working and growth capital for 2008 from early November 2007.

It added that the company’s chairman was willing to participate in the financing round. With unfavourable market conditions, coupled with rising fuel costs, increased competition, consumer confidence and other macroeconomic factors, the financing round was unsuccessful. 

Management team and directors said that they had vigorously explored alternative courses but determined in a meeting on 23 December that a bankruptcy filing would best protect its customers and creditors.

Orderly liquidation of assets 

“I recognise that discontinuing service during the holiday season may create significant disruption for some passengers and on behalf of the company, I deeply regret any inconvenience caused,” MAXjet CEO William Stockbridge said.

Filing for Chapter 11 protection will protect the airline from its creditors enable the company to conduct an orderly liquidation of assets and resolution of claims. In Chapter 11 the firm will be subject to the oversight and supervision of the bankruptcy court and will be governed by its existing board of directors.

The company's current management is expected to remain in place to oversee the sale and/or liquidation of all or part of the business and to coordinate the analysis and resolution of claims.

“Regrettably, the Board does not currently believe that there is likely to be any value realised for shareholders. Given this, the trading of the company’s shares on AIM will remain suspended,” MAXjet said in a statement.

MAXjet flight operations have ceased including the suspension of all scheduled and charter flights to and from London Stansted Airport.  

Working capital and growth 

Stockbridge thanked the three non-execs for their service.

“We are all deeply saddened that we were left with no other choice but filing for bankruptcy protection.  Ken, Roger and Paul worked tirelessly to seek alternatives for our shareholders, employees, customers and suppliers, and we are grateful for their efforts,” Stockbridge concluded.

MAXjet suspended trading of its stock on 7 December 2007 as a result of an inability to clarify its financial position.

At that time the company was in advanced discussions on a financing round for working capital and growth in 2008 that it expected to close before year-end. It found, however, that it would be unlikely to secure funding before it would run out of time.

Rival business-only airline Eos has been contracted and pre-paid for approximately 500 seats on Eos’ scheduled service to accommodate passengers awaiting a return flight between New York and London.

Prompt emergency hearing 

Passengers travelling between London, Los Angeles and Las Vegas will be contacted regarding their flight re-accommodations.

MAXjet (LSE:MAXJ) also said it had contracted and pre-paid for 450 hotel rooms in London, New York, Las Vegas and Los Angeles through early January 2008 for those whose travel plans have been disrupted.

The board added that it had prepared a motion with US Bankruptcy Court to seek authorisation for additional funds that would provide additional hotel and airfare accommodation to passengers. 

The company said it would work to schedule a prompt emergency hearing of this motion before the US Bankruptcy Court. 

The airline urged passengers to contact MAXjet directly. Any customers who choose to make flight accommodations directly should seek a refund from their point of purchase (credit card or travel agency) for the unused leg of their journey.

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