Tower Air Takes a Tumble

Funny thing about airlines.

Those that provide poor passenger service, fly aging and high-maintenance aircraft and have lousy employee/management relations more often than not will see revenue start to decline and costs rise. That's exactly what happened at Tower Air (TOWR Quote). Declining revenue and rising costs forced the carrier to file for Chapter 11 bankruptcy protection Tuesday.

At the same time, the airline announced it had received an $18 million loan from one of its largest creditors, GMAC Business Credit. We understand that General Electric (GE Quote), which Tower owes some $36 million, had been crawling all over the airline of late. Apparently GE told Tower Air CEO Morris Nachtomi no mas last week. Then GMAC, which already is owed about $28 million by Tower, apparently was convinced to pony up the additional $18 million.

Tower, which listed about $380 million in assets and about $357 million in debt in its filing, claims that business will continue as usual, and that the airline will return to profitability once about 300 jobs are cut from the payroll.

My take? First of all, $18 million just ain't going to make a rat's bit of difference here. Tower Air routinely provides abysmal service, its aircraft are old, expensive maintenance hogs and the airline has seen competition increase on its bread-and-butter route between John F. Kennedy International Airport and Tel Aviv to the point where no number of cheap seats are going to cover the lease payments. (Continental Airlines (CAL Quote) has done very well flying the JFK-Tel Aviv routes, which it began doing last August.)

As for Tower's aging and dilapidated fleet, much of which is in parts at JFK, one industry wag quipped: "The best advertisement for the quality of workmanship and durability of Boeing (BA Quote) 747s is Tower Air."

No, that is not a compliment.

In addition to regularly scheduled passenger service and charter work, Tower routinely made a fair amount of money providing airlift services to the Department of Defense. However, two months ago, the DOD removed Tower from its list of approved carriers, citing "performance issues."

Morris Nachtomi and members of his family own about 76% of the airline. As long as the airline is flying, Nachtomi is making money, by virtue of Tower's service contracts with other companies he controls.

Shares of Tower, which had been trading at about 1, shot up 56% Monday, on about 13 times normal volume, to close at 1 9/16, as speculation centered around a possible "white-knight" situation. We didn't take those rumors seriously. We figured the airline was headed for the protection of bankruptcy court.

Trading was halted in the stock early Tuesday pending the airline's response to Nasdaq's request for more information on the bankruptcy filing.

Will the airline emerge from bankruptcy protection and fly into profitable skies? No. We think this merely delays the inevitable. And allows Nachtomi to make some money in the meantime. As one Tower Air captain, who was off to interview with Polar Air Cargo, emailed us today, "I assume that we are to believe this $18 million is a bridge to something else. To me, it seems to serve only as a way to perpetuate the agony."

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Much thanks to the TheStreet.com readers who stopped by and said hello when I spoke last week at the Aero Club in Washington, D.C. I had a great time, it was a great crowd and, as a result, I will be speaking at the Regional Airline Association convention in San Antonio in May. Hey, a triple-bagger. We can't complain.