Parent of Alamo Seeks Bankruptcy Court Protection
Filed under: xn--cnq77f.com
Parent of Alamo, National Car Rentals
Seeks Bankruptcy-Court Protection
By KORTNEY STRINGER
Staff Reporter of THE WALL STREET JOURNAL
The have-nots of the rental-car industry are having a rough ride.
Some small-business customers of Budget Rent A Car, Alamo Rent-a-Car and National Car Rental already were cutting back before Sept. 11 and now there's a glut of cars and falling rental rates. But the impact of the terrorist attacks has driven at least one of the companies into deep financial trouble.
Tuesday, ANC Rental Corp., owner of the Alamo and National brands and the third-largest rental-car company, sought protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, citing the drastic decline in travel.
ANC, based in Fort Lauderdale, Fla., has struggled since it was spun off last year from AutoNation Inc., the big automotive retailer. One challenge has been fully integrating two distinct reservation systems amid slipping profit margins.
In August, following a 6.5% drop in second-quarter revenue, the company said it was seeking a buyer or significant investor. People familiar with the situation say Cendant Corp., owner of Avis Group Holdings, entered talks to buy Alamo for as much as $500 million and to assume Alamo's debt.
As the talks grew more serious, the two companies began discussing whether Cendant should buy the whole company. But after Sept. 11, Cendant dropped its offers, these people said.
However, the two sides are still in contact. One person familiar with the matter said that Cendant and ANC were in talks Monday night. But ANC balked at Cendant's offer, saying a bankruptcy-court filing was a better alternative unless Cendant raised its price.
However, Cendant may be interested in buying part or all of the company through the reorganization process. Still, any deal with Cendant could face antitrust scrutiny, since National and Avis combined would control over 40% of the commercial rental-car market. Cendant declined to comment.
ANC said it hasn't ruled out a sale of its assets although it doesn't have any offers on the table. The company also said its filing wasn't related to Monday's crash of an American Airlines plane.
With airport traffic down, rental-car transactions are off as much as 20% from a year ago -- and this week's plane crash doesn't bode well for a travel rebound. Though many companies sold some cars and canceled or deferred orders for new vehicles, analysts say it could take several months for the industry to reduce fleets by the 20% to 30% needed to match demand.
On top of that, ANC and Budget Group Inc., the Daytona Beach, Fla., owner of the Budget rental brand, are struggling with a truckload of debt. Neither company has deep pockets. Neither has lots of big corporate accounts as do Ford Motor Co.'s Hertz Corp. and Avis. And both companies are more dependent on business from airports than Enterprise Rent-A-Car Co., which gets about 90% of its business from neighborhood locations.
Budget, ANC, and Dollar Thrifty Automotive Group Inc., the Tulsa, Okla., parent of Dollar and Thrifty brands, have lobbied Congress for a package of loan guarantees to help sustain them. But Hertz, Avis and Enterprise have said they oppose any relief package to the rental-car industry.
Analysts say a federal bailout isn't likely. "You can't just give money to [companies] that couldn't manage their businesses before" the Sept. 11 attacks, says Dean Gianoukos, a J.P. Morgan analyst. "This industry was in trouble before Sept. 11."
'The New Reality'
In its filing, ANC, which gets 90% of its business from airline passengers, listed $6.5 billion in assets and $5.9 billion in liabilities. Last month, as part of an agreement with lenders, ANC hired as president and chief operating officer Lawrence J. Ramaekers, a former president of National, who was expected to take drastic steps to reduce costs and slash the fleet by 25%. "We are working on getting costs aligned with the new reality of the world," he said.
Mr. Ramaekers also said the company has benefited from a small increase in business from travelers renting cars for short trips.
Budget, based in Daytona Beach, Fla., has recorded three years of mounting losses, in part reflecting problems in its European cars and U.S. trucks sectors. The company also has struggled with its 1998 purchase of Ryder TRS Inc., the nation's second-largest truck renter.
Many of Budget's clients are small to medium-size companies that quickly feel the impact of an economic slowdown. The company said corporate accounts, which make up about 35% of its revenue, plunged 20% during the first half of 2001.
Even with its problems, Budget may fare better than some competitors. More than 50% of its U.S. transactions come from neighborhood locations, making it less dependent on airline passengers. And its truck-renting business diversifies its operations.
Pickup in Local Markets
Last month, after Budget cut its fleet by an additional 12%, the company more than tripled its third-quarter profit despite a 13% decline in revenue. The company cited a slight pickup in local markets, where some business and leisure travelers opted to drive rather than fly.
Overall, Chairman and Chief Executive Sanford Miller said that business at Budget's airport locations plunged about 20%, while transactions in its neighborhood locations jumped 8% from a year earlier. "Leisure is coming back," Mr. Miller said. But, he said, the industry is still "dependent on airlines."
"This is really such an unpredictable environment," said Neil Abrams, president of Abrams Consulting Group, Purchase, N.Y. "The rules of engagement will be different."
#If you have any other info about this subject , Please add it free.# |