Owens Corning, in Chapter 11 proceedings for nearly five years, has asked the U.S. Bankruptcy Court in Wilmington, Del., to approve a deal to lease three new business jets, worth about $45 million, to replace three older planes the fiberglass maker plans to sell.
Even though leasing the Cessna Citation Sovereign jets will cost nearly $35 million over a 10-year period, a lawyer testifying for the company said the Fortune 500 firm will save more than $1.2 million a year compared with having its key employees fly on commercial airlines.
Norman Pernick, with the Wilmington law firm of Saul Ewing LLP, told the court that the new leased aircraft will be cost-effective, increase employee productivity, and help OC manage its global business more effectively. He was not available for comment yesterday.
"We are looking for ways to reduce costs, and that's what we're doing," Stephen Krull, OC's senior vice president and general counsel, said yesterday.
He said he expects the motion to be approved at the court's next regular hearing, on June 27.
In the past, some of OC's many creditors have objected to certain corporate expenses and executive bonuses, but so far the court and creditors have gone along with the continued use of private planes, Mr. Krull said.
With leases on its jets expiring this year, the firm explored several options, including buying the planes or returning them to the leasing company, the executive said. Instead, it intends to sell them, gaining a profit, but if that doesn't happen, it will turn the aircraft back in.
OC needs bankruptcy court approval for the leases through a subsidiary, CDC Corp., and for its guarantee for the aircraft deal of $2.2 million per plane.
The downtown Toledo firm, the city's third-largest company, filed for Chapter 11 reorganization in October, 2000, to deal with its mounting asbestos-injury claims, now estimated at $7 billion. Last year, OC reported sales of $5.7 billion, profit of $204 million, and 19,000 employees.
If the leases are approved, the company will get three business jets that can carry eight to 12 passengers in addition to a crew of two. Under terms of the proposed leases, its CDC subsidiary will pay about $93,000 per month for each plane for seven years, for a total of $23.4 million, and about $107,000 a month for each plane for another three years, or $11.5 million.
The figures do not include OC's costs for fuel, maintenance, flight crews, and hangar rentals. The firm said using a subsidiary for leasing will allow the deferral of $2.4 million in sales and use taxes.
OC plans to sell its seven-year-old Dassault Falcon 900Ex, a 19-passenger plane with an original price of $28 million, and two 10-year-old Raytheon Hawker 800XP models that seat 8 and were valued at $10 million when new.
Mr. Krull said the jets are necessary because "Toledo is not a hub airport, and many customer and plant destinations are difficult to access. Most of our hundreds of manufacturing facilities are not located in hub cities." The planes last year flew 1,800 hours and logged 6,700 passenger uses.
The firm chose to lease three identical planes to keep pilot and technician training simple and because there is a Cessna service center right at Toledo Express Airport.
The Toledo area's four Fortune 500 firms - Dana Corp., Owens-Illinois Inc., OC, and Findlay's Cooper Tire & Rubber Co. - have a total of 11 corporate planes.
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