KITTY HAWK FACING SEVERE FINANCIAL TROUBLE

KITTY HAWK FACING SEVERE FINANCIAL TROUBLE    Kitty Hawk Inc., a Dallas-based air freight carrier primarily active in the domestic U.S. market, is facing severe financial trouble that could ground the airline, according to auditors.
   Kitty Hawk announced after markets closed Tuesday that it:
   * Anticipates writing down the value of many of its older planes.
   * Will have to restate last year’s operating results.
   * May miss an interest payment due in May.
   * Its chief financial officer has resigned after less than two weeks on the job.
   “The company gives no assurances that its cash position will not imperil its ability to fulfill other obligations necessary for continuation of its operations,” Kitty Hawk said.
   Ernst & Young, Kitty Hawk’s outside auditor, has advised the airline that it will include in its audit opinion a statement casting doubt on the company’s ability to continue as a going concern.
   Kitty Hawk said it expects to write down the net book value of its Stage 2 DC-8 fleet, which can no longer be operated in the United States following the enactment of stricter aircraft noise laws this year. Kitty Hawk is trying to sell the planes. The airline said it also will write down capitalized costs associated with some engines that are beyond repair, resulting in “a charge that will require modification of the company’s reported 1999 operating results.”
   The airline also is evaluating the economic viability of its Lockheed L-1011 fleet, which have cost Kitty Hawk more to maintain than expected. That evaluation should be completed in a month and could result in a major write-down of the value of that fleet, which was appraised at $124 million in 1997.
   Kitty Hawk also said it is “not in compliance with its covenants for maintenance of the required number of engines for its Lockheed L-1011 and Boeing 747 aircraft” under an indenture securing some of the company’s debt. That may require a charge of as much as $35 million to fix.
   Unexpected maintenance costs and delays, high jet fuel costs and soft demand have “seriously eroded cash resources,” Kitty Hawk said. The airline expects to miss a $17-million interest payment due May 15 on its senior secured notes, and is trying to sell or refinance “significant assets” to meet the terms of its loan agreements.
   Paul Tate, who filled the role of senior vice president and chief financial officer at Kitty Hawk 13 days ago, has resigned effective immediately. However, Kitty Hawk said it expects Tate to assist the company
in a consulting role during its reorganization.
   Once a darling of the U.S. air freight industry, Kitty Hawk has been plagued with problems since acquiring the air freight airline and maintenance operations of Kalitta Cos. in 1997.