Hertz Preps For Possible Bankruptcy As It Misses Lease Payments

Hertz Preps For Possible Bankruptcy As It Misses Lease Payments

Across the travel industry, companies are suffering from the sharp downturn in travel.  The rental car Hertz seems to be one of those companies, as it reels with a decrease in consumer demand.  As Hertz preps for possible bankruptcy, the company has missed lease payments.  The announcement comes just one month after Hertz highlighted challenges the company faced in light of the coronavirus pandemic.

In a securities filing on Wednesday with the Securities and Exchange Commission, the company claimed it has “experienced a rapid, sudden and dramatic negative impact on their businesses” in relation to the COVID-19 pandemic.  The company also said it “is taking action actions to preserve liquidity.”

In March, Hertz said “the reversal in customer demand has been significant.”  The airline says the decrease in airline travel since March significantly impacted its consumer base.  It is hard to forecast when airline travel will return to normal, but many areas of the country are still under stay-at-home orders that only allows travel for essential persons.  Even after stay-at-home orders are lifted, Americans may still be wary to return to the skies.  That will have impacts on Hertz as well, as it is reliant on airline travel for a large part of its consumer base.

Layoffs At Hertz

Last week, Hertz announced it was laying off 10,000 of its North American employees, which is about 26% of the company’s workforce.  Although the company went forward with the layoffs as a cost-saving measure, the company said the short-term costs are significant.  Hertz noted in a release that they would have $28 million in severance package costs and $2 million in benefits expenses.  The benefits are largely related to healthcare expenses.

The travel industry has seen a large number of layoffs since the outbreak began.  Royal Caribbean laid off 26% of its American workforce and Cathay Pacific shut down its cabin crew bases in the U.S.  Meanwhile, some U.S. airlines already warned layoffs are possible after the September 30 stimulus requirement for employees concludes.

Bottom Line

Hertz is just another in a series of companies that are looking for ways to reduce the impacts of coronavirus.  Companies short of cash may be led to bankruptcy if they can’t find ways to build revenue.  It’s hard to say when things will return to normal, but it’s unlikely to be anytime soon.  The securities filing shows the company definitely is looking for liquidity.  And Hertz may just be forced to file for bankruptcy.  It’s another unfortunate sign of the times for impacts from the coronavirus pandemic.