Hertz has buyers and a plan to get out of bankruptcy

The deal announced on Tuesday would require the two buyers, Knighthead Capital Management and Certares Opportunities, to buy at least the majority and up to 100% of the company. The plan would need bankruptcy court approval.

The near total halt in air travel in the spring was a blow to Hertz, which had already lost money even before the pandemic hit. About two-thirds of car rental income comes from its airport locations. And with fewer people driving and having accidents during the pandemic, there was also less need for car rentals for people having their cars repaired, another major source of rental activity.

But like many companies that were forced into bankruptcy in 2020, Hertz struggled with losses and other competition concerns long before the pandemic.

In 2020, Hertz lost $ 1.7 billion, up from $ 55 million in 2019. Revenue plunged 46%, or $ 4.5 billion last year. And it had only brought in two profitable years over the six-year period from 2014 to 2019.

“We have made excellent progress… repositioning our business as we prepare for increased travel demand as the pandemic abates,” said Paul Stone, CEO of Hertz. “The support of the [proposed buyers] demonstrates confidence in Hertz’s growth potential; in addition, they bring valuable experience to the travel and leisure industry. “

The company that comes out of bankruptcy will be much smaller. Hertz cut around 12,000 U.S. employees and 2,000 other international employees last year, closed sites and sold off nearly 200,000 vehicles, while curbing the purchase of new vehicles.

But he will not necessarily be out of the woods with his exit from bankruptcy.

No one really knows when air travel will resume its normal course. And business travel, a major driver of car rental, is expected to remain depressed from pre-pandemic levels for several years.

“I think it’s an open question whether the recovery will happen by summer, fall or winter, but I almost certainly think we will be fine in the recovery in 2022,” said Scott Kirby, CEO of United Airlines (UAL), speaking at the CERAWeek by IHS Markit investor conference on Monday. “I think business travel will take a while to recover, but the demand for leisure will be significant.”
There is also increasing competition from carpooling services such as Uber (UBER) and Lyft (LYFT). While health concerns have affected these businesses even more than the car rental industry, the return of post-pandemic modes of travel will lead to increased competition. And businesses have also learned to do more with video conferencing during the pandemic, reducing the need to travel so much.
While Hertz has used the bankruptcy process to become healthier financially, history is full of companies that come out of bankruptcy and end up being forced to file a second time. And very often the second filing for bankruptcy is what often ends up being the death knell for the business, especially in the retail industry. This is what happened with RadioShack, Payless shoes, American clothing and Gymborée.

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