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Bankruptcy: How An Airline Decides To File Ch 7 Or 11?  
User currently offlineTavong From Colombia, joined Jul 2001, 877 posts, RR: 4
Posted (8 years 1 month 2 weeks 1 day 15 hours ago) and read 3025 times:

Hello everyone, please excuse me if this has been discussed before, nut these days we have seen some Airlines filing for Ch 7 or Ch 11. (Aloha, Skybus, Frontier). For me the most intriguing of these "decisions" is Skybus since it´s a recent started airline but it went directly to Ch 7 (if i´m mistaken please correct me) so my question is why an struggling airline decides to go to Ch 7 or Ch 11.

Thanks in advance.


Just put me on any modern airliner and i will be happy, give me more star alliance miles and i will be a lot more happy.
3 replies: All unread, jump to last
User currently offlineSomeone83 From Norway, joined Sep 2006, 4133 posts, RR: 4
Reply 1, posted (8 years 1 month 2 weeks 1 day 14 hours ago) and read 3014 times:

Ch 7 is regarding liquidation of business. I.e the business is shutting down for good. Ch11 on the other hand is more to due with restructuring and is used when a company believes it is able to turn into profitability again.

btw Wikipedia has some decent articles regarding Chapter 11 (and 7)

User currently offlineANstar From United Kingdom, joined Nov 2003, 5618 posts, RR: 6
Reply 2, posted (8 years 1 month 2 weeks 1 day 14 hours ago) and read 2999 times:

I owuld say an airline like Skybus went straight to Chapter 7 because in this current climate of tight credit, no one was willing to risk lending to them whilst they go through C11....

User currently offlineRFields5421 From United States of America, joined Jul 2007, 7884 posts, RR: 32
Reply 3, posted (8 years 1 month 2 weeks 1 day 14 hours ago) and read 2940 times:

Chapter 11 requires substantial cash reserves and access to credit to keep the business in operation.

Occasionally a business will file Chapter 11 and the judge will determine that there is not a reasonable possibility of rebuilding the business - and convert the bankruptcy to a Chapter 7 liquidation.

In Chapter 7 - it's a fire sale - everything sold off and any money left over used to pay off claims against the company - usually for less than 10% of what is owed. It's a disaster for everyone, employees, creditors, suppliers, etc.

In Chapter 11 - a lot of people lose a lot of money - stock holders are especially going to get shafted. Employees may have their contracts voided, pay and benefits cut to the bone - many benefits eliminated. Possibly large numbers of unsecured creditors/ vendors will get nothing.

But secured creditors will come out pretty good.

Chapter 11 can be used to end an unfunded or underfunded pension plan. To terminate labor contracts. To renegotiate leases on airports/ gates/ aircraft/ ground support equipment/ even fuel contracts.

Many people will modify their lease/ price to keep some business and income coming in the front door - rather than close down their relationship with the bankrupt company and lose any chance of being paid the money owed right now, and any possible future income.

Every business and every bankruptcy is different.

United, US Airways, Delta, Northwest - have all come through bankruptcy recently and are still flying.

The chances of Frontier stopping flight operations actually just got less likely - because the airline can no longer make a decision to close down.

The board and management will have to convince the bankruptcy judge and the special master to shut down the airline.

They would more likely fire the entire management team and board of directors and put someone else in charge before shutting down the company.

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