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Airline Bankruptcies In Europe Vs North America  
User currently offlineg500 From United States of America, joined Oct 2011, 894 posts, RR: 0
Posted (1 year 5 months 1 day 11 hours ago) and read 5293 times:
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What are the main differences of an airline going bankrupt in the U.S or Canada vs the E.U?? Everybody is talking about the "end being near for SAS" because they're close to bankruptcy.

Here in the U.S several majors have gone bankrupt (a couple twice), only to comeback leaner and stronger..

Unless I'm missing something, it seems like in the E.U declaring bankruptcy means your lenders are about to take everything you own and close the shop

135 replies: All unread, showing first 25:
 
User currently offlinerutankrd From United Kingdom, joined Sep 2003, 2809 posts, RR: 7
Reply 1, posted (1 year 5 months 1 day 11 hours ago) and read 5306 times:
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You ill have read my post on your earlier thread but i'll repeat it to start the conversation here.

In the case of the UK Administration need NOT lead to closure or immediate trading cessation.

Restructuring can be allowed , however since businesses end up loosing credit lines having drained cash flows suppliers demanding up front payment then mounting tax demands and extortionate Administration charges made on the business the administration practitioners seem more interested in:

Sale of assets, trade names, intellectual property and immediate mass redundancy (this costs them nothing because statutory redundancy is recoverable from the state !)

Their prime objective is getting what monies owed in paying taxman and themselves (The Administration Insolvency Practitioner) and screwing everyone else !

This leads to closures in many businesses that might survive with something closer to Chapter 11.
The losers are all creditors and shareholders . Benefactors insolvency practitioners such as KPMG , Deloitte, and Ernst and Young.


User currently offlineanstar From United Kingdom, joined Nov 2003, 5080 posts, RR: 6
Reply 2, posted (1 year 5 months 1 day 11 hours ago) and read 5306 times:

In the US you can enter a bankruptcy and be allowed to continue to operate but clear debts and reduce costs... in most other parts of the world bankruptcy means you have run out of cash and that is the end of the road - no chance to renegotiate contracts etc and the shop is shut.

User currently offlineLufthansa From Christmas Island, joined May 1999, 3197 posts, RR: 10
Reply 3, posted (1 year 5 months 1 day 11 hours ago) and read 5304 times:

Okay having a degree in economics I have been going on about this for years.... so here is my big point.

IT DISTORTS THE MARKET!

the US chap 11 laws are a get out of jail free card. Now i know its tough on all involved. But think about this. I Run Air XQY. I spend too much trying to survive, and I pay more than I should to survive a strike and get everybody onside. AA, who is 100 times larger than me doubles their frequency per day to get me off the route because i'm hurting their yeilds by being there. The end is obvious.... so in a desperate attempt to survive I price to grab market share off AA. ... the end obvious happens and I get swollowed up by Air ABC. and the cycle continues. the problem is. If AA was well run... and it had to cut cost below the market level to survive... and ate into its capital to do so... it is now competing with an entity that should have gone broke. add chap 11 into that... and it gets 1000 times worse. Politics comes into it. No mayor wants their city to lose its hub status because businesses and intercontinental connectivity go with it. so they fight it. they pass laws that are get out of jail free cards. chap 11 basically says the creditors can get more as a going concern than as a whole. but at the end of the day...they took a risk and extended credit. if it looked too risky they shouldn't have done that. the same thing gives some (but not all, delta is a great example of a balanced company) employee groups the incentive to push a little too much via the union. get the point? it stops everybody facing reality. Europe right now is in this very very painful restructure process. But the rise of carriers like norwegian show its perfectly viable to do things differently. some just believed it would never happen. chap 11 distorts the free market. You extend credit you take a risk... no get out of jail free cards as far as I'm concerned. This is NOT the free market. Its playing favourites.


User currently offlineg500 From United States of America, joined Oct 2011, 894 posts, RR: 0
Reply 4, posted (1 year 5 months 1 day 7 hours ago) and read 5305 times:
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Quoting anstar (Reply 2):
in most other parts of the world bankruptcy means you have run out of cash and that is the end of the road - no chance to renegotiate contracts etc and the shop is shut.

that's harsh but i do like that system, sort of "let the strong survive, and the weak perish"


User currently offlineBMI727 From United States of America, joined Feb 2009, 15470 posts, RR: 26
Reply 5, posted (1 year 5 months 1 day 6 hours ago) and read 5306 times:

Quoting Lufthansa (Reply 3):
the US chap 11 laws are a get out of jail free card.

No they aren't. The only way for a bankruptcy to be successful and result in a restructuring is for the creditors and investors to buy into the plan. If that does not happen, the company is finished and will be liquidated anyway.

Chapter 11 is a temporary protection of a company's assets while they work to come up with a plan that the court and creditors can (mostly) agree on to fix the problems that caused the bankruptcy. Without that, the company is still dead. None of that could be considered a Get Out Of Jail Free Card without a serious dose of ignorance.

Quoting Lufthansa (Reply 3):
You extend credit you take a risk... no get out of jail free cards as far as I'm concerned.

So why would you not want a mechanism to possibly allow a debtor to restructure rather than just take a default? If you don't like the restructuring plan, the creditor can come out against it and there's a good chance they'll get their default.



Why do Aerospace Engineering students have to turn things in on time?
User currently offlineLufthansa From Christmas Island, joined May 1999, 3197 posts, RR: 10
Reply 6, posted (1 year 5 months 1 day 6 hours ago) and read 5305 times:

Quoting BMI727 (Reply 5):
No they aren't. The only way for a bankruptcy to be successful and result in a restructuring is for the creditors and investors to buy into the plan. If that does not happen, the company is finished and will be liquidated anyway.

READ WHAT I SAID.... the company, if run bad HAS NO RIGHT TO EXIST! it is a get out of jail free card. You extend credit to somebody who mismanages it, it's your bad luck. As a creditor you lose. THAT is the free market, and that is why we charge higher interest rates on risker things!

as i said IT DISTORTS THE MARKET. I don't care about your company that needs to be saved. The fact is it WAS BADLY RUN, and perhaps...just maybe some of the staff and other stake holder groups have something to answer for as part of that.

in the process THEY DAMAGE OTHER MORE RESPONSIBLE COMPANIES and in the real free market, those companies should be the surviving entities. IE - after having gone through the blood bath competing with the irresponsible company their business should emerge as the survivor. And be able to then expand and fill the gap left by the badly run company. Think of it like economic darwinism.

[Edited 2012-11-18 14:46:05]

User currently offlinepar13del From Bahamas, joined Dec 2005, 6729 posts, RR: 8
Reply 7, posted (1 year 5 months 1 day 6 hours ago) and read 5309 times:

Quoting Lufthansa (Reply 6):
as i said IT DISTORTS THE MARKET. I don't care about your company that needs to be saved. The fact is it WAS BADLY RUN, and perhaps...just maybe some of the staff and other stake holder groups have something to answer for as part of that.

in the process THEY DAMAGE OTHER MORE RESPONSIBLE COMPANIES and in the real free market, those companies should be the surviving entities. IE - after having gone through the blood bath competing with the irresponsible company their business should emerge as the survivor. And be able to then expand and fill the gap left by the badly run company. Think of it like economic darwinism.

One can easily apply these principles to a number governments who today function as business houses, thankfully, they have the power to raise taxes when they choose to cover their bad decisions.
When jobs are in the balance they offer inducements for companies to stay in business, tax breaks to build factories and expand their tax bases, of course one can always say that every company that suffered under the Global Economic crisis were poorly run and governments the world over should have done nothing to force its citizens to patronize those companies business to keep them afloat, but we digress from the central theme.


User currently offlineBMI727 From United States of America, joined Feb 2009, 15470 posts, RR: 26
Reply 8, posted (1 year 5 months 1 day 5 hours ago) and read 5302 times:

Quoting Lufthansa (Reply 6):
READ WHAT I SAID.... the company, if run bad HAS NO RIGHT TO EXIST!

It has a right to exist if the creditors and investors allow it to. If a company loses a billion dollars per year, but investors pump in a billion dollars each year to cover it, then it has a right to exist. That's basically how Virgin America has worked since it started.

Quoting Lufthansa (Reply 6):
You extend credit to somebody who mismanages it, it's your bad luck. As a creditor you lose.

But, if you could work with a company while it's in bankruptcy so you might lose only a part of the loan, you'd do it. Of course, if you think the situation is so bad that you'll never get it back, you'll vote against the restructuring plan and get what you can in liquidation.

Quoting Lufthansa (Reply 6):
And be able to then expand and fill the gap left by the badly run company.

If creditors thought the struggling company was not salvageable, they'd deep six reorganziation and be more than happy to fund expansion of the competitors.



Why do Aerospace Engineering students have to turn things in on time?
User currently offlineflyingalex From Germany, joined Jul 2010, 1013 posts, RR: 0
Reply 9, posted (1 year 5 months 1 day 5 hours ago) and read 5303 times:

Quoting g500 (Thread starter):
What are the main differences of an airline going bankrupt in the U.S or Canada vs the E.U?? Everybody is talking about the "end being near for SAS" because they're close to bankruptcy.

Here in the U.S several majors have gone bankrupt (a couple twice), only to comeback leaner and stronger..

Unless I'm missing something, it seems like in the E.U declaring bankruptcy means your lenders are about to take everything you own and close the shop

The difference lies in the different bankruptcy laws in the US and in Europe.

In the US, there are two "kinds" of bankrupt, one under Chapter 7 and one under Chapter 11 of the bankruptcy code. The latter means you're given some time to try and fix things, and that you can renege on all sorts of agreements with your previous creditors (which is how a lot of US airlines managed to ditch their union contracts and pension liabilities). The former means your company gets liquidated.

European bankruptcy laws don't really provide a Chapter 11 equivalent. If you file for bankruptcy over here, your company is very likely finished. That doesn't mean that there won't be anyone who picks up the company's assets and continues the business, but the original entity is usually toast.



Public service announcement: "It's" = "it is". To indicate posession, write "its." Looks wrong, but it's correct grammar
User currently offlinetdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 80
Reply 10, posted (1 year 5 months 1 day 4 hours ago) and read 5302 times:

Quoting Lufthansa (Reply 6):
READ WHAT I SAID.... the company, if run bad HAS NO RIGHT TO EXIST! it is a get out of jail free card. You extend credit to somebody who mismanages it, it's your bad luck. As a creditor you lose.

It's a "get-out-of-jail-with-a-hell-of-a-bail-and-probation-card." Calling it "free" is just misleading.

To get into Chapter 11 you need to convince your creditors you're worth more alive than dead and they (and the courts) can do pretty much whatever they want to you in the process. Chapter 11 is a huge loss, it's just (sometimes) a smaller loss than Chapter 7. If you're an economist, you know there's a huge inefficiency in the liquidation process itself...Chapter 11 is supposed to help alleviate some of that and recover more money that would otherwise be recoverable.

Tom.


User currently offlineCubsrule From United States of America, joined May 2004, 22303 posts, RR: 20
Reply 11, posted (1 year 5 months 1 day 2 hours ago) and read 5301 times:

Quoting Lufthansa (Reply 6):
You extend credit to somebody who mismanages it, it's your bad luck. As a creditor you lose. THAT is the free market,

Unsecured creditors lose in C11 and C7 (and C13, where it's not uncommon to see unsecureds getting 20 or 30 cents on the dollar).

Quoting Lufthansa (Reply 6):
as i said IT DISTORTS THE MARKET. I don't care about your company that needs to be saved.

I don't understand how C11 distorts the market more than C7. The general provisions for paying creditors are the same with the exception that in C11 there tends to be more money around because the company is still generating revenue and, generally, is something like operationally profitable or it would not be in C11.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlineLufthansa From Christmas Island, joined May 1999, 3197 posts, RR: 10
Reply 12, posted (1 year 5 months 21 hours ago) and read 5302 times:

Quoting BMI727 (Reply 8):
But, if you could work with a company while it's in bankruptcy so you might lose only a part of the loan, you'd do it. Of course, if you think the situation is so bad that you'll never get it back, you'll vote against the restructuring plan and get what you can in liquidation.

You're not looking at the effect on the entire market place, just the welfare of an exiting company and its stakeholders. The issue, when applying legal principles to the marketplace should have a greater emphasis on maintaining a level playing field than this if we are going for true free market principles.

Quoting BMI727 (Reply 8):
If creditors thought the struggling company was not salvageable, they'd deep six reorganziation and be more than happy to fund expansion of the competitors.

Well that's wrong. Plenty of banks have made huge huge money out of bankruptcy financing. They are the first creditor to be paid in such instances. The risk on their part is often minimal. And its often not that the creditors don't think a company is salvageable, it with change (read good management and practices instead of doing what got it into the mess in the first place) often can be. After all it usually has a huge revenue steam coming in, it just needs to be dealt with differently. That isn't once again the point. the point is, what about about all the other competitors these companies damaged in the process? If the company is really that good, well it wouldn't be in bankruptcy in the first place and it also probably would have been able to raise new capital more easily.

Quoting Cubsrule (Reply 11):
I don't understand how C11 distorts the market more than C7. The general provisions for paying creditors are the same with the exception that in C11 there tends to be more money around because the company is still generating revenue and, generally, is something like operationally profitable or it would not be in C11.

It's simple. While companies engage in desperate attempts to survive they do things like price for market share. It's a going for broke mentality. It fosters a culture within an organisation that basically says "we'll all still have jobs we'll just go through the bankruptcy" which leads more extreme positions from things like union demands. It also lets middle level managers get more cocky in their demands (the bankruptcy judge will just force you to agree with what I want eventually anyway mindset). While all this kind of thing is going on, better run carriers aren't making what they should be. They take on debt, aren't able to reinvest where they should etc, and they end up weaker than they should be as a result. There are very very good reasons most of the world does not allow these kinds of re-organisations. It's not because they are concerned about the welfare of individual companies. It's because they are concerned about the health of the entire marketplace above that of an individual company. To put it in layman's terms, its about maintaining a level playing field.


User currently offlines5daw From Slovenia, joined May 2011, 241 posts, RR: 0
Reply 13, posted (1 year 5 months 21 hours ago) and read 5298 times:

Quoting Lufthansa (Reply 3):
IT DISTORTS THE MARKET!

This is certainly an very interesting point of view, which makes sense to my layman mind.

But, consider this: there is much worse poison spreading in the EU, and it's called state aid.
Many European airlines received state aid or - what it really should be called - a bailout.
Some of the cases in point:
- Adria Airways
- Czech Airlines
- Malev (had to return it if memory serves well)
- SAS
- Air France
- Olympic
...

Now usually the reasoning behind state aid is very emotionally powered, at least in case of Adria which I can observe locally. "We save jobs, we keep the country connected to important destinations, blah blah blah."

In reality, keeping systems like some of those on life support just distorts the market and prevents competition from even showing up.

And it's far worse than chapter 11, where it's creditor's decision to throw good money after bad, as in case of state aid it's the tax payers who sponsor the aid, but have no real saying in it.

Of course, politics has their own interest in keeping the systems alive - which more or less is a guarantee for even more incompetent management, unnecessary job openings for friends etc. etc. In essence, most state aided systems are incubators of incompetence.


User currently offlineBMI727 From United States of America, joined Feb 2009, 15470 posts, RR: 26
Reply 14, posted (1 year 5 months 20 hours ago) and read 5300 times:

Quoting Lufthansa (Reply 12):
You're not looking at the effect on the entire market place, just the welfare of an exiting company and its stakeholders.

The only way for a company to get a second chance via Chapter 11 is for the stakeholders to agree to give it one. Should the government have forced Virgin America to shut down because they didn't turn a profit and existed on additional investment?

Investors choose to put their capital into a company and creditors choose to lend to them. If they want to go along with a restructuring plan to try and salvage a struggling business, that is also their choice. It's only unfair in that private entities choose to put their resources in one company versus another.

If competitor happens to have investors with deeper pockets, that's not unfairness the government should seek to curtail unless it's blatantly anti-competitive.

Quoting s5daw (Reply 13):
But, consider this: there is much worse poison spreading in the EU, and it's called state aid.
Many European airlines received state aid or - what it really should be called - a bailout.

State bailouts are a different animal, and something I am completely against. If you cannot succeed without government money, it means you cannot succeed.

Quoting s5daw (Reply 13):
And it's far worse than chapter 11, where it's creditor's decision to throw good money after bad, as in case of state aid it's the tax payers who sponsor the aid, but have no real saying in it.

For the taxpayers, if all of the current investors and creditors do not find the business worthy of their money, why should the taxpayers have their money put on the line instead? If you go to the casino, you play differently when you play with someone else's chips.

[Edited 2012-11-19 00:33:31]


Why do Aerospace Engineering students have to turn things in on time?
User currently offlineCubsrule From United States of America, joined May 2004, 22303 posts, RR: 20
Reply 15, posted (1 year 5 months 15 hours ago) and read 5296 times:

Quoting Lufthansa (Reply 12):
It fosters a culture within an organisation that basically says "we'll all still have jobs we'll just go through the bankruptcy" which leads more extreme positions from things like union demands.

Are you aware of any empirical evidence supporting this assertion? I am not.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlines5daw From Slovenia, joined May 2011, 241 posts, RR: 0
Reply 16, posted (1 year 5 months 15 hours ago) and read 5295 times:

Quoting Cubsrule (Reply 15):
Are you aware of any empirical evidence supporting this assertion?

Isn't SAS a point in case? Unions demanding the impossible to the point where operation is about to close?


User currently offlineCubsrule From United States of America, joined May 2004, 22303 posts, RR: 20
Reply 17, posted (1 year 5 months 15 hours ago) and read 5296 times:

Quoting s5daw (Reply 16):
Isn't SAS a point in case? Unions demanding the impossible to the point where operation is about to close?

And, alas, the European way is supposedly the one where that does not happen. That's sort of why I asked the question.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlines5daw From Slovenia, joined May 2011, 241 posts, RR: 0
Reply 18, posted (1 year 5 months 15 hours ago) and read 5295 times:

Quoting Cubsrule (Reply 17):
And, alas, the European way is supposedly the one where that does not happen. That's sort of why I asked the question.

Ah sorry, got the two mixed up.

Well, in general I think US still has far superior free market to EU or to anybody else for that matter, and that still makes US the superpower it is.

On the other hand, I'm not sure free market is really the best solution in all areas (e.g. healthcare), but that is a different story.


User currently offlinerfields5421 From United States of America, joined Jul 2007, 7345 posts, RR: 32
Reply 19, posted (1 year 5 months 14 hours ago) and read 5296 times:

Quoting BMI727 (Reply 14):
The only way for a company to get a second chance via Chapter 11 is for the stakeholders to agree to give it one.

And who exactly are the stakeholders? The people who have put their investment and retirement money into the company, or the people who have decided to make direct loans to the company?

The Ch 11 process in the US encourages company leaders - who are supposed to be employees - to manage their company and focus on creditors, not the nominal owners of the company - the stockholders.

The Ch 11 process dramatically increases our government debt and obligations as companies use it to shed obligations to their employees and foster them onto the American people.

The Ch 11 process has ended the concept of stockholders as owners of the company, and replaced it with large lenders as practical owners of the company.

Quoting Cubsrule (Reply 11):
I don't understand how C11 distorts the market more than C7. The general provisions for paying creditors are the same with the exception that in C11 there tends to be more money around because the company is still generating revenue and, generally, is something like operationally profitable or it would not be in C11.

Ch 11 in the US has become a management restructing tool. An acceptable method of shedding company responsibilities rather than actually making the company deal with its obligations.

In the US, Ch 11 is no longer a situation where a company is in dire financial condition, but an option for management to get out of their mistakes - and not be held responsible.


User currently offlineCubsrule From United States of America, joined May 2004, 22303 posts, RR: 20
Reply 20, posted (1 year 5 months 14 hours ago) and read 5296 times:

Quoting rfields5421 (Reply 19):
In the US, Ch 11 is no longer a situation where a company is in dire financial condition, but an option for management to get out of their mistakes - and not be held responsible.

But generally, the entry requirements are the same for C7 and C11, aren't they? So in this "C11-less" alternate universe that some are proposing, we'd see management using C7 for the same purposes and creditors winding up getting paid even less.



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlinePITingres From United States of America, joined Dec 2007, 1085 posts, RR: 13
Reply 21, posted (1 year 5 months 14 hours ago) and read 5295 times:

Quoting Lufthansa (Reply 12):
You're not looking at the effect on the entire market place, just the welfare of an exiting company and its stakeholders.

Sure, let's look at the *entire* market place, then. If there is no CH11 or equivalent, then instead of a reorganization, United (let's say, just for example) goes bust. That will pretty quickly vaporise a whole slew of their suppliers, in turn breaking some of the second level suppliers, and so on. To say that these secondary businesses should fail just because United's management made some bad decisions seems pretty unfair to me. Corporations are not abstract concepts, nor are they a few managers, they are people and they exist in a web of other corporations and people.

I don't know if the US style CH11 is generally a good way to do things or generally a bad way to do things, and since I have real work to do today   I can't be arsed to worry about it right now. I do think that treating the problem in simplistic, black-and-white, abstract terms will definitely get you to the wrong answer.



Fly, you fools! Fly!
User currently offlinebreiz From France, joined Mar 2005, 1892 posts, RR: 2
Reply 22, posted (1 year 5 months 13 hours ago) and read 5296 times:

Quoting s5daw (Reply 13):
there is much worse poison spreading in the EU, and it's called state aid

That's a recurring argument.
In Europe, or elsewhere, states inject capital in ailing airlines because they are shareholders.
It is the duty of the shareholders to bring fresh capital when required, or to pull the plug.
Of course, depending where you look from, states may not be accepted as normal shareholders.


User currently offlinerfields5421 From United States of America, joined Jul 2007, 7345 posts, RR: 32
Reply 23, posted (1 year 5 months 13 hours ago) and read 5297 times:

Quoting Cubsrule (Reply 20):
But generally, the entry requirements are the same for C7 and C11, aren't they?

Not in practice in the US today.

For example - AMR filed for Ch 11 having substantial operational cash on hand, having previously arranged aircraft lease revisions, etc. AMR was not close to insolvency or having to shut down.

AMR would not have been allowed to file Ch 7 in that financial condition unless they could prove that the airline was going to be insolvent very soon.

A Ch 7 bankruptcy for companies is only filed when the company is near having no cash on hand.

Some Ch 11 bankruptcies for companies are later converted to Ch 7 and the company liquidated.

But in the airline industry in the US Ch 11 has simply become a tool for management to break 'bad' contracts they had agreed to previously. It is also used as a tactic to break union contracts.

The big difference is that in filing Ch 11 - the current management usually stays in place, where in filing Ch 7 - the current managment is very soon shown the door - without their separation bonuses, etc.

In Ch 7 the management will get the same shaft for pension, medical care, etc as the hourly workers. Under Ch 11, management retains their retirement bonuses, separation bonuses, incentive pay, etc - while the hourly workers get much less proportionally.


User currently offlinebrilondon From Canada, joined Aug 2005, 4057 posts, RR: 1
Reply 24, posted (1 year 5 months 13 hours ago) and read 5297 times:

Quoting Lufthansa (Reply 6):
READ WHAT I SAID.... the company, if run bad HAS NO RIGHT TO EXIST! it is a get out of jail free card. You extend credit to somebody who mismanages it, it's your bad luck. As a creditor you lose. THAT is the free market, and that is why we charge higher interest rates on risker things!

I have read your ramblings and by doing so, you don't seem to have a grasp of what bankruptcy means in the US. There are different types of bankruptcy: There is the bankruptcy where you have no more money to cover your current operating expenses and have no more means of financing and have to shut down because you have no more money and no one will lend you any more. There is also the bankruptcy where you can still cover your current operating expenses but have no money left for you long term obligations such as loan repayments, pension funding, supplier payments and other long term obligations. This is what most airlines have filed for, to reorganize their obligations.

In Canada there is bankruptcy and then there is an instrument where by companies can reorganize their obligations and negotiate more favourable terms to help them through the cash shortage. It use to be called the CCRA but it has been updated and the name has changed.



Rush for ever; Yankees all the way!!
25 tdscanuck : How is it not a level playing field when all companies are operating under the same law? Now, if you're talking about international competitors I agr
26 Cubsrule : If you read the code, you will find that cash on hand has nothing to do with the definition of insolvency (and thus the ability to seek protection).
27 Post contains images BMI727 : Both. Of course if you're in bankruptcy, the first group is probably already in distress. In some cases there's truth to that. But if you're in a pos
28 redflyer : The "stakeholders" are usually secured creditors. The investors usually have a secured stake in the organization, and Chapter 11 is geared towards al
29 mayor : Well, there's a crock if I ever heard one. You might want to ask some airline employees that have gone thru bankruptcy and see what their take on thi
30 UALWN : Great post overall. Chapter 11 is indeed a get-out-of-jail card. It is free for management, and far from it for salaried workers, whose contracts get
31 Lufthansa : People working frontline jobs obviously wouldn't be thinking like this. But most of those people aren't aware of how fine the margins are on plenty o
32 BMI727 : Of course, in such a case, they end up no differently than they would in a liquidation. That risk exists. That's exactly what happens if you cannot c
33 Lufthansa : Thank you! You have just proven my point, the market hasn't been allowed to reach equilibrium. Hence why the cycle goes on. This is how it distorts th
34 brilondon : OK, I am back. The instrument I was thinking about is the Bankruptcy and Insolvency Act which is similar to the Chapter 11 Bankruptcy.
35 9252fly : I believe it's called CCAA, or Company Creditors Arrangement Act.
36 mayor : Considering that we're talking about bankruptcy in the U.S., how has any of the majors filing bankruptcy affected, negatively, any of the other majors
37 mpdpilot : Very good explanation of how the market works. However, explain how the chapter 11 changes things? The equilibrium that you describe occurs both with
38 BMI727 : The only equilibrium the airline market ever had was the artificial one created by government regulation prior to 1978.
39 rfields5421 : Fees and such owed to the federal government by the airline are unsecured debts, which have been written off in the recent airline bankruptcies. Airl
40 brilondon : Yeah, that's the one. Thanks. I was also thinking about the Bankruptcy and Insolvency act which is similar to Chapter 7 in the US.
41 tdscanuck : The argument is that if some of the majors had gone through Ch 7, rather than Ch 11, the surviving carriers wouldn't have also been forced into Ch 11
42 Bongodog1964 : I can't speak for the rest of Europe, but here in the UK there are usually four routes for a company in trouble: The 1st is a "Company Voluntary Arra
43 Post contains images redflyer : But the whole point of Chapter 11 is to "protect" the defaulting organization long enough to see if it can come up with a viable plan. Unfortunately
44 ripcordd : Here is the problem AA is now going against DL which you call a well run company but they got that way thru BK, UA, and US to lesser extent all of wh
45 mayor : EVERY entity? Are the employees not impacted? The harm is what you've done to the employees you just put out of a job? Say, for instance, that DL was
46 redflyer : Of course employees are impacted. But, believe it or not, they probably fare better than creditors and suppliers do. Employees will find work with ot
47 UALWN : The difference is that under Chapter 7 the management who run the company into the ground lose their jobs, their severance pay, their health insuranc
48 tdscanuck : I've never heard of any Ch.11 where management took *no* hit. If nothing else, especially in the US, upper management holds a lot of stock and stock
49 UALWN : This is one of them. But see also my second paragraph above, about the unfair competitive advantage afforded to those companies who are allowed to co
50 mayor : Obviously, you read none of what I posted. Tell me, in any economic climate, where there is room, amongst the rest of the carriers, where there might
51 UALWN : But by letting them try to get a go of it with an unfair advantage over the companies who have managed to avoid falling on hard times, they distort t
52 BMI727 : ...which is exactly what happens if a plan cannot be made to reorganize. Chapter 11 doesn't bail out a company or fix anything about them, it just bu
53 PITingres : Maybe, but even if you take your statement as a given (and I think it's arguable in general), it still is likely better overall to have everyone shar
54 mayor : And, with the exception of CO, no one has had more than ONE bankruptcy and I really don't see any others, happening for quite awhile, if ever. It's n
55 UALWN : As far as I know, VX is paying all their bills, unlike the companies in Ch. 11. That's the unfair advantage. But, as I said, the proven consequence o
56 UALWN : Thereby exacerbating the chronic overcapacity of the industry as a whole. TW was actually acquired (and yes, all but dismantled) by AA. But it did no
57 mayor : My point was that those three carriers did not fail because someone else was in BK. They did it all on their own.
58 mpdpilot : I will agree that this might be an issue with how Chapter 11 is handled, but at the end of the day with Chapter 7 the government will get even less.
59 BMI727 : And a lot of that can be traced back to deregulation, which set the entire cycle in motion and might just be ending now. There are always upsets in t
60 tdscanuck : US Airways had two... Tom.
61 mayor : My mistake.....I stand corrected. But no matter.....no one is using it like aspirin for pain.....take them until the pain goes away.
62 uALWN : If VX manage to convince investors, kudos to them. Maybe they have a magic plan that both you and I ignore. I don't see the similarity with failing t
63 mpdpilot : Well said!! Most of the issues today can be traced back to pre-1978. Well, answer me this, what would cause UA to go into Chapter 11? What cost would
64 Post contains links s5daw : As this is somewhat related: it's possible Adria Airways will need to return state aid: http://goo.gl/fU1VA I can't imagine this would mean anything b
65 uALWN : Compared with the situation before AA's bankruptcy, many costs for UA will raise relative to those for AA: debt servicing, labor, pensions... And yet
66 Lufthansa : It's then likely there is overcapacity in the market. That is something that can't be sustained long term. So B fails, and A picks up say 50 or 60 th
67 PITingres : Very, very far from proven. We've observed serial bankruptcy, sure. It is a logical fallacy to imagine that because we've seen A cause B some (small)
68 PITingres : I'm not really sure what point you are trying to make here. Are you perhaps assuming that every US airline in trouble is going to go into Chapter 11
69 Lufthansa : I'd give specific examples but the problem here is if I mention a brand name of an existing airline, people have an emotional attachment to it and we
70 mpdpilot : What pensions? UA got rid of them in Bankruptcy. Does AA not have debt service and labor costs? AA's bankruptcy is not going to bring their costs dow
71 uALWN : Without extensive population growth in the last 50 years? I don't know any country like that, sorry. They will be lower than before Ch 11 (isn't this
72 mayor : Let me ask you this........which of the airlines was better run than any of those that went into bankruptcy? Were any of those carriers REALLY any be
73 Cubsrule : Are you suggesting that their petition should be dismissed? That would be the logical conclusion to be drawn from your statement, but I don't see how
74 brilondon : That is the point of Ch. 11 is it not? Chapter 11 allows a company to restructure its self with out the encumbrances of having to keep up with certai
75 uALWN : No. It's in line with what Ch. 11 has become. Nicely put. Ch. 11 allows a company and its upper management to survive without having to pay their deb
76 rfields5421 : I disagree. The current wave of airline CH 11 bankruptcies in the US has shed as many or more employees than a Ch 7 bankruptcy. The presumption of ma
77 brilondon : Yes, but you see if there were only Ch. 7 bankruptcies, then there would be complete shut down of the organization. Thus throwing all of the workers
78 mayor : True.....if there was ONLY liquidation, who would be left........B6, WN, NK, AS, etc.?
79 PSU.DTW.SCE : Textbook economic theory sounds good in practice, but in reality it does not always work that way due to an inability for all variables to react insta
80 mpdpilot : Yes, AA will have lower costs after Chapter 11. However this is relative to AA prior to the merger. This is not relative to UA. Relative to UA they w
81 Cubsrule : What do you mean by "pay their bills?" What section of the Code would authorize a filing by a debtor who can, as you put it, "pay their bills?"
82 Lufthansa : If this is the situation, it means there is likely overcapacity in the market. This is the market naturally correcting itself. In any market, there a
83 BMI727 : Absolutely. But that's not really different than convincing investors and creditors. (And a judge) Decades of regulation helped allow the airlines to
84 mpdpilot : Oh I agree there is over capacity in the system and AA failing would surely make DL, UA, US, and WN far more stable. However, the argument that is be
85 FlyingAY : Do you think that the demand for air travel would disappear if UA/AA/DL went bankcrupt? No, it wouldn't. And in a free market the existing players an
86 uALWN : There always is some amount of leapfrogging. Plus, prior to AA's bankruptcy UA was competing with an AA with costs at 10. Now it will compete with an
87 s5daw : Not just the industry, but also the society. Without companies going out of business, we would still have siemens-martin steel ovens in operation...
88 EagleBoy : Is that the basis of the capitalist free market? Part of me thinks Ch.11 is a good idea, as even though painful to staff, it does in the long term sa
89 FlyingAY : Isn't the EU state aid illegal? The EU states, if they are shareholders of the company, may invest more in the company as any private investor could
90 Post contains links s5daw : Not in all cases, see here http://europa.eu/legislation_summari...competition/state_aid/index_en.htm The thing is, some companies are very innovative
91 brilondon : Ch. 11 allows this to happen. It allows for the airline to revamp its operation and bring costs into line to survive and eventually expand when thing
92 Post contains images redflyer : I did read your post. You didn't read mine. And I think if you understood economics better you would have a better grasp. If the market exists, those
93 uALWN : Some of the debt to secured creditors is forgiven indeed. What happens to the debt to unsecured creditors?
94 tdscanuck : But the fact that the demand wouldn't disappear is exactly the problem. There isn't enough slack capacity in the market to absorb the demand of a UA/
95 uALWN : Is that what happened when EA or PA disappeared? As mentioned above, Ansett disappeared and Virgin Australia took its place presto, in a more efficie
96 brilondon : As unsecured creditors the courts will determine how much they will receive in terms of monetary compensation if any, that is why they are called uns
97 uALWN : So indeed by going through Ch. 11 the company will shed a substantial amount of debt, which was my point. Unsecured creditors are just creditors who
98 Cubsrule : If they were not insolvent, why has their petition not been dismissed? The idea that a company that is not insolvent is absurd if you know anything a
99 uALWN : Because it looks insolvent. Any accountant who doesn't know how to make the numbers look bad (or good) should be fired on the spot.
100 Cubsrule : What test would you suggest for insolvency?
101 uALWN : I have no idea. AA has been mulling for years whether it was in their best interest or not to file for Ch. 11. Finally they did. Insolvency had littl
102 Cubsrule : It's easy to complain when you have no solutions . . .
103 brilondon : A good accountant only reports the numbers as he gets them. They don't make the numbers look anything but what they are. I don't really understand wh
104 BMI727 : It's convincing them that the reorganization plan is viable and will leave them better off than they would be with a liquidation. Either way, you're
105 Lufthansa : It's not a get out of jail free card for the existing shareholders, they lose everything almost every time. It is however a get out of jail free card
106 Cubsrule : How? Can you point me toward a single C11 where all unsecured creditors recovered anything close to a hundred percent of what they were owed? Sort of
107 Lufthansa : I'm not concerned about the welfare of the unsecured creditors. Or the jobs of the current employees. I'm concerned about the jobs of the employees,
108 Cubsrule : You said C11 gives creditors a free ride. That's not close to being true. Where are the, say, 400 airplanes of excess mainline capacity that would ma
109 Lufthansa : That's very easy. Let's say it was American. American's current fleet for a start. The lessors and receiver will want to off load them as fast as pos
110 Cubsrule : What you are missing is that no carrier has the employees to operate those aircraft. It's easy for DL or UA to acquire a bunch of 738s, but it takes
111 Lufthansa : Several weeks difference training to meet operational requirements. FA's can be done in a week. Sure they won't know DL's full service standards but
112 Cubsrule : What exactly does the market gain from spending the money transitioning that size of a fleet between carriers? It seems to me like all that changes i
113 Lufthansa : First of all, not all the capacity is absorbed. It never is. There is a certain amount of over capacity. Next, consolidation of flights onto larger m
114 FlyingAY : I talked about people and equipment that make it impossible to make a profit. If you have bad employees and big fleets of uneconomical planes, it wou
115 Cubsrule : Your argument is that liquidation is good. It still does not necessarily follow that reorganization is bad. Most airline C11 proceedings in the past
116 Lufthansa : because its not just a capacity cut but its a change in mindset. The new capacity comes from a different organisation with a different mindset, hopef
117 par13del : I understand the entire post but my question is, where has this ever happened for it to be more than theory? The EU does not have the frequency that
118 Cubsrule : And yet, in the same time period, DL went through C11. Was Delta's C11 bad for the industry?
119 mayor : Well, that's obvious as hell. How true. No matter where the ideas originated, they would never have been implemented if it hadn't been for the bankru
120 koruman : America's Chapter Eleven is not a "Get Out of Jail Free" card. It is a "Get Out of Jail While Remaining in Charge of the Company You Destroyed" card,
121 Cubsrule : Actually, that's not usually how it happens. Steven Wolf is out of aviation, and Doug Parker is in charge of US. Glenn Tilton is out of aviation, and
122 koruman : Because in the countries that I listed, an employment contract is binding upon both the employee and the employer and cannot be breached by the emplo
123 Cubsrule : Your issue seems to be with employment at will, not with bankruptcy. In the sense in which you are describing it, C11 simply permits airline employer
124 tdscanuck : As soon as you start to do international comparison, US bankruptcy laws are hardly the gorilla in the room. Let's talk about freedom rights and route
125 uALWN : This is exactly what people here have been wondering for years! What the hell were they waiting for? I don't know. But at the end, they did it. Was t
126 Cubsrule : It's a nonexecutive position, isn't it?
127 uALWN : In the airline industry...
128 Cubsrule : No argument there.
129 par13del : Well I can think of two things why they delayed, they continued to negotiate with their employees while building enough cash on hand to ensure that i
130 brilondon : What would htis accomplish? How would this be accomplished? I don't see the logic in this statement. Yes it was. They were able to stay out of bankru
131 billreid : US CH11 is the purest form of Socialism in Communist America! No other country allows companies to steal from the public, and other companies with Bil
132 par13del : Not sure how they were stiffed, are you saying if DL and NW for example went Chpt.7 the USA investors would be lining up in the EU to invest in the l
133 BMI727 : ...which is exactly what they do to keep Chapter 11 from becoming Chapter 7. All Chapter 11 does is ensure that there's something to work with. If th
134 tdscanuck : Please, please tell me that's sarcasm. Do you have any idea how corrupt the aviation/government relationship is in most countries? Tom.
135 uALWN : It is certainly not a free pass for shareholders! Quite the opposite!
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