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Gerald Arpey Speaks Out Against Ch 11 Law!

Fri Feb 03, 2006 5:08 pm

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Joined: Wed Dec 14, 2005 11:29 pm

RE: Gerald Arpey Speaks Out Against Ch 11 Law!

Fri Feb 03, 2006 10:25 pm

Nice article. Arpey makes a lot of good points, but it obviously did not get much ink as it came out last Sunday and this was the first I had heard of it.

It shall be interesting to see how things go with all these newly Ch 11 cost gutted airlines in the marketplace.

Lady it's a jet... not a kite.
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RE: Gerald Arpey Speaks Out Against Ch 11 Law!

Sat Feb 04, 2006 3:51 am

A little nit-pick...the guy's name is Gerard Arpey.

One quote attributed to him: "companies can legally renege on their commitments to repay money or meet the terms of their contracts," says all. Companies, and not just airlines, use the Ch11 process to legally renege on their commitments.

Major changes would need to be made in Ch11 law to disallow that from happening. As it stands, however, Ch11 benefits not only the corporation undergoing reorganization, but in many cases the creditors as well (usually lenders), so I don't expect those major changes to be forthcoming.

He fails to note that Ch11 is also a process that can, in fact, force companies under reorganization to re-commit to their obligations. The corporation needs to present their case to a judge, and the creditors have the same opportunity. Sometimes, the judge sides with the creditors; in the case of commercial aviation, you have many examples of that happening, some very recent.

Another quote: "Chapter 11 is used to perpetuate capacity that has failed." Not always. It isn't the capacity that has failed, but usually the management of that capacity. UA capacity in ORD is viable (it also competes with AA...hmm...), as is its capacity in many other markets -- including Asia (which AA wants...hmm, again...).

Looking into a crystal ball, their may come a time when AA is forced to attempt a reorganization of it's debt (they almost had to a couple of years ago, before DL and NW entered CH11). I would be very surprised to see Gerard Arpey suggest to the creditors, and his own board of directors, that AA should shut down instead of putting up a good fight and salvageing the business.

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