Chapter 11 Round 2?

[USA320Pilot]

Earlier today I was talking to an airline analyst who made an interesting observation.

If Bruce Lakefield is unable to obtain consensual “Going Forward Planâ€￾ accords with all of the labor groups than the company can enter bankruptcy, which could be viewed as positive on Wall Street.

Apparently equity does not have to be cancelled in a formal reorganization and in some bankruptcy cases new equity can be issued to replace the current security on a one-for-one basis. Thus, RSA/GECAS could keep their stake and the ATSB warrants could be maintained. It’s unclear at this point how the ATSB would react, but they have already altered the original loan guarantee covenants once.

The analyst said that if the company could dramatically lower unit costs with facility consolidation, lease rejections, and new labor accords, the ATSB, creditors, and investors would be more likely to provide relief because the company would exit bankruptcy with a better and more competitive cost structure.

Thus, could the union(s) who resist change be already lined up in the "cross hairs"?

Maybe that is what David Bronner meant when he told labor leaders last week the restructuring will go forward “with or without employees.â€￾

Respectfully,

USA320Pilot

 

[robbedagain]

USA: How would this affect those of us stuck in the mainline express cities as we have already taken brutal hits from the company alreayd?

 

[USA320Pilot]

Robbed:

Probably not, but that's up to Bronner and Lakefield.

Regards,

USA320Pilot

 

[ClueByFour]

Companies that request abrogation of the labor agreement but it must meet the following nine (9) distinct requirements:

1. The debtor in possession must have made a proposal to the union.
2. The proposal must be based upon the most complete and reliable information available at the time of the proposal.
3. The modification must be necessary to permit reorganization.
4. The modification must provide that all affected parties be treated fairly and equitably.
5. The debtor must provide the union with such relevant information as is necessary to evaluate the proposal.
6. The debtor must have met with the collective bargaining representative at the reasonable times subsequent to making the proposal.
7. The debtor must have negotiated with the union concerning the proposal in good faith.
8. The union must have refused to accept the proposal with good cause.
9. The balance of the equities must clearly favor rejection of the agreement.


Then there is the fraudlent conveyance issue. Oh, and the self-help problem: if the IAM walked (even for a week) in the current climate, that's it for US.

What your "analyst" is suggesting is basically a repeat of what Frank Lorenzo did. If that happens, you can kiss all future government consideration goodbye, as well as any help from the PA, NY, NC congressional and senate delegations.

 

[funguy2]

USA320Pilot:

While I am sure what you have stated is possible, the mere act of declaring bankruptcy indicates that the company's net worth is less than $0, as is (i.e. the liabilities are greater than the assets). I am not so sure that Wall Street would think that a company who admits that its net worth is less than $0 would be worth $2/share.

Furthermore, Bankruptcy Chapter 11 is primarily a method for restructuring debt, not breaking contracts or formulating new business plans. Often, these other items become a part of bankruptcy, however, to ensure successful emergence. Unless US Airways plans to restructure its debt (including the ATSB Loan, presumably, since its a major debt), I don't really see a reason for Chapter 11. Chapter 11 is actually a pretty expensive proposition and control is removed from the company itself. It would be much better to avoid Chapter 11 again.

Also, once in court, Chapter 11 bankruptcies are often converted to Chapter 7 Liquidations by creditors and other outside interests, looking to paid what they are owed. It then becomes the judge's decision to liquidate, not that of US Airways management or other stakeholders.

 

[funguy2]

Clue... I see you get to post the same thing over and over and over too...

 

[delldude]

who in their right mind would float DIP money for a losing proposition??
guaranteed twotime loser needs cash fast
gimme a break....

 

[oldiebutgoody]

What UAIR needs is a REALISTIC BUSINESS PLAN! Haven't seen one yet. Have you? We all witnessed Chapter 11 first hand, and history has shown that MOST airlines that do it once, do it again shortly thereafter. The BIG issue in Chapter 11 is the possibility of losing control of the company. The Judge becomes the controlling entity, and unless management gets another "very friendly" one like Judge Mitchell it would likely be all over.

 

[kiloromeo]

it is amazing hat Bronner would have any interest in taking this company back to bankruptcy....you think he would have just cut his loses or made a few bucks and sold off his stake to someone....or liquidate it and paid off the creditors. US is only 1 percent of his holdings but 90% of his headaches. what drives him?...he has to realize that he is in and about to escalate a cold war with the unions...mutually assured destruction. He will have to take this company to the brink in a second bankruptcy by having the judge in effect throw out the existing contract and probably adopt an LCC's work rules...in a new contract of course.

 

[avek00]

While the equity of the company COULD be preserved in another bankruptcy filing, AFAIK, that would require the creditors being repaid (or the debt being affirmed) IN FULL, or else the creditors would have to agree to preserve the equity as part of the POR if they take another beating. Both of those scenarios, IMHO, are highly unlikely if US goes back into bankruptcy.

 

[Rob]

If UAIR reentered bankruptcy, the balance sheet would not support retaining present equity at anything greater than a fraction of even its present worth. The value of the equity coming out of bankruptcy 1 depended on immediate profitability; that never happened and pretty much all the equity cushion to sustain the shares is now gone.

UAIR at Dec 31 had a net worth (stockholders equity) of about $200 million; it's Q1 loss is expected to be about $200 million. So, we can assume that on April 1st, the comapny was approximately worthless, in that its debt equaled its assets. The problem is the debt is all real, but the assets aren't. The assets include "good will" of $2.5 billion and "Other intangibles" of about $400 million. The real cash value of this $2.9 bilion is maybe $150 million for landing and other operating rights. Many of the remaining assets (used aircraft, GSE, facilities) are on the books for more than they are worth at market. So there's at least 2.75 billion of debt and maybe as much as $4 billion of debt out in the cold. All these debtors are entitled to be 100% satisifed before the common holders have a right to anything.

The $2.9 billion of intangibles should never have been permitted to survive the first bankruptcy; the creditors should have been forced to give up more. The new company had only $4 billion of real assets to support $8 billion of debt. This, I believe, was Siegel's single biggest mistake. What I don't know is whether his only alternative was liquidation - but I suspect it was. We'll have to wait for the book to come out.

 

[PITbull]

How many times are you going to post..."with or without the employees"?????


So, wallstreet in your opinion see Bankruptcy for the second time as "a good thing".

Well, I gues wall street investors are employees enemies...thanks for the clarity. Whos screwing who here? :angry:

 

[funguy2]

rob and kiloromeo:

Very interesting perspectives...

I would envision any attempt to re-enter bankruptcy (either Chap 11 or 7) would involve immediate payback of the ATSB Loan.

As of March 13th:

$925mil unrestricted cash
$725mil ATSB Loan, remaining balance

Since US Airways went Chapter 11 last time with $500-600mil unrestricted cash, well, I just don't think US Airways would have the cash to payoff ATSB and survive on $200mil.

kiloromeo: I love the comparison of 1% portfolio to 90% headaches... I have wondered what this comparison might be. I suspect you are right. You would think that the 90% of Bronner's headaches would also translate into lost opportunities for RSA because RSA leadership is spending all its time at US Airways. I wonder how long Bronner spends what seems like at least 33%+ of his time on 1% of his portfolio. At some point, it seems logocal to me, that it is more economical for RSA to just rid itself of this distraction from the other 99% of his investments.

 

[savyinvestor]

Wall Street is really excited. UAIR closed at $2.41 Savy

 

[kiloromeo]

A prepackaged banktuptcy seems reasonable scenario since it means that Bronner is interested in pumping a few more bucks in...maybe GCAS too....the ATSB will be on board. RSA will maintain in control while being the DIP ...hence "with or without you"..statement. seems more likely than the unions willingly accepting the major transformation that will have to take place for survival...