Somethings rotten in Airline bankruptcy land

[groundcontrol]

http://www.msnbc.msn.com/id/17858408

OK. This seems like OLD news...So is anyone gonna do anything about it?

Guess they only report the news, they don't actually delve in and ask why or how this can be happening!

:blink: $#&!! :down: !&#? 🙁 #@!! :angry:

 

[FWAAA]

Charles Leocha should stick to writing about travel, because he lacks a basic understanding of bankruptcy law, especially as it applies to multi-billion corporations.

NWA has done lots and lots of horrible things. Replacing the mechanics with filthy scabs is at the top of the list. Dumping pension obligations, etc. are up there too.

But complaining that NW still had a billion dollars of cash when it entered Ch 11 (as if that itself is a bad thing) shows how little this author knows.

NWA had far more obligations than it could afford to pay, despite its cash balance. When UA, US and DL entered bankruptcy, they had blown thru so much of their cash that they each had to borrow over a billion (UAL borrowed $2.5 billion) to keep operating. A company as big as NWA requires a cash balance of at least $1.0 billion for day to day operations. Low-paid workers might get by living paycheck to paycheck (with checking balances of $50 on payday), but huge businesses can't operate that way.

In 2003, when AA was very close to filing for Ch 11, its loans contained default clauses that triggered default if AMR's unrestricted cash balances fell below $1.0 billion. And the day the concessions were approved (that saved AA from bankruptcy), AMR's total cash was just a little bit more than $1.0 billion. If it had fallen below $1.0 billion, it would have been in default and basically all of its debts would have become immediately due and payable. Dunno what NWA's loans provided, but no doubt contained similar default provisions.

 

[finman]

Charles Leocha should stick to writing about travel, because he lacks a basic understanding of bankruptcy law, especially as it applies to multi-billion corporations....

Excellent post. I couldn't have said it any better.

 

[groundcontrol]

Excellent post. I couldn't have said it any better.

I agree on both counts:

It was an excellent post
and
you would not have said it better.

 

[Gilding the Lily]

The author also failed to realize that the bankruptcy code changed within days after NWA filed for bankruptcy. The pre-changed bankruptcy code is more favorable to NWA. Undoubtedly, this factor greatly influenced management's decision to file bankruptcy when it did.

Sure, NWA may have had a bit of extra cash at the time of filing, but it would have only been enough to delay the inevitable. They probably could have lasted another 6 months before filing, but NWA management was smart and filed for bankruptcy while the laws were still favorable. This decision, in turn, benefited management, customers, and employees.

 

[robbedagain]

The author also failed to realize that the bankruptcy code changed within days after NWA filed for bankruptcy. The pre-changed bankruptcy code is more favorable to NWA. Undoubtedly, this factor greatly influenced management's decision to file bankruptcy when it did.

Sure, NWA may have had a bit of extra cash at the time of filing, but it would have only been enough to delay the inevitable. They probably could have lasted another 6 months before filing, but NWA management was smart and filed for bankruptcy while the laws were still favorable. This decision, in turn, benefited management, customers, and employees.

i wouldnt exactly say it was favorable to the employees as much as mgmt

 

[Gilding the Lily]

i wouldnt exactly say it was favorable to the employees as much as mgmt

No doubt in my mind that it benefitted management more than any other interested party (well, perhaps it will benefit DL more in the long run :unsure: ). But, some of those benefits also benefit the employees.

Obviously, bankruptcy is tough on employees and really tough on long-term shareholders. But even if NWA waited until after the laws changed, the employees still would have got the so-called "raw end of the stick" or "cheap shots" that it received here in this bankruptcy.

 

[FWAAA]

Given that the bankruptcy code changes were designed to force airlines to speed thru their bankruptcy proceedings in a hurry (if they filed after the effective date of the changes), the timing of the filing probably helped the employees rather than hurt them. A later filing would have probably increased the odds that NW would have liquidated instead of survived. As awful as the bankruptcy pay cuts and work rule changes are, most employees probably think that liquidation would have been worse. My unsubstantiated evidence for that proposition: Most employees didn't quit as a result of those changes.

The flip side of that is that liquidation would have forced employees to move on to perhaps more rewarding careers (more rewarding in money and/or satisfaction); as it is, many may have stayed due to inertia.

 

[avek00]

Given that the bankruptcy code changes were designed to force airlines to speed thru their bankruptcy proceedings in a hurry (if they filed after the effective date of the changes), the timing of the filing probably helped the employees rather than hurt them. A later filing would have probably increased the odds that NW would have liquidated instead of survived. As awful as the bankruptcy pay cuts and work rule changes are, most employees probably think that liquidation would have been worse. My unsubstantiated evidence for that proposition: Most employees didn't quit as a result of those changes.

The flip side of that is that liquidation would have forced employees to move on to perhaps more rewarding careers (more rewarding in money and/or satisfaction); as it is, many may have stayed due to inertia.

No question that the NWA employees and creditors benefitted from the timing of the BK filing - it would have been virtually impossible for NWA to have emerged from reorganization intact under rules that would have effectively allowed Doug Parker et. al. to have more than a fighting chance of taking over the airline (or certain of its assets).

 

[dc3fanatic]

I agree on both counts:

It was an excellent post
and
you would not have said it better.

It took IA (smaller operation comparatively) about 18 months to burn through 300M because they had an unsustainable business model.

It doesn't matter how much cash you have if your business model needs reworking and you can't fix the things you need to address outside of B.

Sorry, but the amount of cash in the coffer isn't as relevant as you think.

 

[RobertD]

It took IA (smaller operation comparatively) about 18 months to burn through 300M because they had an unsustainable business model.

It doesn't matter how much cash you have if your business model needs reworking and you can't fix the things you need to address outside of B.

Sorry, but the amount of cash in the coffer isn't as relevant as you think.

http://www.marketwatch.com/tvradio/player....7-7D68FDDC1F8E}