The Judges Options....

[CynicalResAgent]

I have a question.....

From what I have read and heard people discusss on this board the judges main obligation is to the creditors. So he has two choices when it come to deciding to abrogate the contracts or not. I am not an accountant or lawyer but the way I understand it right now if we were liquidated our assets would probably cover most of the outstanding debt? Someone please tell me if this is or is not true.

We also know that judge Mitchell has mentioned before that he is concerned about labor and morale causing more financial harm when he lowered the companies demand in cuts to 21% from the 23% and work rule demands.

So he is probably well aware that if the contracts are thrown out that he could cause more harm to the creditors. This means he has 2 options.

1-throw out the contracts and allow a business with a questionable business plan to continue to operate with the added obstacle of even worse labor relations. If his obligation is to the creditors and if this would possibly cause us to loose even more money then it seems like that would be a poor choice. He has to be aware that strikes, massive resignations would be a very likely result of such a ruling.

2- He decides that the company should be liquidated? It is kinda funny that the company, while trying to make a case as to why they need the contracts to be thrown out, could be convincing the judge that they could not run a successful business even if labor costs were lowered to minimum wage. Which would be better for the creditors.....To liquidate now when we have our current levels of cash on hand? or to possibly liquidate in February when cash levels are much lower?

Sorry, all of the above is really a question......I know it is not phrased as such but I the way I see it the company, by making it clear how desperate the situation is, could cause the judge to believe the business is not sustainable. I know there are some arm-chair accountants, lawyers and CEO's on here, what do you all think?

 

[Air conditioned]

I am not an accountant or lawyer

[post="198846"][/post]​

but you play one on TV?

and you stayed at the Holiday Inn Express last night?

(Sorry. I had to.)

 

[CynicalResAgent]

but you play one on TV?

and you stayed at the Holiday Inn Express last night?

(Sorry. I had to.)

[post="198848"][/post]​

LMAO, I cannot afford a Holiday Inn Express....I sleep in the airport....

 

[aafsc]

I have a question.....

From what I have read and heard people discusss on this board the judges main obligation is to the creditors. So he has two choices when it come to deciding to abrogate the contracts or not. I am not an accountant or lawyer but the way I understand it right now if we were liquidated our assets would probably cover most of the outstanding debt? Someone please tell me if this is or is not true.

We also know that judge Mitchell has mentioned before that he is concerned about labor and morale causing more financial harm when he lowered the companies demand in cuts to 21% from the 23% and work rule demands.

So he is probably well aware that if the contracts are thrown out that he could cause more harm to the creditors. This means he has 2 options.

1-throw out the contracts and allow a business with a questionable business plan to continue to operate with the added obstacle of even worse labor relations. If his obligation is to the creditors and if this would possibly cause us to loose even more money then it seems like that would be a poor choice. He has to be aware that strikes, massive resignations would be a very likely result of such a ruling.

2- He decides that the company should be liquidated? It is kinda funny that the company, while trying to make a case as to why they need the contracts to be thrown out, could be convincing the judge that they could not run a successful business even if labor costs were lowered to minimum wage. Which would be better for the creditors.....To liquidate now when we have our current levels of cash on hand? or to possibly liquidate in February when cash levels are much lower?

Sorry, all of the above is really a question......I know it is not phrased as such but I the way I see it the company, by making it clear how desperate the situation is, could cause the judge to believe the business is not sustainable. I know there are some arm-chair accountants, lawyers and CEO's on here, what do you all think?

[post="198846"][/post]​

Looking at US airways 9/30/04 balance sheet (which is the financial position of the company at that point in time), we see that they had a stockholders deficit of $128 million, which means that their liabilities exceed their assets by that amount. However this is a little misleading because they have almost $2.5 billion in goodwill, an asset account which is an intangible asset (unlike an airplane or even slots). I don't know exactly what it represents (looked for explanation in the notes, but it's late.) Anyway, it's an "asset" they cant really sell. So from a balance sheet perspective IMO it does not look pretty. I believe almost all legacies now have negative net worths, but the question is the cash cushion and the ability to raise more. Other things about balance sheet to keep in mind is that the assets are listed at historical cost, that is the price paid for the asset at the time.Market value is the current value of the asset. On the liability side, we see about $900 million in traffic liability. This represents people who have paid for a ticket but have not yet flown so it's a liability to US (they owe them a trip). Basicallly, if the judge feels that plan will work and the erosion of the balance sheet stops and reverses direction he will more than likely approve the plan. If he feels that the plan will not work, for what ever reason, and the balance sheet continues to erode, he will more than likely liquidate.
His job is to get as much for the creditors as possible. Its late and I hope I made sense.

 

[CynicalResAgent]

Its late and I hope I made sense.

[post="198859"][/post]​

You made sense, atleast to me. I am suprised you understood my question....it is late....lol


Does anybody know what the company is forcasting for profit/loss through the first half of 2005? this is assuming they get everything they need and fuel stays at or lower than what it's at now?

Don't the best estimates still show a loss? I only ask because I do not see how it helps the creditors to allow the company to contiue to bleed cash.

 

[jimntx]

I have a question.....
1-throw out the contracts and allow a business with a questionable business plan to continue to operate...
2- He decides that the company should be liquidated?

[post="198846"][/post]​

IIRC, the judge, per se, does not decide on liquidation directly. What happens is that he accepts or rejects the company's business plan of reorganization. He can do this on his own or in response to a creditors petition (or manybe an employees' petition, I'm not sure of your standing at this point in the process).
If he rejects the business plan, then the company can
1. Ask for more time to form a plan of reorganization "exclusive of outside interference" (i.e., input from the creditors),
2. management resigns and asks the company to appoint a trustee, or
3. management petitions the court to convert the Ch.11 proceedings (reorg) to Ch. 7 (liquidation).
Another scenario if he rejects the business plan...
1. The creditors committee petitions the court to dismiss the company management and appoint a trustee to oversee the reorg, or
2. the creditors committee petitions the court to convert the Ch. 11 proceedings to Ch. 7.

It's really a dollars and cents thing. Is there a reasonable chance that the company can survive AND prosper to the extent that it can pay its debts? (Just surviving is not enough.) Or, are the interests of the creditors best served by selling off the assets to the highest bidder and dividing the proceeds among the creditors. This is the reason that a company's mgt. usually avoids BK until there is no other choice. Once you file BK, you run the risk of totally losing control of the company and/or losing the company itself.

However this is a little misleading because they have almost $2.5 billion in goodwill, an asset account which is an intangible asset (unlike an airplane or even slots). I don't know exactly what it represents (looked for explanation in the notes, but it's late.) Anyway, it's an "asset" they cant really sell.

[post="198859"][/post]​

Goodwill is an intangible asset (which has a real dollar value in accounting, by the way). It's that "thing" that makes a passenger pick one airline over another in an "all things being equal" situation.

I'm assuming that in your town or city there is more than one grocery store. Assuming that the prices are about the same between competing chains, I'm willing to bet that you usually choose to shop at one over the other. It's not price, it's not location. In some cases, it might be something like "Their produce is always so beautiful" or "Their employees are so helpful" or "They don't clutter the aisles with displays". That's goodwill. It has value because it gives customers a reason to pick one store over another.

 

[aafsc]

IIRC, the judge, per se, does not decide on liquidation directly. What happens is that he accepts or rejects the company's business plan of reorganization. He can do this on his own or in response to a creditors petition (or manybe an employees' petition, I'm not sure of your standing at this point in the process).
If he rejects the business plan, then the company can
1. Ask for more time to form a plan of reorganization "exclusive of outside interference" (i.e., input from the creditors),
2. management resigns and asks the company to appoint a trustee, or
3. management petitions the court to convert the Ch.11 proceedings (reorg) to Ch. 7 (liquidation).
Another scenario if he rejects the business plan...
1. The creditors committee petitions the court to dismiss the company management and appoint a trustee to oversee the reorg, or
2. the creditors committee petitions the court to convert the Ch. 11 proceedings to Ch. 7.

It's really a dollars and cents thing. Is there a reasonable chance that the company can survive AND prosper to the extent that it can pay its debts? (Just surviving is not enough.) Or, are the interests of the creditors best served by selling off the assets to the highest bidder and dividing the proceeds among the creditors. This is the reason that a company's mgt. usually avoids BK until there is no other choice. Once you file BK, you run the risk of totally losing control of the company and/or losing the company itself.

Goodwill is an intangible asset (which has a real dollar value in accounting, by the way). It's that "thing" that makes a passenger pick one airline over another in an "all things being equal" situation.

I'm assuming that in your town or city there is more than one grocery store. Assuming that the prices are about the same between competing chains, I'm willing to bet that you usually choose to shop at one over the other. It's not price, it's not location. In some cases, it might be something like "Their produce is always so beautiful" or "Their employees are so helpful" or "They don't clutter the aisles with displays". That's goodwill. It has value because it gives customers a reason to pick one store over another.

[post="198909"][/post]​

True, but how can they sell this to raise cash? Plus wasn't there a recent accounting pronouncement concerning the impairment of goodwill? AA recently wrote down it's goodwill and that amount was $1.4 billion. Now they no longer have any goodwill listed in their assets section. At AA most of the goodwill ($1.1 billion) resulted from AA's purchase of TW's assets. That is the total consideration paid (cash, debt assumption, assunption of TW retiree obligations) minus the fair value of the assets. The $1.1 billion of overpayment (goodwill) can be said to represent the fact we got TW's customers, ready access to renegotiated aircraft and facilities, and trained experienced people. AA still has most of these items yet they wrote down goodwill. Why? In any transaction, the basic accounting equation must hold true and that is Assets=liabilites+capital (owners equity). AA paid $1.1 billion more to TWA Inc. (total consideration) than the fair value of the assets and the $1.1 billion is needed to balance the fundamental accounting equation. Was the TWA customer base, facilites and people, and the fact of a readily available fleet worth $1.1 billlion?
It is the most extreme intangible type asset where valuation is extremely subjective.
As far as US, I looked last night in the notes to their financial statements and could find nothing concerning goodwill. I would probably have to look at previous financial statements to see how they came up with $2.5 billion in goodwill.

 

[aerosmith]

I have a question.....


We also know that judge Mitchell has mentioned before that he is concerned about labor and morale causing more financial harm when he lowered the companies demand in cuts to 21% from the 23% and work rule demands.

The way I see it is the co. got th efull 23%. 21% wages + 2% 401k match= 23%
:down: :down:

 

[CynicalResAgent]

Thanks Jim and aafsc for responses...

My point is that the judge seems to have indicated that he is well aware that labor relations will suffer with any cuts. So there is a trade off, lower wages equals a less effecient company. He has to be aware that by throwing out the contracts that the company could loose more money through strikes and slow downs than leaving them in place.

 

[aafsc]

Thanks Jim and aafsc for responses...

My point is that the judge seems to have indicated that he is well aware that labor relations will suffer with any cuts. So there is a trade off, lower wages equals a less effecient company. He has to be aware that by throwing out the contracts that the company could loose more money through strikes and slow downs than leaving them in place.

[post="198969"][/post]​

You are right. Remember when CO went bankrupt the first time? During the entire time of the Lorenzo years, the people made rock bottom wages with no benefits, retirement,
etc. and the company still lost money, as a matter of fact, it went into bankruptcy again.
When you pay people crap wages you get crap service. And the business traveler showed he would not tolerate poor service.

 

[firstamendment]

I
We also know that judge Mitchell has mentioned before that he is concerned about labor and morale causing more financial harm when he lowered the companies demand in cuts to 21% from the 23% and work rule demands.

I still get teared up over Judge Mitchell's concerned. <_< :angry: :down:

 

[CynicalResAgent]

I

I still get teared up over Judge Mitchell's concerned. <_< :angry: :down:

[post="198977"][/post]​

I simply meant he was concerned that labor strife would damage the company. I did not mean to imply I thought he cared about the employees.