The Challenge of Airline Bankruptcy—Lessons for Mature Industries

In this article (Paragraph No. 10,511) the recent experience of airline reorganizations reinforces the conclusion that the rights of secured financiers must be respected and legacy costs that preclude the business from competing must be confronted and adjusted. While the proximate cause of many airlines’ current problems is record high fuel costs, even more troublesome are the underlying financial problems facing the “legacy” carriers, which are unable to compete with newer, lower cost competitors because of their higher costs to produce the same product. Accordingly, the author argues mature businesses with legacy costs can successfully reorganize only if secured financings receive appropriate operating assets that serve as collateral are valued based upon a going concern standard. The author’s detailed analysis begins with an explanation of Section 1110 of the Bankruptcy Code, which provides an exception to the automatic stay for lessors, conditional vendors, and those with a security interest in aircraft, aircraft engines, and certain other components. Following a discussion of airline bankruptcy court decisions, the author explains the relationship between the trustee, lenders, and equity investors, emphasizing the need to cooperate, communicate and coordinate. Next, the authors discusses rights, remedies, repossession, and remarketing considerations, and the author concludes with a template for future aircraft finance that draws on the lessons of the past and offers practical advice.

  • Corporate Authors:

    International Aviation Law Institute

    DePaul University College of Law, 25 E Jackson Boulevard
    Chicago, IL  United States  60604
  • Authors:
    • Spiotto, James E
  • Publication Date: 2008

Language

  • English

Media Info

  • Media Type: Print
  • Edition: Transfer Binder 2: 2004-2008
  • Pagination: pp 4145-4191
  • Monograph Title: Issues in Aviation Law and Policy

Subject/Index Terms

Filing Info

  • Accession Number: 01141798
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Oct 5 2009 12:23PM