Bankruptcy-whats the point?

[LUalum]

For the experts out there, self proclaimed and otherwise. With the current airline industry meltdown in full swing, inquiring minds want to know...

What is the point of declaring bankruptcy, why not just approach your lenders, fuel suppliers, catering etc. and open the books and ask for relief, lower interest rates, whatever. Come to some sort of agreement outside of the courts, why go through the process of bankruptcy unless it's a last resort?

and

The airlines in Europe, the KLM's & Lufthansa's have been paying high fuel prices for years, the majors over there pay their crews well and yet they have been recording profits, heck ,they are investing in the US industry. We have a few months of $110 oil and 5+ airlines disappear and the rest are losing money faster than you can spit.
What gives? Are they government subsidized, if so that doesn't seem like fair competition. I know
European airlines have had their problems, Alitalia for instance, but oil prices seem to effect the US airlines more, why?

 

[grog_sit_reserv]

I think it has more to do with two things:

First, the biz model of the Airline was based on oil prices that were much lower.

Second, the airline's cash position.

If the airline has a lot of cash in reserve it can usually weather the storm of a bad economy. I don't think any of the airlines so far had that much extra cash.

The Biz plan is at say $65 bbl oil and now its gone up $40 per bbl more... time to redo your biz plan. So, you reorganize under BK. This allows you to renegotiate contracts and adjust your plan while not losing the business.

There are caveats to that of course, but that's the basics. The European airlines biz model is based on extremely high fuel costs hence their apparent stability.

 

[Poahi]

What is the point of declaring bankruptcy,

Why dont you ask a NWA pilot. I'd say most of them should be considered experts.

 

[Alcatraz]

What is the point of declaring bankruptcy, why not just approach your lenders, fuel suppliers, catering etc. and open the books and ask for relief, lower interest rates, whatever. Come to some sort of agreement outside of the courts, why go through the process of bankruptcy unless it's a last resort?

I think it is a last resort, since court costs in Ch11 are way high. I would assume... and that's pretty daring for me to do in this industry... that an at least partially smart management tries your suggestion first. The ones that still can't pull it off go to court. I used to work at Skyway many years ago, and Midwest (our parent company) restructured it's debt, leases, and contracts outside of bankruptcy successfully, lasting another 5 years or so (Midwest is still around).

I could see another circumstance... where a company is suddenly in default of all of it's debts. I think this may have happened to Frontier today when credit card companies apparently changed their holdback, having a huge effect on their cash position (many lenders require a company to have a bunch of cash in the bank, and when you drop below that amount, the loan is in default).

I'm not a bankruptcy expert at all, so I could be wrong... I've just worked at an airline that restructured (Skyway/MEH) and one that went Ch11 (ATA).

 

[CitationUltra]

For the experts out there, self proclaimed and otherwise. With the current airline industry meltdown in full swing, inquiring minds want to know...

What is the point of declaring bankruptcy, why not just approach your lenders, fuel suppliers, catering etc. and open the books and ask for relief, lower interest rates, whatever. Come to some sort of agreement outside of the courts, why go through the process of bankruptcy unless it's a last resort?

and

The airlines in Europe, the KLM's & Lufthansa's have been paying high fuel prices for years, the majors over there pay their crews well and yet they have been recording profits, heck ,they are investing in the US industry. We have a few months of $110 oil and 5+ airlines disappear and the rest are losing money faster than you can spit.
What gives? Are they government subsidized, if so that doesn't seem like fair competition. I know
European airlines have had their problems, Alitalia for instance, but oil prices seem to effect the US airlines more, why?

1. Too many creditors. Not all will cooperate.

2. The "point" is A. To "reorganize" in the case of truly viable carrier, of which there are very few in the U.S., and; B. Buy time, holding off the inevitable for those carriers whose business plans are non-viable, in other words, most U.S. carriers.