Originally Posted by
iPilot
So, what would happen, theoretically if they run out of money? I presumed bankruptcy is defined by not being able to pay bills but if they have zero operating cash how do paychecks get paid? I know they have to enter Ch. 11 with enough money to get through it but absent a loan from somebody they could run completely dry at some point if they don't reorganize fast enough.
iPilot,
There is a predictable period of losses in an airline bankruptcy while planes are parked and revenue decreases. The downsizing of the United flying is a pre-petition cost meaning that it was already in the works before the bankruptcy declaration was made. These leases and insurance costs will have to be paid until the airplanes are off the books. The bankruptcy court decides the timetable on the new lease and debt agreements. Once those are settled you should see a difference in the MOR (Monthly Operating Report).
"Theoretically" if a company ran out of revenue during bankruptcy they go to Chapter 7 but MAG has a stream of revenue right now with USAirways, United and Delta. MAG chose not to seek DIP financing (Debtor in Posession) which is bankruptcy financing from the outside. This means they will have to rely on that revenue. This is usually designed to make their POR (Plan of Reorganization) look more viable to the court and committees deciding their fate.
MAG's biggest concern right now is the Delta litigation. Other than that and the fact that MAG probably wishes to be relieved of the leases and insurance sooner than later, the bankruptcy proceedings are going as well as can be expected.
On a side note; the judge recently released both United and MAG from the automatic stay so that they could persue the litigation over putting the 10 optional 700's in service.
winglet