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Originally Posted by watch
What would actually happen if bankruptcy occurs.
From reading "hard landing" I learned that executives in the 80s liked bankruptcy because it allowed them to escape ornerous labor agreements, hire scabs to replace everyone, and then emerge leaner and ready to make money. Apparently this isn't the same today, it has changed somehow to be much less attractive and have a much bigger tax on the company than back then. I'm not sure how.
The bankruptcy laws changed in 2007, it's not now riskier and "less convenient" for managers to use BK as a financial tool. The last wave of airline bankruptcies appeared to be timed to get in under the wire before the rules changed (obviously there were economic problems too).
Quote:
Originally Posted by watch
Is there going to be a tipping point where everyone wants to file for chapter 11 just to be first? Or is this the sort of thing where you want to be the last one? AA has a ton of debt but the terms aren't really too bad are they... How much better would the debt be if it was restructured under the best possible realistic terms?
Under the old laws, it seemed like nobody wanted to miss out on the the opportunity to dump annoying obligations, restructure necessary obligations, and cut labor costs. Once one of them filed, the others did too or else they got concessions (esp. from labor) by threatening to file. That's generalities, each case will have it's own nuances of course.
Under the new law I don't think you'd see one BK filing trigger an automatic cascade from everybody else. But if one or two successfully restructure, that could obviously put competitive pressure on others which might ultimately push them over the brink too.
Quote:
Originally Posted by watch
Also, nobody is talking about what it would look like if one of the big three liquidated. They say this is unlikely because who would be there to buy all the assets and pay off the debt. So the best option for the bondholders is to see us through this until there is a vaccine and return to profitability.
Creditors get a say, more so under the new laws. They do have an incentive to get some return on their investment, just depends on what the market might bear at the time. Worth noting that the court can simply erase obligations to labor and unsecured creditors. But secured creditors always have the option of taking their collateral back... judge can erase the obligation but he cannot force a secured creditor to leave his collateral in place. So the bank that owns the planes might make a deal, but it can also repo the planes if it prefers.
Also the fed is likely to intervene if liquidation looms in the near/mid-term. Although if there's sustained economic malaise that reduces demand longer-term it might be politically OK to let one or more airlines fail.
05-08-2024
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