UCC Lawyer talks
09-08-2012, 08:11 AM
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UCC Lawyer talks
Jack Butler talks consensual agreements, short fuses, equity stakes and other matters in American Airlines bankruptcy case | Airline Biz Blog
By tmaxon
[email protected]
6:22 pm on September 7, 2012 | Permalink
After Tuesday’s hearing in New York, I wanted to catch up with Jack Butler, the lead counsel for the unsecured creditors committee in the AMR/American Airlines/American Eagle bankruptcy case.
He had said in open court that there had to be a deal between American and the Allied Pilots Association for American to get approval of its plan of reorganization. I wanted to ask him to clarify or elaborate on his comments.
As it turned out, he wanted to talk to me, too, I’m guessing because he was concerned about the impression his comments in court might leave.
As an indication of the impression his comments made, airline analyst Hunter Keay of Wolfe Trahan opined in a Friday investors’ note that American’s pilots held the leverage in the bankruptcy case, particularly for a US Airways merger, if the committee wouldn’t approve a plan of reorganization without a collective bargaining agreement with pilots.
“By defining a ratified pilot CBA as a prerequisite to a bankruptcy exit, AMR pilots would merely have to reject all offers from AMR management to indefinitely stall AMR from exiting on its own,” Keay wrote.
Here’s a transcript of our conversation with Butler (as it turns out, in a Chipotle’s across the courthouse on Broadway in lower Manhattan):
I was very interested in your comments in court that American Airlines would need a consensual agreement with the pilots before exiting bankruptcy.
I think what we said was that it was the creditors committee’s expectations that there will be consensual deals with all the labor organizations in connection with the plan of reorganization. We believe that’s very important. We believe that the company knows that. We believe the APA knows what the position of the committee is in that respect. That statement needs to be taken in the context of the parameters that the creditors committee has laid out for a proposed deal.
What was the committee’s reaction to the pilots’ rejection to the deal? There seems to be an underlying expectation from the pilots that there’s a better deal out there for them.
Well, I don’t think there’s a better deal out there for them. I think the committee was pretty clear in the statement we issued back in mid-August following the court’s first ruling, and the position’s the same today. And that is, that labor organizations will fare better and they’ll receive more value in agreements they accept consensually than will be the case in situations where contracts have to be abrogated and employment terms are then imposed by American as permitted under the bankruptcy court.
We’ve also made it very clear from the committee’s perspective – we’ve told American and we’ve told the APA – that there’s no additional economic value beyond the current company offers that can be provided to the company’s labor organizations. To do so would endanger American’s reorganization. It would also endanger the economics and the rights of non-union creditors and parties in interest.
So the committee decided back in mid-August after the first ruling came out and announced publicly that it would oppose any new efforts to transfer additional economic value from general unsecured creditors to American’s unionized employees.
As part of that, one of the things this creditors committee has done… is that the committee voted to support the equity stakes that had been negotiated by the company and the various labor organizations. Those are for example, with respect to the TWU and the APFA, are those equity stakes will be up for a hearing on Sept. 12, and the committee expects to support those.
With respect to the APA, from the committee’s perspective they’ve lost their 13½ percent equity stake unless they can reach a consensual deal with the company.
There seems to be a belief from APA membership that they’ll get at least what they turned down. Are they mistaken in that belief?
I think it would be inappropriate for us to comment specifically on the parameters of what American and the APA were negotiating with each other. But I will tell you this: The committee’s support on an equity stake for the APA, the 13½ percent that they bargained for in the consensual deal, is only going to be available if consensual deals are reached promptly. It’s incumbent not just on the company but the APA to move promptly if they want to preserve that equity stake.
The APFA and the TWU agreements which have been ratified are going to be approved by the bankruptcy court next week in our belief. We certainly stand by the labor organizations and the company and support those agreements.
If the APA wants to get similar economics, it’s going to have to reach a deal promptly. Every day that goes by where the APA doesn’t support the reorganization, that causes potential problems for other players.
Have you spent much time trying to analyze in your own mind why the pilots turned down their tentative agreement?
No. I think everyone probably has their own view about why the pilots could not accept the last offer that was on the table. I think as Judge Lane said in court today, I think the committee has the same belief, you have to respect the men and women of the APA for decisions they make that they believe were in their best economic interest at the time.
Personally I think there’s more reflection that needs to take place on the part of all the parties here as they move forward to a potential outcome where there’s a settlement that does not transfer any more economic value from other creditors to the APA. I think that’s the challenge to the APA and American have to come up with a transaction that will pass muster with everyone else.
Were there some members of the labor subcommittee who thought the equity stakes offered the unions were too rich?
The creditors committee publicly stated that they reluctantly supported the economic stakes. It was quite unusual for a creditors committee to take affirmative action. The committee did it in a recognition that the labor organizations had worked out consensual deals that benefited all creditors and benefited the reorganization.
But I think it’s always difficult when one group of creditors gives something up so other people can get something. It was something that people did very reluctantly. And frankly, as committee counsel, we’re proud of the committee members who stood together to take that course of action.
But we have some unfinished business because those same members have made it clear that their support of an equity stake for the APA is not unconditional and it’s not for everlasting. There has to be something done in the short term, and the APA’s got to come to the table to help do that.
What is the definition of “short-term.” Short-term isn’t 2014 and it’s not Sept. 5. How soon does the APA have to reach a consensual deal to retain that equity share?
I don’t think either the APA nor American expect the creditors committee to set deadlines for their negotiations with respect to this collective bargaining agreement.
I think what’s important is the message to the creditors committee has, not only for the APA but also for American Eagle’s labor organizations. There have been a couple there that have turned down tentative agreements, and there are others voting on those.
I think the message from the committee is pretty clear. First, the committee recognizes the valuable contributions to the committee’s employees. The committee supports the consensual deals that have been negotiated. Those include the equity stakes for the American labor organizations.
But it also includes allowed unsecured claims for the American Eagle labor organizations. That assumes those consensual deals are ratified promptly. If those deals can’t be reached, the committee’s not going to support provided further economic value being provided to those organizations and it will expect that the company is going to going forward and get abrogation orders from Judge Lane.
We expect that’s going to happen with American Eagle labor organizations that can’t come to an agreement in the very near future. But the committee isn’t the one to establish those timetables.
What is the potential for exiting Chapter 11 without consensual deals?
Look, as a legal matter, the company is able to exit Chapter 11 and to have a plan of reorganization confirmed by doing one of two things – either reaching a consensual deal or getting an abrogation order like Judge Lane issued today with respect to the APA. Either of those things provides the basis for American to move forward.
What you heard us say in court today is that the committee’s expectation that these parties will come together and do what’s best for the reorganization – and that’s to reach a deal.
Would you like to handicap the chances of strategic alternatives involving other airlines, such as in a merger?
I’m not going to comment about it. I think the parties to those discussions have made very clear that everyone’s in a quiet period.
I wasn’t going to hold you to that.
(Laughter, no response)
What is your best guess about when the debtors can have a plan of reorganization approved and exit bankruptcy?
The committee has worked very closely with American on its reorganization efforts. I think it was notable and exceptional that the committee and the company filed a joint motion to extend exclusivity back this summer, in July. You only have to look to those joint statements to understand what the committee and the company expect to do, working together. The exclusivity period to file a plan has been extended through the end of the year, to Dec. 28, and then there’s an additional period beyond that.
But there’s no question but that American has made substantial progress towards a reorganization and it’s working closely with the committee to explore its standalone business plan and strategic alternatives to it on a collaborative basis. From that joint exploration, the committee is very confident that there will be a consensual plan of reorganization and they’ll emerge.
What equity stake does the creditors committee see for executives at American Airlines?
When the unsecured creditors committee has something to say about that, I’m sure the committee will speak about it. That, along with a lot of other topics, are part of the reorganization discussions that occur customarily and I expect that that will be made clear, that those views will be expressed in connection with the plan of reorganization process.
But we’re still a bit away from that, right? As we’ve said, you take this in steps. You take them somewhat sequentially. The committee has said the consensual deals with labor organizations, both with American Airlines and American Eagle, or abrogation of any unresolved collective bargaining agreements is necessary to American’s successful reorganization.
Because the company’s got to validate the assumptions in the standalone business plan as well as continue to explore strategic alternatives as has been announced. We’re working closely with them, in close collaboration, and we expect to work with the company to compare alternatives against the standalone plan.
I think it’s important to state our desire, as we said to Judge Lane today. The committee very strongly desires consensual labor agreements to be achieved with all labor organizations. That results in the best interests of all stakeholders, and the actions the committee has taken in this case in recent weeks and months has been intended to achieve that outcome. I think that’s where the committee stands and that’s what we’re working with others to achieve.
30 5
Terry Maxon writes about items of interest to travelers and the aviation community.
By tmaxon
[email protected]
6:22 pm on September 7, 2012 | Permalink
After Tuesday’s hearing in New York, I wanted to catch up with Jack Butler, the lead counsel for the unsecured creditors committee in the AMR/American Airlines/American Eagle bankruptcy case.
He had said in open court that there had to be a deal between American and the Allied Pilots Association for American to get approval of its plan of reorganization. I wanted to ask him to clarify or elaborate on his comments.
As it turned out, he wanted to talk to me, too, I’m guessing because he was concerned about the impression his comments in court might leave.
As an indication of the impression his comments made, airline analyst Hunter Keay of Wolfe Trahan opined in a Friday investors’ note that American’s pilots held the leverage in the bankruptcy case, particularly for a US Airways merger, if the committee wouldn’t approve a plan of reorganization without a collective bargaining agreement with pilots.
“By defining a ratified pilot CBA as a prerequisite to a bankruptcy exit, AMR pilots would merely have to reject all offers from AMR management to indefinitely stall AMR from exiting on its own,” Keay wrote.
Here’s a transcript of our conversation with Butler (as it turns out, in a Chipotle’s across the courthouse on Broadway in lower Manhattan):
I was very interested in your comments in court that American Airlines would need a consensual agreement with the pilots before exiting bankruptcy.
I think what we said was that it was the creditors committee’s expectations that there will be consensual deals with all the labor organizations in connection with the plan of reorganization. We believe that’s very important. We believe that the company knows that. We believe the APA knows what the position of the committee is in that respect. That statement needs to be taken in the context of the parameters that the creditors committee has laid out for a proposed deal.
What was the committee’s reaction to the pilots’ rejection to the deal? There seems to be an underlying expectation from the pilots that there’s a better deal out there for them.
Well, I don’t think there’s a better deal out there for them. I think the committee was pretty clear in the statement we issued back in mid-August following the court’s first ruling, and the position’s the same today. And that is, that labor organizations will fare better and they’ll receive more value in agreements they accept consensually than will be the case in situations where contracts have to be abrogated and employment terms are then imposed by American as permitted under the bankruptcy court.
We’ve also made it very clear from the committee’s perspective – we’ve told American and we’ve told the APA – that there’s no additional economic value beyond the current company offers that can be provided to the company’s labor organizations. To do so would endanger American’s reorganization. It would also endanger the economics and the rights of non-union creditors and parties in interest.
So the committee decided back in mid-August after the first ruling came out and announced publicly that it would oppose any new efforts to transfer additional economic value from general unsecured creditors to American’s unionized employees.
As part of that, one of the things this creditors committee has done… is that the committee voted to support the equity stakes that had been negotiated by the company and the various labor organizations. Those are for example, with respect to the TWU and the APFA, are those equity stakes will be up for a hearing on Sept. 12, and the committee expects to support those.
With respect to the APA, from the committee’s perspective they’ve lost their 13½ percent equity stake unless they can reach a consensual deal with the company.
There seems to be a belief from APA membership that they’ll get at least what they turned down. Are they mistaken in that belief?
I think it would be inappropriate for us to comment specifically on the parameters of what American and the APA were negotiating with each other. But I will tell you this: The committee’s support on an equity stake for the APA, the 13½ percent that they bargained for in the consensual deal, is only going to be available if consensual deals are reached promptly. It’s incumbent not just on the company but the APA to move promptly if they want to preserve that equity stake.
The APFA and the TWU agreements which have been ratified are going to be approved by the bankruptcy court next week in our belief. We certainly stand by the labor organizations and the company and support those agreements.
If the APA wants to get similar economics, it’s going to have to reach a deal promptly. Every day that goes by where the APA doesn’t support the reorganization, that causes potential problems for other players.
Have you spent much time trying to analyze in your own mind why the pilots turned down their tentative agreement?
No. I think everyone probably has their own view about why the pilots could not accept the last offer that was on the table. I think as Judge Lane said in court today, I think the committee has the same belief, you have to respect the men and women of the APA for decisions they make that they believe were in their best economic interest at the time.
Personally I think there’s more reflection that needs to take place on the part of all the parties here as they move forward to a potential outcome where there’s a settlement that does not transfer any more economic value from other creditors to the APA. I think that’s the challenge to the APA and American have to come up with a transaction that will pass muster with everyone else.
Were there some members of the labor subcommittee who thought the equity stakes offered the unions were too rich?
The creditors committee publicly stated that they reluctantly supported the economic stakes. It was quite unusual for a creditors committee to take affirmative action. The committee did it in a recognition that the labor organizations had worked out consensual deals that benefited all creditors and benefited the reorganization.
But I think it’s always difficult when one group of creditors gives something up so other people can get something. It was something that people did very reluctantly. And frankly, as committee counsel, we’re proud of the committee members who stood together to take that course of action.
But we have some unfinished business because those same members have made it clear that their support of an equity stake for the APA is not unconditional and it’s not for everlasting. There has to be something done in the short term, and the APA’s got to come to the table to help do that.
What is the definition of “short-term.” Short-term isn’t 2014 and it’s not Sept. 5. How soon does the APA have to reach a consensual deal to retain that equity share?
I don’t think either the APA nor American expect the creditors committee to set deadlines for their negotiations with respect to this collective bargaining agreement.
I think what’s important is the message to the creditors committee has, not only for the APA but also for American Eagle’s labor organizations. There have been a couple there that have turned down tentative agreements, and there are others voting on those.
I think the message from the committee is pretty clear. First, the committee recognizes the valuable contributions to the committee’s employees. The committee supports the consensual deals that have been negotiated. Those include the equity stakes for the American labor organizations.
But it also includes allowed unsecured claims for the American Eagle labor organizations. That assumes those consensual deals are ratified promptly. If those deals can’t be reached, the committee’s not going to support provided further economic value being provided to those organizations and it will expect that the company is going to going forward and get abrogation orders from Judge Lane.
We expect that’s going to happen with American Eagle labor organizations that can’t come to an agreement in the very near future. But the committee isn’t the one to establish those timetables.
What is the potential for exiting Chapter 11 without consensual deals?
Look, as a legal matter, the company is able to exit Chapter 11 and to have a plan of reorganization confirmed by doing one of two things – either reaching a consensual deal or getting an abrogation order like Judge Lane issued today with respect to the APA. Either of those things provides the basis for American to move forward.
What you heard us say in court today is that the committee’s expectation that these parties will come together and do what’s best for the reorganization – and that’s to reach a deal.
Would you like to handicap the chances of strategic alternatives involving other airlines, such as in a merger?
I’m not going to comment about it. I think the parties to those discussions have made very clear that everyone’s in a quiet period.
I wasn’t going to hold you to that.
(Laughter, no response)
What is your best guess about when the debtors can have a plan of reorganization approved and exit bankruptcy?
The committee has worked very closely with American on its reorganization efforts. I think it was notable and exceptional that the committee and the company filed a joint motion to extend exclusivity back this summer, in July. You only have to look to those joint statements to understand what the committee and the company expect to do, working together. The exclusivity period to file a plan has been extended through the end of the year, to Dec. 28, and then there’s an additional period beyond that.
But there’s no question but that American has made substantial progress towards a reorganization and it’s working closely with the committee to explore its standalone business plan and strategic alternatives to it on a collaborative basis. From that joint exploration, the committee is very confident that there will be a consensual plan of reorganization and they’ll emerge.
What equity stake does the creditors committee see for executives at American Airlines?
When the unsecured creditors committee has something to say about that, I’m sure the committee will speak about it. That, along with a lot of other topics, are part of the reorganization discussions that occur customarily and I expect that that will be made clear, that those views will be expressed in connection with the plan of reorganization process.
But we’re still a bit away from that, right? As we’ve said, you take this in steps. You take them somewhat sequentially. The committee has said the consensual deals with labor organizations, both with American Airlines and American Eagle, or abrogation of any unresolved collective bargaining agreements is necessary to American’s successful reorganization.
Because the company’s got to validate the assumptions in the standalone business plan as well as continue to explore strategic alternatives as has been announced. We’re working closely with them, in close collaboration, and we expect to work with the company to compare alternatives against the standalone plan.
I think it’s important to state our desire, as we said to Judge Lane today. The committee very strongly desires consensual labor agreements to be achieved with all labor organizations. That results in the best interests of all stakeholders, and the actions the committee has taken in this case in recent weeks and months has been intended to achieve that outcome. I think that’s where the committee stands and that’s what we’re working with others to achieve.
30 5
Terry Maxon writes about items of interest to travelers and the aviation community.
09-08-2012, 09:29 AM
#2
Gets Weekends Off
Joined APC: Dec 2008
Position: Cub Cap
Posts: 175
Nothing new here, the UCC knows that whatever the pilots give up, they will get. So, the pilots better take the deal quickly or it won’t be there.
Nothing has to be done in a rush, UA was in bankruptcy for nearly four years. But, that is not what the plan was at AMR. They thought they would take a quick trip through BK, dump the old airplane leases, screw a few vendors and take a whack at the employees for good measure. This was the DAL/NWA model. Their problem, unlike the other BK’s is that U is ready to step in. They need a quick deal because a credible alternative exists at the end of the exclusivity period.
Notice this guy would not talk about the executive bonuses. They have to see how well they do hosing the employees to determine that payout.
Horton and others need a deal to get the big transaction cash, a loss of control and merger would likely result in no Wall Street money for them. The people to watch are those that have the “money” not the UCC.
Baron
Nothing has to be done in a rush, UA was in bankruptcy for nearly four years. But, that is not what the plan was at AMR. They thought they would take a quick trip through BK, dump the old airplane leases, screw a few vendors and take a whack at the employees for good measure. This was the DAL/NWA model. Their problem, unlike the other BK’s is that U is ready to step in. They need a quick deal because a credible alternative exists at the end of the exclusivity period.
Notice this guy would not talk about the executive bonuses. They have to see how well they do hosing the employees to determine that payout.
Horton and others need a deal to get the big transaction cash, a loss of control and merger would likely result in no Wall Street money for them. The people to watch are those that have the “money” not the UCC.
Baron
09-08-2012, 10:41 AM
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Joined APC: Jun 2008
Posts: 8,350
Well, if you read the article, clearly Butler is in damage control mode, hence HIM seeking out Maxon. This reminds me of a recent dinner on the West coast where certain management individuals also spilled their cards on the table in an undesirable manner and ended up with a message they didn't want to send, even if it had some validity.
Now Jack appears to be trying to walk both sides of the street at the same time in his revision of a slip of the lip. It matters little really, as absent significant changes to the LBFO, that will stay the LBFO until we either exit BK stand alone under the 1113 or they swerve off the road an slam into Parker. We've been notified that apparently management intends not to implement a pure 1113, but a mix of 1113 and LBFO provisions. We'll find out more next week.
Look for appeal of the 1113 along with other legal avenues to be persued including, but not limited to legal clarification as to the applicability of the NMB, RLA and judge Lane's claimed jurisdiction going forward. Briefs submitted to different court and awaiting rulings. Again, with no CBA we apparently may go into a quagmire of different federal and state labor laws requiring compliance which may truly tangle this carrier up operationally as 7500 pilots under one work order will have to mesh in 5 different state's labor laws in addition to federal statutes.
Still though, the first option is a resolution prior to BK exit vs. a post BK crazy train, but it seems in many ways Jack just painted the UCC in a corner on that, at least publicly. For now, it seems we'll be kicking the can and limping along.
Now Jack appears to be trying to walk both sides of the street at the same time in his revision of a slip of the lip. It matters little really, as absent significant changes to the LBFO, that will stay the LBFO until we either exit BK stand alone under the 1113 or they swerve off the road an slam into Parker. We've been notified that apparently management intends not to implement a pure 1113, but a mix of 1113 and LBFO provisions. We'll find out more next week.
Look for appeal of the 1113 along with other legal avenues to be persued including, but not limited to legal clarification as to the applicability of the NMB, RLA and judge Lane's claimed jurisdiction going forward. Briefs submitted to different court and awaiting rulings. Again, with no CBA we apparently may go into a quagmire of different federal and state labor laws requiring compliance which may truly tangle this carrier up operationally as 7500 pilots under one work order will have to mesh in 5 different state's labor laws in addition to federal statutes.
Still though, the first option is a resolution prior to BK exit vs. a post BK crazy train, but it seems in many ways Jack just painted the UCC in a corner on that, at least publicly. For now, it seems we'll be kicking the can and limping along.
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