Now a bankruptcy court will force their debtors to restructure their debt with the alternative being liquidation where everyone loses.
This is the part I don't understand. Well I understand what you are saying I just don't see how it's fair. Sure the alternative of liquidation is far worse but let's say I'm company A.
I do things for AA and work my ass off for them. In return they pay me. I make costs for AA but as I'm smart, they pay me more than the costs I make. AA keeps spending money and at some point they cannot pay me anymore. In the meanwhile I'm still making costs for them. They are a big company so I'm guessing they can file for Chapter 11, me being a small company, I can say goodbye to my money, because AA (in my point deliberately) kept spending money they didn't have.
What if I'm getting in trouble because I cannot pay my debts because the money I get from AA get's restructured? Do I get to file for Chapter 11?
I understand why they order new planes and in my opinion they should have done so a long time ago but I just think doing so, a week before you are filing Chapter 11 is a bit of a fishy deal.
Of course it's fair. The reason that banks loan money to companies with an interest rate versus doing it for free is because there is risk involved. We have a credit rating in AWS that works the same way--the worse of your airline is financially, the higher the interest rate. If the company goes bankrupt, you get your fair share. Since the risk is greater, the interest rate is higher. Everyone who made loans to AA took a calculated risk. Normally, companies don't go under, but there will always be failures and writeoffs.
If a bank makes enough bad loans because they miscalculated the risk, then the banks go bankrupt as well and gets sold off to the highest bidder via FDIC sealed bid auction. In the small town I live in North Carolina, we've had probably 5 local multi-branch banks go under from bad loans and get bought out by larger ones. Heck, even the big bad Wachovia out of Charlotte got purchased by Wells Fargo and the Wachovia brand is now gone.
As a result of this, most banks are strapped for cash. The conservative banks making money can buyout the debt owed to less conservative banks to maintain their own cashflow. For example, if AA has $5 million in debt to a bank, another bank might give $4 million in cash to the bank and then AA owes the new bank the same $5 million with restructured terms. Everyone comes out ahead with the original bank taking a $1 million loss, but also has $4 million in cash to take care of short term business. The alternative is liquidation where all the assets are sold and each debtor receives their fair share, which means that $5 million in debt might see a $2 million payment.
As mentioned, the company I work for went through Chapter 11. Our company is very profitable, but not profitable enough to cover the payments on the mound of real estate debt our owner racked up in using our company's value for financial leverage. We can pay off our debts because we're profitable, we just can't pay them off as quickly as we agreed to originally because of the current circumstances.
As a sidenote, American, Southwest, and jetBlue were the only 3 major carriers who have not filed for bankruptcy post-9/11. I read an article that said if they were able to restructure their labor agreements similar to their competitors, American would save $800 million/year.