American Airlines files Chapter 11 Bankruptcy

[JumboShrimp]

GMs shareholders were given next to nothing.  The Union got a large stake and the government held a majority ownership in them.  They only recently began spinning them back off.  

It was all political pay off.  Unions gave Obama $100s of millions in campaign contributions (without which he still might be just a junior senator from IL), Obama paid them back giving them gifts in $ billions from taxpayers and $ billions confiscated from sharholders and creditors.

The whole spin-off is a joke.  There are losses for the taxpayers as fa as eye can see.

The biggest insult was when GM ran ads that they repaid the taxpayers.  I wish somebody took them to court for false advertising...

As far as the actual bankruptcy, the cause of GM going bankrupt were the union contracts.  The biggest liability of GM were the union contracts.  Normally, bankruptcy gives you a clean start, all contracts are null and void, and all creditors get to stand in line.  Secured creditors first, unsecured next.

The mockery of the process was when Obama put his campaign contributors first.  Even ahead of secured creditors in case of Chrysler.  That clearly unconstitutional (Article 1 Section 10 of the constitution).  Being a secured creditor is a contract, and US government is prohibited from impairing obligations under contracts.

Then there was preference of one set of unsecured creditors (Unions) vs. other unsecured creditors.  That is not supposed to happen in general.

While there was some renegotiation of the Union contracts for new and future employees, the most heinous contacts for long time union employees (and retirees) were left in place.  GM creditors and US taxpayers are paying the bill for that...

Let's just hope that Obama will not get involved in AA bankruptcy, so that the normal rules of business are not subverted further.   (We have to wonder how much AA unions paid to Obama campaign).  If the normal process is followed, AA will emerge out of this a healthy company, able to compete with United and Delta...

[LemonButt]

It was all political pay off.  Unions gave Obama $100s of millions in campaign contributions (without which he still might be just a junior senator from IL), Obama paid them back giving them gifts in $ billions from taxpayers and $ billions confiscated from sharholders and creditors.

The whole spin-off is a joke.  There are losses for the taxpayers as fa as eye can see.

The biggest insult was when GM ran ads that they repaid the taxpayers.  I wish somebody took them to court for false advertising...

As far as the actual bankruptcy of the US, the cause of GM going bankrupt were the union contracts.  The biggest liability of GM were the union contracts.  Normally, bankruptcy gives you a clean start, all contracts are null and void, and all creditors get to stand in line.  Secured creditors first, unsecured next.

The mockery of the process was when Obama put his campaign contributors first.  Even ahead of secured creditors in case of Chrysler.  That clearly unconstitutional (Article 1 Section 10 of the constitution).  Being a secured creditor is a contract, and US government is prohibited from impairing obligations under contracts.

Then there was preference of one set of unsecured creditors (Unions) vs. other unsecured creditors.  That is not supposed to happen in general.

While there was some renegotiation of the Union contracts for new and future employees, the most heinous contacts for long time union employees (and retirees) were left in place.  GM creditors and US taxpayers are paying the bill for that...

Let's just hope that Obama will not get involved in AA bankruptcy, so that the normal rules of business are not subverted further.   (We have to wonder how much AA unions paid to Obama campaign).  If the normal process is followed, AA will emerge out of this a healthy company, able to compete with United and Delta...

Normally I'd say we should avoid discussing politics, but everything you said is dead on the truth.  AA does have a major hub at O'Hare, so it wouldn't surprise me if Obama got involved somehow someway.  The handling of the GM bankruptcy/bailout met the definition of unconstitutional with a massive dilution of shares bought by the federal government which made shares of stock from pre-dilution nearly worthless.

[alexgv1]

Give a man a gun and he can rob a bank, give a man a bank and he can rob the world.

[Kazari]

I don't think the political stuff is called for here.

Some thoughts:

1. Shareholders typically get the shaft in any bankruptcy. They are on the lowest rung. Delta, Northwest, USAirways, etc. (and non-airlines, as well) shareholders are left with nothing.

2. Management will be given a chance to come up with a plan to come out of bankruptcy. This will be presented to the judge in the case. It will need to be negotiated with...

3. Creditors (banks and vulture funds, typically, at this point, given that it's been pending for some time). There are often a couple of levels (junior, senior bondholders, etc.). Senior debtholders get paid first. Juniors after. The creditors can also come up with their plan for coming out of bankruptcy. All these plans include various payments of pennies on the dollar to creditors in exchange for an ownership stake later on.

4. Chapter 11 allows a company to negate and renegotiate all contracts. Examples in this case might include unprofitable gates/hubs, leased aircraft, building leases, and, most importantly union contracts. In all likelihood, unions will be asked to take whatever Delta et al are paying.  Often all of this is negotiated before the company even goes under -- a so-called pre-packaged bankruptcy.

5. What I expect to happen out of this is that senior and junior bondholders will agree to take a major haircut and that the unions will be asked to take major wage concessions all in exchange for ownership stakes (I expect the union would get less than 10 percent, but probably one seat on the board), that uneconomical leases will be terminated and that shareholders will be screwed. I also expect that it will take about a year for the new company to emerge from bankruptcy.

[wapp11]

I am from America so I can slam America... right? I have friends that have screwed people, and friends getting screwed, all because of chapter 11.  Also I would like to add.... WHAT JUMBO SAID!!! Good to see someone else knows what really happens.

[alexgv1]

Anyone reckon Obama will be assassinated before his term ends?

[swiftus27]

Anyone reckon Obama will be assassinated before his term ends?

Don't ask questions like that or the secret service will be at your door.

[swiftus27]

I am from America so I can slam America... right? I have friends that have screwed people, and friends getting screwed, all because of chapter 11.  Also I would like to add.... WHAT JUMBO SAID!!! Good to see someone else knows what really happens.

You're statement was implicitly factually inaccurate.   How are your friends being screwed here? Please explain. 

[alexgv1]

Don't ask questions like that or the secret service will be at your door.

Yeah maybe not a good place to discuss it I guess they monitor all Internet now.

[LemonButt]

Anyone reckon Obama will be assassinated before his term ends?

Anyone who tries to assassinate Obama would be a fool.  Obama may not be a good President, but he's not stupid--his Vice President who would succeed him is even more incompetent than himself.

[alexgv1]

Anyone who tries to assassinate Obama would be a fool.  Obama may not be a good President, but he's not stupid--his Vice President who would succeed him is even more incompetent than himself.

Hill-Dogg?

[swiftus27]

The us presidential succession line is detailed in the 25th amendment to the constitution.

We sadly cant just call no confidence votes and re elect like many parliamentary governments can.

Also our elections are mandatory (first Tuesday in november).  Terms are a set length. 

[LemonButt]

Hill-Dogg?

Joe Biden

[alexgv1]

Joe Biden

Oh yeah she's foreign secretary isn't she.

[swiftus27]

Oh yeah she's foreign secretary isn't she.

Sec of State is actually after the vp, speaker of house, president pro temp of the senate...

[wapp11]

You're statement was implicitly factually inaccurate.   How are your friends being screwed here? Please explain. 

One example is a friend who has a sod farm.  He delivered $10k worth of sod to a landscaping company, the company, before paying the sod bill files chapter 11.  Now it has been years in court deciding who, and what gets paid first, and what the sod is worth in the courts mind.  Maybe someday he will get part of his money.  In the mean time the owner of the landscaping company, buys a new house, and drives a new car because he himself didn't file bankruptcy, the company did, so why should he be liable for the sod bill. 

[alexgv1]

BOOM!

Wapp gone in hard. Don't think anyone can argue with that.

[Sigma]

To me, being from Europe, it doesn't make any sense that a company with 4.6 billion USD in the bank, who've just made the largest order in history, can file for bankruptcy protection and it almost reeks of some form of 'dirty' business.

Europe or not, AA's money in the bank or orders outstanding makes little difference to their bankruptcy and there's hardly anything 'dirty' about it.

AA's cash of about $4B (this is often misquoted by the media -- they actually only have $300M in cash, the rest of that "$4B" is actually in short-term securities), though seemingly a lot of money, is chump change for a company like AA.  They pay out more cash than that every 30 days on day-to-day bills.

To give you an idea of how bad a shape the company was in -- they had $4B in cash, they own hundreds of planes and billions of dollars worth of facilities totalling over $15B, but up until Tuesday you could have bought the entire company for a mere $0.5B -- just $500M in cash.  That was the total value of 100% of its shares on the market.  Why?  Because it's debt was STAGGERING (over $30B) and its potential to make profits in the future was virtually nil, what with the costs it was bearing.

So how does a company like that manage to place such a big aircraft order?  Well, first and foremost, the planes haven't even been bought yet.  It's only PLANS for purchases that have been talked about.  The terms of the agreements haven't even been cemented yet.  And secondly, creditors buy planes, not the airlines.  American hasn't, and wouldn't, put up a dime of its own money.  It will borrow every penny of it.  Being in bankruptcy actually makes it easier to get favorable terms from creditors than they would have gotten before when creditors were worried about going into bankruptcy where the status of their getting paid would have been in jeopardy.

Had they not made that order, Airbus wouldn't give a flipping toss about AA going bankrupt, but now, with this order in place, Airbus might step up and support the bankruptcy protection. If something like this would have happened in Russia or something I would understand and accept it, but in America, I think somebody should at least do some research into it.

Don't see what 'research' there is to do.  Your guess is probably a very valid one and I'm sure it played a small role in the decision to place the order for a couple reasons.  There's nothing illegal, immoral, or even unethical about getting your big and influential suppliers to support your efforts to get out of bankruptcy.  Regardless, one does not "support" bankruptcy.  You get it.  Every single person or company in the US has the rights to do it.  You don't need companies to campaign for government support or anything like that.  So whether or not Boeing or Airbus or anyone "supported" it, is really fairly moot.

Any other company in another part of the world would have gone bankrupt and ceased to excist but somehow the American carriers won't.

Oh hardly.  How many times in the past couple decades have governments all over the world stepped up to bail out, loan, re-organize, or even full-on nationalize (or simply remain nationalized) their air carriers?  The protection of ones air carriers is an EXTREMELY common event worldwide.  And this isn't even a government-supported activity at this point, it's simply the way things work in Chapter 11 bankruptcy protection in the US for ALL businesses -- a protection that exists in somewhat similar forms throughout much of the Western world.

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.

For one, the guys who make the stuff for AA, provide the food, the gas, whatever -- 99%, maybe even 100%, of them will get their money.  Business as usual on a day-to-day basis will continue and AA will continue to pay their normal operating bills.  That's why you declare Chapter 11 before you are completely out of cash, so that you can continue to pay your suppliers while the courts rule on reorganization.  If AA was dead and completely broke it would be declaring Chapter 7 and go into immediate liquidation.

The guys who get screwed are the ones who lend money to AA -- the ones who continued to loan AA money even when they were $30B in debt and not making profits for the better part of a decade.  They loaned money to AA knowing there was a risk, a substantial risk, to their getting paid back.  And they charged an interest rate to AA accordingly.  And that's why companies in bad shape continue to remain in bad shape -- their interest rate just grows and grows and they're paying huge amounts of interest on the debt that they have that they can't get out of it.  That's the entire reason Chapter 11 exists.  It's basically a big giant reset button that stops the endless cycle of continuously-growing debt that a company can find itself in.

But even those people aren't likely to get completely screwed.  They'll get most, if not all, of their money back.  They're just not likely to get the interest on it that they were planning on because the Courts will rule that they need to restructure their debt and they'll get a lower interest rate on it.  Bondholders are usually the most screwed -- they have no material interest in the company (i.e. they don't own a leveraged asset like a bank lending AA money backed by a plane), they aren't part of AA's day-to-day cash operations, and they lent the money (usually very long-term) on the basis of making decent interest.  When that interest is slashed the bonds become money losers.

And it's very important to note that the Creditors have to AGREE that that is the plan they want.  Chapter 11 is not necessarily a "get out of jail free" card and the creditors just all get screwed and don't get a dime.   The company poses reorganization plans or even creditors propose plans and then the creditors all get to vote on the plan that they want.  Since it is a vote inevitably there may be some people that end up not getting much out of the deal since those who are owed the most money get the most say, but most creditors come out just fine in a bankruptcy provided the company actually turns things around and "comes out" of bankrupcty in good shape.  This is a FAR better alternative than not getting a dime.  In this manner, most creditors are actually HAPPY to see a company in trouble go into bankruptcy because it's far more likely to pay its bills.

[ICEcoldair881]

BOOM!

Wapp gone in hard. Don't think anyone can argue with that.

I can.

It's called REAL LIFE - the owner of a company can't be held liable for paying the bills of a company he works for, he is merely an employee who is employed by the company to help run it properly. Clearly he did not do his job well, granted, and the company is now suffering, but you cannot blame the owner of a company that hasn't paid the bills they owe you when it is up to you to choose wisely who or who not to sell your product to. Poor judgement on the part of your friend is not the fault of a chapter 11 bankruptcy filing, the courts, the company or any of the companies employees. If you don't sell to one person, usually that means one should find another buyer - and you can still make money. One lost sale is just one lost sale, pick another buyer and sell to them instead. Usually they pay the bills. The second you point a finger at someone else for something that failed, you're just blaming others for poor planning and judgement on your part.

Regardless, when did this topic turn into why chapter 11s are bad?

Cheers,
ICEcold

[RushmoreAir]

http://www.airliners.net/aviation-forums/general_aviation/read.main/5320934/

AA filed to reject 24 leases . . . 4 of which are Fokker 100s, which were retired in 2004 

What kind of bonehead agreed to a lease on these Fokkers that was so bad that it was cheaper to park them (and pay the lease) in the desert than use them or cancel the lease!!