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  • What Is The Meaning Of "Chapter 11"?

    What's 'Chapter 11?'

  • #2
    Im not sure what other cuts 'scheduled' airlines in the US could do barring removing the dam seats on the planes for standing room only lol

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    • #3
      Originally posted by Jet2.com
      What's 'Chapter 11?'
      It is reorganization of debt. The airline still operates under this.

      Chapter 7 is when the airline stops flying (liquidation).

      I'm surprised this thread is still here ater 5 years.

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      • #4
        Originally posted by CcrlR
        I'm surprised this thread is still here ater 5 years.
        Well, that's what you get when somebody bumps a thread that has been dead for 5 years :rolleyes: .

        Anyway, split this part of the thread from rotten thread corpse it was attached to .
        Last edited by DAL767-400ER; 2007-12-11, 18:56.

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        • #5
          Originally posted by DAL767-400ER
          Well, that's what you get when somebody bumps a thread that has been dead for 5 years :rolleyes: .

          Anyway, split this part of the thread from rotten thread corpse it was attached to .

          Thanks a lot, I wish that there was some way to close threads from old news stories.

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          • #6
            Chapter 11 is an American term. In Canada it is "CCAA - Companies Creditors Arrangement Act"

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            • #7
              Originally posted by ptbodale
              Chapter 11 is an American term. In Canada it is "CCAA - Companies Creditors Arrangement Act"
              And everywhere else in the civilised world it's regarded as a farcical mechanism for perpetually propping up unprofitable organisations which do not have viable business models.

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              • #8
                Ummm... maybe more than a couple of lines is warranted on such a big subject.

                "Chapter 11" refers to that section/chapter of the (US) Bankruptcy Code. A company which is unable to meet its debt obligations can file for bankruptcy protection under chapter 11. It can also file for bankruptcy proceedings under chapter 7, in which case the company is liquidated (sold off) and becomes a part of history. Chapter 7 filings are much more common than chapter 11 filings.

                The basic idea of Chapter 11 proceedings is that some companies have an underlying profitable foundation even though the company has lost money late and are doing so now. For example, a company which ordinarily would be profitable might have become unprofitable because of excessive debts due to megalomaniac executives, poor management or wildly expansive business plans. Assume Airline U makes $100 million per year without any debts. Now assume the pilots association manages to drive up salaries (costing an additional $100 million per year) and additionally, the management secures some big loans to buy planes to expand into Asian and Latin American markets (cost of loans per year is, say, $300 million). To make matters worse, assume the increased competition drives down ticket prices so that incomes drop by $200 million. The company, which used to make $100 million has now lost $200 million in revenues and also incurred $100 million in increased payroll costs and $300 in loan payments. So now the company is losing $500 million per year. Add another 3 years and add interest to that figure and you're well over $2 billion in losses. Sounds familiar, right?

                Anyway, back to chapter 11 itself. By ridding the company of the debt and renegotiating the contracts things look better. That and some plan to make the rest of the company more efficient and they're making money again. Which is better for the creditors, the employers and also society. So is the logic at least.

                At the core of chapter 11 bankruptcy protection is the restruction or reorganization plan which has to be accepted by a judge in order for a company to even be eligible to enter chapter 11 protection. The creditors have a say in the plan and, at least in theory, must agree to it. Under Chapter 11 bankruptcy proceedings labour, supply and operating (real estate) contracts can all be cancelled. The cancellation of labour contracts (including pension plans) is probably what Chapter 11 is most (in)famous for.

                I hope this makes sense and clarifies things a bit. Quite a few people I talk to seem to have the idea that Chapter 11 is kind of like "pleading the fifth," then refusing to pay anybody that you owe money, walk all over the employers and then start making lots of money. Its a lot more involved than that and there are many rules and criteria which must be met.

                -Sturla

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                • #9
                  Originally posted by tsv
                  And everywhere else in the civilised world it's regarded as a farcical mechanism for perpetually propping up unprofitable organisations which do not have viable business models.
                  The way I understand it, its designed to aid against government owned companies in other countries that can prop up those businesses as much as possible.

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                  • #10
                    Originally posted by tsv
                    And everywhere else in the civilised world it's regarded as a farcical mechanism for perpetually propping up unprofitable organisations which do not have viable business models.
                    And as an employee of a company that went through CCAA and was able to keep his job and his family fed I thank you for your positive outlook. I may not be really happy about the decisions made before and after bankruptcy, however there are times when drastic action is needed.

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                    • #11
                      Originally posted by ptbodale
                      And as an employee of a company that went through CCAA and was able to keep his job and his family fed I thank you for your positive outlook. I may not be really happy about the decisions made before and after bankruptcy, however there are times when drastic action is needed.

                      Well it is a controversial subject and I'm sure there are times when individuals benefit from these arrangements, or at least appear to. So I'm pleased it benefited you & your family.

                      But I stand by my comments. Businesses which can't do the job they are designed to do (make profits) are in my view best left to meet their natural fate.

                      This opens up opportunities for new (& hopefully more efficient) organisations to emerge which ultimately leads to a stronger economy, more jobs and better salaries for all concerned. If your company had been liquidated you may well have got a better job with a rival company. It happened here in Australia with Ansett and many people ultimately got jobs with stronger companies, eg Virgin Blue & Qantas.

                      I don't subscribe to the theory that sitting down and convincing a judge you can turn a multi-million dollar disaster into a profitable company is a solid basis for launching (or relaunching) a business.

                      The process is flawed because it involves excusing debts to creditors (don't forget these people have employees and families to) and there is no guarantee the business won't go under again. To the contrary I'd suggest that while ever the company is owned by the same shareholders, and has essentially the same management and staff, the risk of them going broke again would be very high.

                      Perhaps someone has some figures on what % of companies who have emerged from Chapter 11/CCAA have remained liquid for the next decade?

                      Originally posted by Bok69
                      The way I understand it, its designed to aid against government owned companies in other countries that can prop up those businesses as much as possible.
                      Well I actually have more sympathy for Government companies or those who benefit from government subsidies than poorly managed businesses that can't pay their bills. Why?

                      Governments are responsible for spending the funds they collect. And if they choose to support local industries with it (eg Airbus), why not? They may manage to establish a valuable industry which will benefit the country for decades into the future. Nobody has done anything wrong in this scenario.

                      Companies going broke on the other hand smacks of incompetence at best and negligent management at worst. Do they really deserve another chance?

                      In relation to the airline industry I don't think foreign governments supporting their companies have been the primary reason so many US airlines have needed Chapter 11. IMO more important factors have been lack of consolidation, excessive salaries & refusal to adapt to changing business conditions. i.e, Partying too much during the feast and not preparing for the famine.

                      Comment


                      • #12
                        Originally posted by tsv
                        But I stand by my comments. Businesses which can't do the job they are designed to do (make profits) are in my view best left to meet their natural fate.

                        This opens up opportunities for new (& hopefully more efficient) organisations to emerge which ultimately leads to a stronger economy, more jobs and better salaries for all concerned. If your company had been liquidated you may well have got a better job with a rival company. It happened here in Australia with Ansett and many people ultimately got jobs with stronger companies, eg Virgin Blue & Qantas.
                        This is a university view. That is, in academic settings it is common to talk in terms of ideal scenarios whereas the grey area is often overlooked or looked at with disdain.

                        Originally posted by tsv
                        I don't subscribe to the theory that sitting down and convincing a judge you can turn a multi-million dollar disaster into a profitable company is a solid basis for launching (or relaunching) a business.

                        The process is flawed because it involves excusing debts to creditors (don't forget these people have employees and families to) and there is no guarantee the business won't go under again. To the contrary I'd suggest that while ever the company is owned by the same shareholders, and has essentially the same management and staff, the risk of them going broke again would be very high.

                        Perhaps someone has some figures on what % of companies who have emerged from Chapter 11/CCAA have remained liquid for the next decade?
                        In my mind it would be more natural to get the statistics and then make an informed decision based on theory and practice. Whereas I used to agree with you about the theoretical underpinnings against chapter 11, I've seen it work too many times in the real world. That doesn't mean that some companies have outlived their usefulness yet are still given chapter 11 protection instead of chapter 7.

                        However, there are two concrete points you raise above which I object to. First of all, to claim that "the process is flawed because it involves excusing debts to creditors (don't forget these people have employees and families to) and there is no guarantee the business won't go under again" is misunderstood. Creditors have a say in chapter 11 proceedings and they have to agree with the restructuring plan. The alternative is liquidation (i.e. chapter 7) and that means creditors getting less money in the long run. Second, to say that "to the contrary I'd suggest that while ever the company is owned by the same shareholders, and has essentially the same management and staff, the risk of them going broke again would be very high." I can only ask that you prove that statement. As you point out you don't have the statistics. Furthermore, the management of companies going to chapter 11 are often disposed of, some are even charged as part of the process. Worldcom (now MCI) is a good example of this.

                        The numbers are indeed available at http://lopucki.law.ucla.edu/bankruptcy_research.asp (select K on step 3 to see how many refiles within 5 years). Of 683 chapter 11 filings, in 232 the company didn't emerge from chapter 11 (Some of these companies are still restructuring but this also means quite a few have gone to chapter 7. That means that management wanted to restructure but creditors or the judge didn't accept the viability of the plan). 71 have emerged only to refile (in part or completely) within 5 years. 366 have not refiled (but some have emerged less than 5 years ago. Looking very quickly at the data it seems that, very generally speaking, for every 10 companies that enter chapter 11: 3 never emerge, 2 emerges but have to refile and 5 companies do fine.


                        Originally posted by tsv
                        Well I actually have more sympathy for Government companies or those who benefit from government subsidies than poorly managed businesses that can't pay their bills. Why?
                        I fail to see how this is different from you comment that "businesses which can't do the job they are designed to do (make profits) are in my view best left to meet their natural fate."

                        Originally posted by tsv
                        In relation to the airline industry I don't think foreign governments supporting their companies have been the primary reason so many US airlines have needed Chapter 11. IMO more important factors have been lack of consolidation, excessive salaries & refusal to adapt to changing business conditions. i.e, Partying too much during the feast and not preparing for the famine.
                        It's impossible not to agree with your excessive salaries point, especially certain pilots unions have a history not to be proud of. But when it comes to "lack of consolidation" I find this an odd argument ... how many airlines do you think there should be in the US? 2?

                        -Sturla

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                        • #13
                          to put it in easy terms

                          it means the airline needs help to survive. i've always heard this

                          "chapter 11 bankruptcy protection."

                          this can easly happen when the parent comapny of an airline colapses and the airline becomes independant. mean all alone. no supporters. no mother company.
                          I'm the guy... Porter Guy

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