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Judge Holds Hearing in American Air Bankruptcy Case

The judge presiding over American Airline’s bankruptcy case held a hearing on Monday to consider the November 12 settlement between the U.S. Department of Justice, American Airlines, and its merger partner, US Airways. ( 기타...

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Usually in bankruptcy the creditors get pennies and the shareowners get bupkiss. This is an unusual case because the intention of the BK was to shed equipment leases on antique equipment and quash greedy union contracts.

In this case shareowners get pennies, 3.5%, but the creditors (read banks and big money people) get made whole with almost 70% of the merged company. Not bad because the merged company is valued at almost 18 billion, and the debt was only 5.6 billion.

They told Parker he'd be the chief, but he is in for a surprise. The money guys want a money guy in charge. So, for a day he will be in charge, get his picture in the inflight magazine, and appear on MSNBC. The next day the money guys, (Chase, Citi, Wells Fargo, Bank of America) will call a special meeting of shareowners and direct the board of directors to replace the CEO.

Horton Hears a Who and calls for a remodel of the CEO suite Parker decorated with cactus and cowboy stuff.

It does not matter what the Justice Department grabbed, this judge is looking at the bankruptcy. The merger and objections were heard in a different Court.
All future shareholders (creditors, previous shareholders) get the value of the combined entity to settle their debt or other interest.

They get fewer assets from those required to consummate the merger. But without the merger they don't get 2 airlines and all of the assets (minus the shed gates and slots) of both airlines.

So even with the DOJ settlement, the merger should be a net positive for future shareholders of the combined entity (including the creditors, which is what Judge Lane is looking at).

[Separately there may be reasons why the merger isn't ideal. But every other major airline already got hitched, so there aren't many merger options any more.]

If the future shareholders (creditors) don't want Parker, I don't see why they'd want US Airways. They'll get the assets (planes, gates, slots) and employees. So they be able to bulk up more quickly.

But my contention is that they'll be left with an awkward network, that's somewhat redundant. But the bugger concern is that the combined network will be mire costly to operate than AA's network alone.

Over time they would have to dismantle some hubs, to reduce cost as well as to provide better synergy and connections at the remaining hubs. I'd say all US hubs but CLT and DCA would have to be reduced, with the reduced traffic fed into AA's existing network. That costs money too. Some even think that CLT is in danger of downsizing because of little O&D traffic (but they do have a favorable coat structure). Any time the fees at
CLT go sky high, it will get PITed, and left with big, beautiful empty terminals and new runways.

So all you're left with is at DCA, they get to keep US's larger presence at the cost of getting rid of AA's slots. but that slim justification for a merger.

If not for the desire to bulk up quickly because of competirve pressure from Delta, United; I don't think AA would pick up US Airways at all. The new emerged AA (without US) with a lower cost structure would've been able to improve operations and profitability, and make good for the current creditors (even without the merger).
Looked at another way:

Someone who has (or is getting) LAX-DFW-ORD-JFK-MIA, Why would they want PHX-CLT-PHL-DCA?

But if they do want the combo, a few gates or slots here and there won't radically change their calculus.

So Lane won't rule that the lesser combined entity will be insufficient to meet the obligations to the creditors. What options would the creditors have but not support the merger? But then they don't get their super-sized new AA.
And then they resigned the lease of the MD80's...for a song.
canuck44 2
This judge needs to determine if the creditors are protected when American surrenders assets in response to the DOJ shakedown. These slots have monetary value as noted by the previous sale of slots and gates to JetBlue and WestJet at LGA and Reagan National. These prices will serve as a guideline to value the slot pairs and gates.
I don't see that being an issue in the least. The value of assets subtracts from the entire company's value. That cost is borne equality by all with future equity stakes in the company. But they'll all also benefit from the 'synergies' of the merger and all future earnings of the combined entity. In that respect it all evens out in the end.

There may be reasons why the match up isn't the best, but the pickings are slim when all the other major airlines already merged previously.

The value of the shed assets shouldn't matter much to the creditors. It's not a liquidation. The operational value of the combined entity should matter more to creditors.
Flight attendants aren't taking this kindly
chalet 1
I gave up a long time ago trying to understand how companies sinking under zillions of dollars in debts (Banks, lessors, airframe and engine makers, social security, IRS, the whole enchilada) one day shout stop to all of them planting a flag proclaming "This is Chapter 11 Country, don't come in, get the hell out, don't call us, we will call you" and six-ten months later they go to creditors to tell them here is your 10 cents on the dollar, be thankful, take it or leave it, and not only that the employees are surprised with substantial cuts from their previous contracts and the less fortunate ones are given pink slips, and the management gets pay rises and bonuses and expect averybody to sing along "everybody happy". I gave up.
Bankruptcy is no "everybody happy" experience. Note how American delayed their bankruptcy filing for years, despite other airlines going through bankruptcy, some more than once.

Creditors typically get cents on the dollar, but owners (shareholders) usually get little or nothing. The creditors often become the new 'owners'.

Bankruptcy is more often 'everybody loses'. Managers or workers who ran the company into the ground shouldn't complain about what they get or don't get. But if you bring in a new manager that cleans house, and wasn't part of creating the mess in the first place, don't complain that they get paid for their work. Now if they helped create the mess and they didn't get replaced; go ahead and jump up and down, cry bloody murder, and stand on your head (preferably at a shareholder meeting) demanding their ouster.


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