BA unhappy about Open Skies/Ch 11 not a subsidy
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Chapter 11 is not a state subsidy. It is a provision of US law that allows a company to attempt restructuring - with the permission of a court.
There is no free lunch here - creditors, shareholders, employees get screwed. But creditors and employees may get screwed less than if the company simply closed shop in Chapter 7.
Imagine what would happen to the airplane leasing market if UA, US, ATA, Hawaiian went out of business. Now you know why GE, ILFC, Airbus, Boeing and others finance a lot of Ch11 proceedings, it is in their interest to see these airlines continue as a going business
As Glenn Tilton of UA pointed out:
166 US airlines filed Ch 11 since 1978, and only three came out of Chapter 11 as viable businesses.
Of the 15 largest US carriers in 1980, only five survived today.
In contrast, 11 of the largest 15 airlines operating in Europe 25 years ago are still in business.
There is no free lunch here - creditors, shareholders, employees get screwed. But creditors and employees may get screwed less than if the company simply closed shop in Chapter 7.
Imagine what would happen to the airplane leasing market if UA, US, ATA, Hawaiian went out of business. Now you know why GE, ILFC, Airbus, Boeing and others finance a lot of Ch11 proceedings, it is in their interest to see these airlines continue as a going business
As Glenn Tilton of UA pointed out:
166 US airlines filed Ch 11 since 1978, and only three came out of Chapter 11 as viable businesses.
Of the 15 largest US carriers in 1980, only five survived today.
In contrast, 11 of the largest 15 airlines operating in Europe 25 years ago are still in business.
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Perhaps thats because they're better managed than the US airlines and don't follow the boom and bust cycle of overcapacity in the USA? Chapter 11 is a subsidy in everything but name. Sure lots of people would lose their livelihoods if Olympic, Alitalia or Air France went under but if their respective governments give them bridging loans, credit notes or free insurance cover it's called a subsidy. If you get the same in the US it's called Chapter 11. Hypocrisy?
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CM,
There is nothing in Ch 11 law that specifies "their respective governments give them bridging loans, credit notes or free insurance cover". I cannot see how you can call Chapt 11 a state subsidy if you actually knew anything about it!
2 issues that are unrelated to Ch 11, but brought up the likes of Eddington are:
- The ATSB that was setup post 9/11 to provide loan guarantees for airlines that suffered the airspace shutdown. Yes this was a subsidy, if you like, but remember that UA - the largest US carrier at the time, was denied.
- dumping pensions onto the PBGC. It is hardly a subsidy - but rather a govt setup for guaranteeing (not all, but some portion of pensions). How is this different or worse than UK Pensions?
Or should we call UK NHS a state subsidy because of the reduced costs of health insurance for employers in the UK?
There is nothing in Ch 11 law that specifies "their respective governments give them bridging loans, credit notes or free insurance cover". I cannot see how you can call Chapt 11 a state subsidy if you actually knew anything about it!
2 issues that are unrelated to Ch 11, but brought up the likes of Eddington are:
- The ATSB that was setup post 9/11 to provide loan guarantees for airlines that suffered the airspace shutdown. Yes this was a subsidy, if you like, but remember that UA - the largest US carrier at the time, was denied.
- dumping pensions onto the PBGC. It is hardly a subsidy - but rather a govt setup for guaranteeing (not all, but some portion of pensions). How is this different or worse than UK Pensions?
Or should we call UK NHS a state subsidy because of the reduced costs of health insurance for employers in the UK?
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I think you'll find in the UK that both the individual and the employee pay National Insurance to pay for the NHS, plus a healthy part of the 33% Corporation Tax and 40% personal income tax goes that way too!
Dumping pension onto the PBGC certainly is an indirect subsidy. It relieves US airlines of the burden of paying their pension dues. There is no equivalent over here, the airlines have to pay their pensions or extract the money from the employees like BA is trying to do.
Chapter 11 allows airlines to dodge their creditors whilst artificially boosting cashflow at the expense of non-Chapter 11 airlines. In the UK if you can't pay your creditors the board gets sacked, the administrators take over and more than likely the company goes under. In the US you just keep on running and drag the whole market down with you.
At least we finally have somebody who will concede that the ATSB loans were a subsidy. The payments were out of all proportion to the costs incurred by the three day shutdown and were a very thinly disguised attempt to bail out airlines which were in dire financial straits even before 9/11.
Dumping pension onto the PBGC certainly is an indirect subsidy. It relieves US airlines of the burden of paying their pension dues. There is no equivalent over here, the airlines have to pay their pensions or extract the money from the employees like BA is trying to do.
Chapter 11 allows airlines to dodge their creditors whilst artificially boosting cashflow at the expense of non-Chapter 11 airlines. In the UK if you can't pay your creditors the board gets sacked, the administrators take over and more than likely the company goes under. In the US you just keep on running and drag the whole market down with you.
At least we finally have somebody who will concede that the ATSB loans were a subsidy. The payments were out of all proportion to the costs incurred by the three day shutdown and were a very thinly disguised attempt to bail out airlines which were in dire financial straits even before 9/11.
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ATSB loans are a subsidy.
Ch 11 does not remove the management whom caused the problem in the first place.
Court orders protectively reduce rates for employees, loans, aircraft etc that the non Ch11 company cannot do - effectively doing the job of reducing cost base when economically that company would have gone bust to allow for the entrepreneurial churn in the market that is essential to a healthy capitalist system - UK administration does not allow for unilateral decrease in the finance charges for aircraft for example - the creditor can and will walk away if they are not able to collect enough cash, and the company will go under, for new economically viable companies to replace it.
UA was denied an extension the the ATSB loan, it was not denied the original request after 9/11.
There is similar over here following public pressure and recent legislation to protect members of DB schemes, which is why the Pensions Regulator in the UK will fine companies massively if they fail to cover the shortfalls on their DB pension schemes within 10 years. Effectively you are right - the government will not allow anyone to dump the pension on the government, but if they were to go bust before that shortfall were covered, the same could happen as did happen with UA and the PBGC. As BA is economically viable, the government will never allow the shortfall to be dumped onto them - BA has a choice between massive fines and extracting some concessions from staff.
Ch 11 does not remove the management whom caused the problem in the first place.
Court orders protectively reduce rates for employees, loans, aircraft etc that the non Ch11 company cannot do - effectively doing the job of reducing cost base when economically that company would have gone bust to allow for the entrepreneurial churn in the market that is essential to a healthy capitalist system - UK administration does not allow for unilateral decrease in the finance charges for aircraft for example - the creditor can and will walk away if they are not able to collect enough cash, and the company will go under, for new economically viable companies to replace it.
UA was denied an extension the the ATSB loan, it was not denied the original request after 9/11.
Dumping pension onto the PBGC certainly is an indirect subsidy. It relieves US airlines of the burden of paying their pension dues. There is no equivalent over here, the airlines have to pay their pensions or extract the money from the employees like BA is trying to do
