British Airways slams U.S. bankruptcy laws

[FirstOfficer]

"Sir Rod Eddington on Thursday used his last public speech as British Airways chief executive to berate the U.S. for its use of "protectionism" to prop up failing domestic airlines."

"America, the land of the free, is turning itself into the land of the free ride," he said.

Full text:

BA Slams US bankruptcy laws (http://www.msnbc.msn.com/id/9439238/)

[apaddyinuk]

Well you must admit....he is pretty spot on!!!!

[6000PIC]

Do you really think the American Airline Industry is listening to a " lame duck " CEO from BA ?

[FirstOfficer]

Maybe they should learn one or two things from BA's CEO...

How not to bankrupt an airline... or how to make a profit...

:hmm:

[Knackered Nigel]

"Lame Duck" in what way exactly. He has seen BA through Sept 11, SARS and managed to keep us in profit, whilst most other airlines have either gone bust, chapter 11 or made severe losses.

What is morale like at the American carriers at the moment? Must be tough. Seen quite a few new paint schemes though!:D

[6000PIC]

... My point being , that he`s out of the game , now it`s Willies to mess up. Unless and until Sir Rod becomes head of ICAO or IATA , ( read , not gonna happen ) post BA , nothing will be accomplished on this issue , nothing. Do you think the USA is listening , well perhaps maybe , but effect change on Chapt 11 to suit the rest of the world ? ha ha

[Avius]

The Airline Industry is one of the few things, where the USA should learn from the rest of the western world. As a passenger, I passionately dislike to fly on any of the US Airlines, maybe with the exception of Jetblue. The service is virtually non existent, and the domestic business class travel is a total joke.

The irrational dumping of Ticket prices led to airline travel, being a commodity. Anyone in business knows, that commoditization means more volume with much less profitability. In this case, more volume means more queues and (sometimes rather unbearable) hassles at the airports.

The traditional high yield business passengers rather use private jets - fractionals, such as Netjets, etc. to move around - leaving the rest of the seats to low yield bargain seekers.

As the result the management has a volume driven objectives rather than Service driven. That's where the vicious cirle closes. More Volume, less business pax, less yield...the flight crews work more for less...and at the end, may even lose their jobs.

My guess is, that things will get much worse, before they get better. At least one or two of the majors has to close down for good, so to take some significant capacity out of the system.

Once the pricing power of the remaining airlines is restored, it should become better. It is true that then flying may not be accessible to everybody, but not everyone should be allowed to travel on Airplanes (IMHO).

Sometimes, less is more.

[RT_060590]

Well maybe if the U.S. were to listen to the outside it would learn a thing or two..... possibly how to run airlines:ok:

[apaddyinuk]

Well LAME DUCK Sir Rod did make BA the worlds most profitable airline last year if I remember correctly!!!!

[6000PIC]

Profit or not , I just happen to think it`s a little late in Sir Rod`s tenure to be making comments that he has no intention to elaborate or follow up on . Perhaps it was done to merely stir the pot , well maybe we both have something in common there...

[ELAC]

Maybe they should learn one or two things from BA's CEO...

How not to bankrupt an airline... or how to make a profit...


Ummm ... remember Ansett?

[goshdarnit]

He doesn't need to elaborate, enough said.
As for following up, it is for the folks that the comments were made against to respond (which there will undoubtedly be a deafening silence).

[innuendo]

I don't think there is a monoply on trying to restructure entities that are a significant part of your industrial and economic base.
In the U.S., Lockheed and Chrysler come to mind, and of course lest we forget,

Rolls Royce,
"Early problems with the RB211 forced the company into bankruptcy - and ultimately, state ownership"

Surely Rolls Royce was worth restructuring.

[chornedsnorkack]

Yes, British government bailed out Rolls-Royce.

But when a government outside US bails out a business in trouble, the money comes from taxpayers - the government and legislature, being entitled to find best application to taxpayer money, decide to put it there.

Whereas, in a Chapter 11 bankruptcy, the money comes from creditors - the government lets the business continue and forces the creditors to do without money owed to them.

So, where are the creditors of Delta and NW?

[SR71]

Its kind of de-regulation without the de-regulation. Alfred Kahn must be "turning in his grave".

As I understand, one of the catalysts for the 1978 De-Regulation Act was that the US Government didn't relish the prospect of bailing out the airlines like they did Penn Central in what was, at the time, the worlds largest corporate bankruptcy.

Chapter 11?

It ought to be Chapter 7. Thats obvious.

Its time to reduce ASK's towards RPK's.

The way the legacy carriers go on I can't figure out why anyone would want to be one of their creditors anyway.

[nickmanl]

One of the American carries needs to go. If they don't make money why support them? Thatcher said to BA in the 80's, sink or swim but your not going to be bailed out anymore.

Someone needs to say the same to the US carriers. There is too much over capacity in the US constantly driving air fares down meaning the situation is going to grow worse.

Once a big airline goes, the capacity will be reduced meaning air fares increase and perhaps the airlines can start to make money again.

It will be interesting to see how what Eddington would say if BA's partner airline AA filed for chapter 11. I reckon AA mighr be considering it with NWA, Delta and United all in chapter 11 ignoring their creditors.

[PAXboy]

it`s a little late in Sir Rod`s tenure to be making comments that he has no intention to elaborate or follow up on. The whole point is that it CANNOT be said by any current CEO of an international airline. It can only be said upon retirement. That is because the Americans would exert very nasty pressure against the airline who's CEO was so impolite as to point out that USA airlines have 'no clothes'.

It was not too late, it was the only time it could be said, as it saves Mr Walsh having to say it. No it will make no difference but it is another brick in the wall.

[TheOddOne]

The way the legacy carriers go on I can't figure out why anyone would want to be one of their creditors anyway.

We don't have any choice. We're not allowed to turn anyone away who can obtain a runway slot and a handling agent.

The Odd One

[innuendo]

PAX, I seem to remember Robert Crandall, when he was CEO of American, saying that in his opinion freedom to compete should also mean freedom to fail. This was in a speech where he was critical of corporations being able to avoid shutdown via Chap 11.
Guess it depends to some extent if it your Ox that is being gored.

[SR71]

The Odd One,

I doubt its a unique occurence but I believe MAN airport authorities once impounded a RyanAir a/c for non-payment of fees.

Whilst you may be subsidizing their operation, from a capital investment point of view, who are the big creditors?

As I understand, we know that there is a reluctance from the commercial banking sector these days to fund asset acquisition because the operating economics of large commercial aircraft and the initial outlay they require makes designing a financial instrument that meets everyones objectives difficult.

Whereupon, who is daft enough to want to get involved? The Sage of Omaha doesn't which is good enough for me.

:confused:

[GlueBall]

chornedsnorkack ...there is a little known taxpayer liability: It's when bankrupt (Chapter 11) carriers are relieved of pension payments. The taxpayer supported Pension Benefit Guarantee Association partially subsidizes failed pension plans...

[Glassos]

For any BA official to make a criticism about US protectionism is hypocrisy of the highest order. BA has been fighting giving access to Heathrow for US carriers for years. Can't BA compete against US carriers without protection from the British government?

[Carnage Matey!]

And what will the US carriers offer in return for access to LHR? Absolutely nothing, thats what. You'll get more access when you allow BA more access to the USA market by removing your archaic foreign ownership regulations. In the meantime you'll just have to suffice with your two biggest airlines having access to LHR., one of which is bankrupt and shouldn't be in existence. With all that Chapter 11 money sloshing around in the US i think Bermuda II is a damn good idea right now.

[PAXboy]

To elaborate slightly:BA has been fighting giving access to Heathrow for US carriers for years. US carriers can take pax from LHR and then connect them onwards to any of a thousand airfields in the USA. British carriers can only fly them to their normal staging point. Then they must offload them on to local carriers. US carriers can offer pax a multi-sector 'rover' ticket around their country, which UK carriers cannot.

As the UK is not quite as large as the USA, there is lot more business for the US carriers. I sit to be corrected.

[Oshkosh George]

Glassos

BA may be against allowing US carriers LHR access,but they have absolutely nothing to do with the decision making.

When the UK and US resolve their joint access agreements,I guess BA will be made to give up/sell some of their slots,as there aren't any slots vacant.

[West Coast]

"BA may be against allowing US carriers LHR access,but they have absolutely nothing to do with the decision making"

I think that under estimates the power BA wields. Sme can be said here of the cat fight between AA and WN over luv field restrictions.

[chornedsnorkack]

Ah, that.

Does it mean that US pension system subsidizes any business that fails and also provides a free loan to any startup business? That is, a business has to pay the entire pensions until it is bankrupt - at which point the taxpayers pay the pensions of the bankrupt businesses but the good businesses still owe the pensions of their retirees - and also, a startup business can not worry about paying pensions until their workers start retiring?

[circseam]

Agree with comments over over capicity but how can a legacy carrier fail when the majority of major creditors are the aircraft manufacturers or major suppliers finance arm.

GE Capital has supported most of the majors, Boeing Capital has too, of course its in their intrests to do so but at what cost to the airline industry both to those operators that compete with the legacy carriers but do so not on level terms.

[nickmanl]

And I quote...

"For any BA official to make a criticism about US protectionism is hypocrisy of the highest order. BA has been fighting giving access to Heathrow for US carriers for years. Can't BA compete against US carriers without protection from the British government?"


Is it me, or didn't the US government also sign up to the Bermuda agreement as well as the British government?

Blame your own guys....

[Lou Scannon]

S'funny that Rod forgot BA's own history when their debts of (I think two billion) were written off and they were given free Concordes with subsidies for the operation.

Without the tacit support of HM Government they would have failed several times over in the 70's and 80's.

Various managers turned what was known as Britain's flying National Debt into a viable concern. But what a leg up they received compared with say, Virgin.

[unmanned transport]

1, Bankruptcy in the US operates as a safe harbor that allows a financially strapped business to get temporary protection from their creditors while they reorganize, on the basis of the idea that more value for creditors, stockholders and employees can come out of a going business that's been reorganized than from one that's forced into dissolution. Sometimes it works, sometimes it doesnt.......like in TWA's case.

2. Bankruptcy is available to foreign carriers-it's as simple as filing incorporation papers in any state in the US....I will do that for you for $100 plus the filing fee. Quite a number of foreign companies have US based subsidiaries....so if you didn't move to take advantage of that and you needed it, whose fault is that?
Why, it's your corporate lawyers, that's who.

3. Eddington is way off base.
He makes an argument that is self interested and uninformed. The gist of his argument seems to be twofold:
First that Chapter 11 keeps airlines in business that would otherwise be liquidated. That's wrong, but in the event that DL, UA, NW and whoever ARE unable to continue, they WILL be liquidated like TWA was.
Second, he argues that US airlines have "soaked up 15-20 billion in public subsidies and loan guarantees and they still can't make a profit." No basis is given for these assertions.

4. He argues that chapter 11 is used as a form of state aid that keeps unprofitable airlines around, bloating capacity and depressing prices on North Atlantic routes....which is, I suppose, what really gripes him. He wants to jack up fares but can't see his way through to doing it as long as zees devilish Americains are screwing everything up for him and his pals.

5. As a practical matter nothing Eddington says is going to change law and legislation here in the States. We've had bankruptcy law for a long time, and it works well in terms of returning the most value to creditors, employees and shareholders by salvaging a company that's having cash flow problems...dissolution of businesses that can be salvaged is not good public policy here or anywwhere else in the world.

And, in fact, speaking in the long term, anything that returns more value to the stakeholders than they'd get in a dissolution is good policy. You can always dissolve a company if it can't survive. You should try it.

Eddington needs to remember that the USA is the land of opportunity and fresh starts. Unlike Britain, the USA never had debtor prisons.

LHR is one of THE most protected markets in the world and BA is the prime beneficiary. Open up LHR to all airlines with slots awarded in an auction and let's have fair competition....pigs will fly first.

So, you gotta ask why he's making with the big show?

And let\'s not forget BA are deep in a financial rut themselves, owing several billion pounds even though they brag about some profit.

[nickmanl]

At least they have profit to brag about unlike some major American carriers......whose debts are increasing? Cough, cough, Delta.

[Globaliser]

unmanned transport: And let's not forget BA are deep in a financial rut themselves, owing several billion pounds even though they brag about some profit.And with one sentence you have shot your credibility away.

Just what is BA's debt history over the last 5 years?

[unmanned transport]

How much is the employee pension plan owed?
I'd be concerned about that if I were an employee.

[Re-Heat]

Second, he argues that US airlines have "soaked up 15-20 billion in public subsidies and loan guarantees and they still can't make a profit." No basis is given for these assertions.
I suppose that loans given in the wake of 9/11 failed to show on your radar, while BA made do with nothing at the time. State support for insurance not covered by the private sector - as occurred in the UK as well.

I suppose you also failed to notice - unmanned transport - that many profitable companies in your country too are peeved with C11 rules, to the extent that the rules are changing this year. So much so that the recent entries to C11 prove that the current system props up carriers needlessly, since Northwest and Delta so shamelessly sought such protection prior to the rule changes to ensure that they will be subject to the more leniant rules of the current C11.

C11 is a shameless protection for management whos time has come, yet it allows them to continue operating while under administration in any other country the creditors themselves would seize the company and operate it under an administrator if it were worth doing so.

Such a scam that allows the 'failed' management not to lose their jobs, and to continue bleeding money from creditors and eliminate (effectively) the prior shareholders is nothing short of anti-competitive rubbish that will not last in a free market.

If you want to preach free market, then accept what it does to you.


Dissolution of a business that can be salvaged does not happen elsewhere - the administrator takes care of that. What happens under C11 is life support for a business that often cannot be salvaged. Under normal circumstances United would die. How can you not see the pain that it is causing the market by keeping it alive.

You might cry for the jobs, painful as it is to lose one - but maintenance of United for example in this limbo is more painful for the whole job market and indeed the whole aviation market.


How can operating with greater than half of capacity under BANKRUPTCY PROTECTION be good for the largest 'free market' in the world?

The global economy is at it smost buoyant at the moment and - aside from the high fuel prices - the airlines still cannot make a profit. What sort of market do you want if you don't let the failed actually die.