Why Do International Airlines File For Chapter 11 Bankruptcy In The US?

Chapter 11 of the United States Bankruptcy Code which is often referred to simply Chapter 11, Bankruptcy Cost allows a company to refinance its debts. In the end, the business is provided with a fresh start after the submission of a restructuring plan that is negotiated between all major parties, which include the creditors and the debtor.

A salvation grace

The list goes on and on. From General Motors to K-Kmart, many of the most prominent brands within US the history of business have made an application to file for Chapter 11 bankruptcy, helping them maintain an important position in society in the present. So, it’s no surprise that airlines across the US have also decided to go through the same process to assist them with their finances in the wake of industry problems.

Chapter 11 doesn’t necessarily expire with a new renewal of its life. One prime example is the time when Pan American demanded Chapter 11 protection in early 1991. The company ceased operations in the year.

But, throughout the years the process has assisted other legacy carriers like American Airlines and United Airlines to maintain their leadership across the entire aviation industry. Recent years, Chapter 11 has helped such companies as Ravn Alaska recover and keep essential services running in the nation.

Global opportunities

The most compelling aspect can be seen in the reality that numerous international airlines have been in Chapter 11 bankruptcy proceedings despite having their headquarters on the United States. Three names that are notable when it comes to bankruptcy filings for international carriers in recent filed comprise Aeromexico, Avianca, and LATAM. These companies aren’t located in the US however, they are qualified and decided to go to Chapter 11 filings.

With multiple locations, LATAM has managed to exhibit promising signs of recovery after the prolonged difficulties in a few of its most important markets.

In the end, a foreign company has to have a minimum of ties with the US in order to enjoy the benefits of the nation’s bankruptcy code. In the real world it is possible that even if an airline company has a single property located in the US that property could be selected as the company’s primary location of business or the place where its principal assets are located.

Three Latin American carriers operating at airports in the US as well as having cash assets and properties within the US they can be suitable to apply for Chapter 11. Similar to other international airlines, they are also serving different countries on the continent. However, they decided to go to the US to go through restructuring. One of the main reasons is that the US code define estate property as encompassing assets anywhere in the world. Thus the US court is able to decide on the airline’s assets around the globe and can streamline the procedure.

Broader benefits

This can have an impact on the benefits that can be derived when dealing with the process. With this global presence it is possible for an international airline to effortlessly restructure itself without having to manage numerous of the complicated procedures within the markets they service.

A study carried out by the lawyer firm Davis Polk shares:

“Chapter 11 gives international airlines the ability to access capital markets as well as restructuring tools that aren’t available in other countries. A US bankruptcy proceeding offers International airlines access to the most advanced and comprehensive financing options as well as with an automated stay unique in its scope and a statutory framework that allows airlines to re-size their fleets and fulfill contractual obligations.”

It’s not just Chapter 11 that has seen international businesses benefit from the US legislation on bankruptcy. For instance, in the year 2020, Virgin Atlantic filed for Chapter 15 protection amid its private recapitalization plan.

It is known as a highly vulnerable market that is affected by a myriad of external influences like the price of oil and grounded aircraft. In light of the recent increase in flight restrictions in the wake of the pandemic Chapter 11 is a valuable method to provide a strong alternative to restructuring for airline companies.

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