Professor Elam

Amierican Airlines avoided Bankruptcy in 2003.  Now we can compare them with other airlines that took the BK route.  Regrettably all the graphs in the printed article are not in this hyperlink, another reason why print still has advantages. I have the actual article and you should examine it for more tips on how to make a presentation.

Here is how a Capter 11 bankruptcy SHOULD work.  Typically the business cannot make its debt payments and the stock value has fallen to little or nothing.  Courts now require the company to file a re organization plan within six month.  Some firms like Delphi enter BK with the plan already drawn up.  The managers get to affirm or reject any contracts within thrity days.  This allows them to re start negotiations on everything. Hence the threat of BK is used to wring concessions before a BK. Labor unions have made such concessions to UAL, Delta, NW, and US Air.  Similarly lower prices may be negotiated on the airplane leases, the leasor is facing the prospect of do or die, either make a deal or see the airplane parked.  And typically this is the chance to shed layers of bureaucracy that have grown over time.  The idea is to emerge slimmed down with a payment schedule that can be met.

Now historically BK had a negative connotation.  The employees that remain feel dumped on and duped. The stockholders get nothing. But these days it is looked on as more of a strategy.  Few to no maangers lose their jobs, take a look at the Texaco BK during their fight over Getty Oil with Pennzoil, no one lost a job.  So is it a negative or just another strategy like sending jobs to India?

Al of this is another managerial accounting issue.  Should one take bankruptcy as a strategy or only as a last resort, I report you decide.