January 23, 2006
Airlines
UAL Cleared to Exit Bankruptcy
A bankruptcy judge in Chicago Friday approved United Airlines' financial reorganization plan, effectively ending the longest and most expensive airline bankruptcy ever, the Chicago Tribune reported on Friday. Beginning in early February, UAL Corp. will be able to operate the world's second-largest carrier without court protection or oversight, U.S. Bankruptcy Judge Eugene Wedoff ruled late last week. It will be the first time in three years the Elk Grove Township, Ill.-based airline has flown solo. Sitting in the courtroom, CFO Jake Brace broke into a grin when Wedoff announced the plan's approval. While the emergence from bankruptcy is a victory for United, the approval also will signal the start of a new era: Competing without the advantages and protections of bankruptcy court. For more than 37 months, United was able to use the power of the courts to lower costs. The first real tests of whether United made enough changes to its operation will take place in the months ahead. It is emerging in a climate where fuel costs have more than doubled in three years and competition from discount carriers is more pervasive. In addition, two of the carrier's largest competitors also are in bankruptcy, trying to shave their costs to levels below United's. Click here for a timeline of United’s bankruptcy.
ATA Plans Expansion, As Bankruptcy Nears End
ATA Airlines is adding service to four cities and will increase flights to Hawaii, the Associated Press reported today. It's the first sign of the Indianapolis-based airline's business plan once it emerges from federal bankruptcy protection in the coming weeks. Today's announcement comes after months of gate closures and layoffs. Starting in April, ATA will begin flying from Houston's Hobby Airport to New York. The airline will also begin flying from Hilo, Hawaii, as well as Oakland and Ontario in California. ATA will increase its nonstop flights from Honolulu to the U.S. mainland and will add daily round trip flights from Houston to New York-LaGuardia. ATA and its parent company are expected to emerge from bankruptcy protection in late February.
Northwest Airlines' Bankruptcy Could Leave Duluth with $16M of Debt
When it opened in October 1996, Northwest Airlines' Duluth, Minn., maintenance base was heralded as a high point in the Northland's often-turbulent economy, the Duluth News Tribune reported Saturday. A three-way deal among Duluth, the state of Minnesota and Northwest Airlines promised to bring at least 350 well-paying jobs to the city and region. But today, with the airline in bankruptcy and its mechanics on strike, far more than jobs is at risk. In all, Duluth is saddled with $16 million in state bond debt related to the maintenance base's construction. Servicing this debt costs the city $1.45 million a year. Property taxes the city collects from Northwest cover about $575,000 of that annual bill. The remainder comes from franchise fees Minnesota Power pays Duluth each year, money that could go to other city expenses if the base were not there. Read more.
Liquid Returns to Airline Industry
It seems hard to believe that it was just a few years ago that airlines were struggling to find willing investors, an opinion piece on FlightInternational.com reported today. Following on from the recovery in lease rates and residual values seen in 2004, airlines and aircraft are back in favor with the banks, attracted by the popularity of the low-cost sector, healthy traffic growth and, perhaps above all else, a confidence that they will be able to place assets back in the market if anything goes wrong. Against this background, capital seems to be flowing freely. Finnair CFO Lasse Heinonen says, “There is a lot of liquidity in the market.” And, perhaps GECAS President Henry Hubschman sums up the fear of many, when he says, “there is a lot of liquidity in the air finance market, much of it chasing poor deals that may have implications down the road.” Even in North America, where over half the industry is in chapter 11 bankruptcy protection, airlines are still able to attract money. “The chapter 11 mentality of North American airlines is getting a lot of large banks that have traditionally been airline financiers for aircraft and working capital shifting to being debtor-in-possession [DIP] providers,” says Steve Udvar-Hazy, CEO of ILFC. “They might previously have provided capital for aircraft and/or working capital, but are finding it more profitable to lend to distressed carriers. Their loan is secured on the pledge of the remaining assets in the business, therefore the risk is low.” Read more.
Bankruptcy Judge Allows Era to Continue Flights
A cash collateral hearing in the U.S. Bankruptcy Court is allowing Era Aviation three weeks of operation on its reserves, the Alaska Journal of Commerce reported Saturday. The hearing came as a result of Era Aviation Inc. and its investor company, Era Aviation Investment Grou LLC, filing chapter 11 reorganization in U.S. Bankruptcy Court in Anchorage, Alaska, Dec. 28. Era Aviation was allowed by the bankruptcy court to use $1.1 million of its lender CapitalSource Finance's cash collateral. The court is allowing the airline to use the money for its operations until the end of January, according to court records. CapitalSource Finance's attorneys opposed the court action. Additional hearings are scheduled for Jan. 27 in the U.S. Bankruptcy Court in Anchorage. Read more.
Asbestos Victims Need Viable Solution
When the Senate takes up legislation dealing with how to compensate victims of lung diseases who were exposed to asbestos, lawmakers need to realize there is no perfect solution, but any solution is better than the current flood of litigation, an editorial in the Indianapolis Star said today. Help is being delayed or denied for tens of thousands of legitimate victims exposed to asbestos on the job or while serving in the military. About 80 companies have declared bankruptcy because of lawsuits against them. Other firms with only tangential ties to asbestos are being targeted. Lawyer fees have consumed at least half of the estimated $80 billion paid out in asbestos claims to date. Many of those claims have been made by people who haven't had a serious illness or who have lung ailments likely caused by smoking. Legislation addressing the problem needs to focus on compensating people with heavy exposure to asbestos, including Hoosiers who worked in manufacturing plants where asbestos was sprayed into products such as brake linings and refrigerators. Read more.
Ford Motor Co. will announce today a sweeping restructuring of its
unprofitable North American auto operations, a plan that will close at least
10 factories, including assembly plants in St. Louis and Atlanta, and trim
25,000 hourly jobs over the next four years, the Wall Street Journal reported Friday. The auto maker will eliminate at least 25 percent of its
annual car- and truck-making capacity, or more than one million vehicles
from its current operations, say two people familiar with the plan. The cuts
at Ford are another milestone in the continuing shift of jobs and market
power away from Detroit's two big unionized auto makers and toward
foreign-owned auto makers and their largely nonunion North American
factories. Both Moody's Investors Service and Standard & Poor's Corp.
recently downgraded Ford's credit rating two notches, despite having some
knowledge of the turnaround plan. Yet GM and Ford executives have said they
have ample cash and assets to weather the current troubles, and have no plans to seek bankruptcy-court protection. Read more.
Bankruptcy-risk Rating Helps Determine Whether Consumers Are a Go or a No
You probably already know about your credit score, but there's another influential scoring tool you should know about: It's called the bankruptcy-risk score, the Seattle Times reported Saturday. According to financial experts, this score is used secondarily to the credit score when financial institutions scrutinize a consumer's credit history. Kept tucked away from consumers for nearly 20 years, this number differs from the credit-risk score because it's a little more specific. It measures how likely a person is to file for bankruptcy. It is used by credit-reporting agencies, and geared specifically to lenders. Researchers say that the score typically surfaces when a consumer gives the bank permission to pull his credit report during the application process for a new loan, bank card or credit card, and during the periodic review of clients' accounts to determine whether to increase a consumer's credit limit. Credit-reporting agencies weren't the only ones dabbling in this approach. Researchers say a few credit-card companies in the late '90s developed a way to make the score a more powerful tool based on a combination of factors, including information about consumers' spending habits and types of charges. Read more.
A New Obstacle for Vioxx Case Attorneys: an Intermittent Trial Schedule
Lawyers trying the nation's next Vioxx suit, which begins tomorrow in Starr County, Texas, will need to find ways to work with a less-than-favorable trial schedule calling for four days in the courtroom a month, the Texas Lawyer reported today. Because 229th District Judge Alex Gabert also sits in Duval and Jim Hogg counties, he set a trial schedule for the Vioxx suit that works into his travel around his district in the Rio Grande Valley. That poses big challenges for lawyers on both sides, who will jockey to leave the jury with favorable evidence to think about during the extended breaks in the trial. "You want to go out with a bang every Friday," says W. Mark Lanier, whose client won a $253.5 million verdict in Angleton in August 2005 in Carol A. Ernst, et al. v. Merck & Co. Inc., the nation's first Vioxx trial. Joe Escobedo Jr., a lawyer for the plaintiffs in Felicia Garza, et al. v. Michael D. Evans, et al., says he was hoping for more than one week a month for the trial, but he says the disjointed schedule will affect logistics more than his trial strategy. Read more.
Credit Card Debt? Tell It to the Judge
Americans are drowning in plastic, maxed out, buying too much — and more and more, forced into court as a last resort, ABC News’s “Nightline” reported on Friday. Cameras aren't allowed inside Judge John Ninfo's bankruptcy courtroom in Rochester, N.Y., but he's more than willing to talk about what goes on there. "I'm not a sociologist and I'm not an academic," he said. "I'm just a bankruptcy judge from upstate New York who sees what I see around the system every day. But clearly, we live in this competitive, consumptive society where people are bombarded with advertising that tells them that they can have anything that they want, that they're entitled to. Around Rochester, Judge Ninfo is called Judge Gung-Ho, partly because he's an ex-Marine but mostly because he's passionate about the pitfalls of consumer debt. "One of the great things that the credit industry has done is convinced people that it's all about the monthly payment," Ninfo says. "And so they don't add their balances up." Read more.
Mass. Construction Co. Files for Bankruptcy
The Westminster, Mass., construction company Dauphinais Construction Inc. filed for bankruptcy last week in U.S. Bankruptcy Court in Worcester, Mass., the Sentinel and Enterprise reported on Friday. Worcester Superior Court Judge Lelia R. Kern ruled on Nov. 14 that Dauphinais Construction must pay TD Banknorth N.A.'s Fitchburg branch more than $709,000 for owed loans, accrued interest and legal fees. TD Banknorth filed a civil lawsuit against the business in July. The ruling also stated that Dauphinais Construction cannot interfere in TD Banknorth's attempts "to take possession of any secured property" owned by the company. The company's president, James W. Dauphinais, took out a $650,000 loan from TD Banknorth in December 2002, according to court records. Read more.
For N.J. Parts Maker, Chapter 11 Isn't Fatal
Harvard Industries Inc. is so tough that a sliver of the company has survived chapter 55—that's bankruptcy court humor for five chapter 11 reorganizations, the Automotive News reported yesteray. A former unit of the company last month emerged from chapter 11, the fifth bankruptcy reorganization linked to the Lebanon, N.J., auto parts maker in 34 years, and the fourth since 1991. Harvard's long survival underscores how failure on the corporate battlefield does not mean death. In a growing number of cases, federal bankruptcy courts are giving new life to auto parts makers that otherwise would go into liquidation. At least 10 original-equipment suppliers sought chapter 11 protection from creditors last year, including giants Delphi Corp., Collins & Aikman Corp. and Tower Automotive Inc. By contrast, just four filed in 2004, according to BankruptcyData.com. Read more.
Jeweler: Bankruptcy `Highly Likely' if Complex Financing Not Secured
Whitehall Jewellers Inc. said Friday that "it is highly likely" the company will be forced into filing for bankruptcy if a complex transaction with Prentice Capital Management LP and Holtzman Opportunity Fund LP isn't approved at a Jan. 25 meeting, Dow Jones Newswire reported Saturday. The Chicago-based company said that it needs immediate additional capital after warning that an imposition on reserves from its senior lenders will likely keep the company from meeting its current financial obligations in the near term. Whitehall also said it believes Newcastle is unwilling to close its tender offer and merger. Earlier this month, Newcastle boosted its offer for Whitehall to $1.50 a share and extended the termination date of the offer to Jan 27. Whitehall has said the increased offer isn't capable of closing because it lacked financing for the company's debt. On Friday, Whitehall said it now believes Newcastle is seeking only to gain control of its board.
Kentucky Orchestra May Face Bankruptcy
Managers of the 71-musician Louisville, Ky., Orchestra are warning that they might have to file for bankruptcy protection amid contract talks with musicians, the Associated Press reported Saturday. The two sides are $2.1 million apart on a contract that would begin Sept. 1, executive director Scott Provancher said Friday. He said a lack of a contract agreement would undermine a fundraising campaign that's aimed at raising $3.5 million. A spokesman for musicians said the orchestra board cut off contract talks this past week. "We thought some real progress was being made and we're quite stunned," said Tim Zavadil, a clarinetist who chairs the musicians' committee. Zavadil said musicians have made concessions for more than a decade to help sustain the orchestra. In the current negotiations, they have lowered salary and benefit requests by $1 million, he said. The orchestra's current season runs until early May. "It is likely that we will not get all the way to our end of the season," Provancher said.
Hip-hop Artist Hoping for Fresh Start after Bankruptcy
The Liberty City, Fla. hip-hop star Jacki-O, who burst onto the Miami scene two years ago with her sexually explicit Nookie and image to match, is officially broke, declaring debts totaling $144,225 and assets of just $1,340 in a chapter 7 bankruptcy filing, the Miami Herald reported Saturday. ''An artist would like to live a very fabulous lifestyle,'' the soft-spoken rapper, née Angela Kohn, said in an interview. ``But it takes money to look like money.'' The bankruptcy, which was filed late last year, has cleared Jacki-O's slate of debts, which ranged from Bally's Total Fitness to the IRS to Verizon Wireless. But more importantly, it has eliminated an obstacle that she says was preventing her from jumpstarting her stalled career -- her early recording and distribution contracts. Under the law, a bankruptcy can void personal services agreements, such as a recording contract, if terms of the deal inhibit the debtor's getting back on solid financial footing. Read more.
International
Stelco Exit Financing Plan Approved by Judge
Stelco Inc.'s C$1.13 billion restructuring plan allowing the Canadian steelmaker to exit bankruptcy protection was approved by a provincial judge in a ruling released Saturday, Bloomberg News reported. Ontario Superior Court Judge James Farley rebuffed a proposal from shareholders that he delay the Stelco plan for a month in order to seek bids for the company. The shareholders won't get anything when Stelco exits bankruptcy, probably in March. Stelco, based in Hamilton, Ontario, will get a C$600 million loan, a C$375 million line of credit and a C$150 million contribution from the Ontario government to let it exit bankruptcy, pay down a pension shortfall and improve plants to become more competitive. Appaloosa Management LP, a Chatham, N.J.-based fund, and Sunrise Partners Ltd., a Toronto-based fund, have agreed to buy new Stelco stock at C$5.50 a share, acquiring a 35 percent stake in the company. Tricap Management Ltd., a unit of Brookfield Asset Management, will get 34.5 percent for agreeing to provide the line of credit. Farley extended Stelco's bankruptcy protection to March 31. It was set to expire Feb. 28.
South African Municipality on Verge of Bankruptcy
The Mamusa municipality in the North West province of South Africe is in the red, SABC News reported yesterday. Late last year, it was bailed out to pay staff salaries and to keep other services afloat, but now it is teetering on the brink of bankruptcy. Winston Dichaba, the municipal manager, is alleged to have bought furniture without following proper tendering procedures. Last year, Oupa Sebolai, an administrator, was recruited to investigate the affairs of the municipality following the disbandment of the council. Sebolai says that he found that Dichaba does not know the policies, by-laws and legislation governing local government. The Sebolai report, on which Dichaba refused to comment, is to be tabled later this month. Norma Khasu, the Mamusa mayor, has admitted that she was not consulted by any member of the council in the purchasing of the furniture. Read more.
Scottish Entrepreneurs Failed by Bankruptcy Bill
The new Bankruptcy and Diligence Bill will not achieve Scottish ministers' stated aim of promoting a "try-again" culture for entrepreneurs, and instead may only intensify the consumer debt problem, the Scotland Herald reported today. That is the bleak verdict of The Institute of Chartered Accountants of Scotland (ICAS), expressed in correspondence with the Scottish Parliament committee examining the draft legislation. In a briefing to the enterprise and culture committee, ICAS also said that the bill's proposal to allow non-Scottish advisers to handle debtors north of the border "could open the floodgates in Scotland to unregulated debt consolidators.” The institute's principal bugbear is the bill's overemphasis on the proposed reduction of the bankruptcy period under sequestration from three years to one. "It is a crucial point to make that the overwhelming reason for personal insolvency and bankruptcy in Scotland has nothing to do with business failure and entrepreneurial risk," the briefing says. "It is all about consumer debt – credit cards, unpaid council tax or people who, due to individual misfortune, find themselves unable to pay for their personal responsibilities. ICAS has surveyed its insolvency practitioners in the last month and 90 percent of their 2005 caseload involved consumer debt, not trading businesses." The institute accepts that the reduction of sequestration to one year could, "in a minority of cases, encourage business restart". But it warns that the move could also "send a message to consumer debtors that it is OK to become bankrupt several times within their lifetime.” Read more.
Alitalia Protests Continue Amid Bankruptcy Warning
Alitalia expected cancellations or delays for as many as 250 flights today as workers continued wildcat protests, while the Italian labor minister warned that the government would not bail out the troubled airline, Ireland On-line reported today. Though unions called off a 24-hour strike for today, Alitalia workers picketed at Rome’s Leonardo da Vinci airport, gathering around fires in the early morning cold. Alitalia said in a statement that it was expecting the protests to trigger as many as 250 delays and cancellations. It said similar protests yesterday had forced the airline to scrap 121 flights. Workers are protesting against restructuring plans at the loss-making airline, which have included cutting jobs and spinning off the airline’s flight unit from its less profitable ground services business. Read more.