When an airline files Chapter 11, is court permission necessary for its frequent flyer program to continue?

Wondering whether United has requested a judge to allow Mileage Plus to continue. And what if the court says no? Curious about this after reading most recent SEC filings (March 21) in the Hawaiian Airlines Chapter 11 case. One of the documents says Hawaiian:

[This message has been edited by jmartin (edited 03-25-2003).]

If I remember correctly, UA got the same approval by the court almost immediately after filing Chapter 11. I remember getting an email worded something like "The Mileage Plus program remains in full effect, as confirmed by the bankruptcy court."

Thanks for the info on Mileage Plus and how it got approved by the court. I guess if/when AA goes Chapter 11, I'll see what happens with its request to keep AAdvantage going and how the court responds (my wife has lots of AA miles). Thanks again.

A bankruptcy judge is interested in adjudicating a successful proceeding. To terminate a FF program would be equivalent to tearing out a vital organ of a major airline.

The outstanding miles probably are unsecured claims in BR, just like anyone else who is owed money by a bankrupt entity. In an 11, a plan of reorg is proposed and eventually approved. The plan MUST pay each creditor at least as much as they would have gotten in a 7--liquidation; however, that is peanuts. So first the plan must treat the FF'ers at least as good as in a liquidation. Next the plan must be approved by the creditors and judge. Plans typically pay some creditors better than others--employees, small claimants, critical vendors, etc. It would not be shocking for the plan to treat FF'ers at 100%, but yes creditor and BR judge approval is required.

Its a completely different case in a liquidation. There, its a zero sum game and a dime extra to one creditor means it came out of another creditor's pocket. In a liquidation, the company does not continue so no one has an incentive for forego payment today in the hopes of getting more in the future. FF'ers will likely get nothing unless another airline views the obligation to honor the miles as an "asset" and decides to honor them. I guess that has happened before but I am skeptical that it will happen in this environment. It would be much cheaper for an airline to just comp status.

Just to clarify: I'm talking about how the FF program is dealt with eventually. I don't think BR approval is needed the day of a BR filing to continue to honor those obligations.

[This message has been edited by LemonThrower (edited 03-26-2003).]

Just to clarify: I'm talking about how the FF program is dealt with eventually. I don't think BR approval is needed the day of a BR filing to continue to honor those obligations.

[This message has been edited by LemonThrower (edited 03-26-2003).][/B][/QUOTE]

They need approval. In chapter 11, they need approval just to wipe their butts from day one.

UA still had to present that continuing customer programs such as MP was not a burden but essential to continuing operation of the carrier. Nothing is automatic in a BK filing.


Go to http://www.pd-ual.com/

Customer program orders:
In http://www.pd-ual.com/UALRestruct_BO.html
Direct: http://www.pd-ual.com/Downloads/UAL%...20Programs.pdf


Affidavit of Chris Bowers to continue program on first day motions:

In: http://www.pd-ual.com/UALRestruct_FDM.html
Direct: http://www.pd-ual.com/Downloads/Affi....%20Bowers.pdf

[This message has been edited by NickP 1K (edited 03-26-2003).]

THANK YOU for posting that! Very interesting reading.

Seems like one sentence in Chris Bowers' affidavit is key: "Revenue generated by customer programs exceeds the operational and administrative cost to implement and maintain them."

I also found it interesting that he said United "simply can not compete successfully against other major airlines unless they are able to maintain the integrity of Mileage Plus."

Assuming that other airlines agree with above statement, that says to me that customer programs like AAdvantage and Sky Miles will be around for a long time, no?

Thanks again for posting the links.