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What happens when airlines declare bankruptcy?

What happens when airlines declare bankruptcy?

Old Mar 19, 20, 8:44 am
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What happens when airlines declare bankruptcy?

Iím assuming that all the US airlines will enter bankruptcy at some point. Most will continue to operate, a few might go out of business altogether. But assuming that most survive and claw their way back to viability... (letís hope this happens) ... would it be normal for all frequent flyer miles to be wiped out? I canít remember from past bankruptcies whether that happened or has there even been any major airline bankruptcies since the advent of FF programs... just donít remember.
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Old Mar 19, 20, 8:54 am
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The "normal" outcome from the numerous past bankruptices is either for the business to continue roughly uninterrupted from a pax perspective, or for the airline to get acquired, in which case your FF balances are usually subsumed into the new FFP. I think a liquidation where your miles become worthless is rather unlikely, but in times like this I don't want to state any absolutes.
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Old Mar 19, 20, 8:55 am
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First, highly unlikely that the government permits any major carrier to enter any form of bankruptcy. $50 Billion in bailout + loans ought to go a long way for a long time.

Second, in the unlikely event of a BR, what happens to FFP accumulated benefits and to the FFP going forward is a matter for the BR court. In theory, "miles" could simply be zeroed out and program closed. But, the practical answer is that brand loyalty is what gets a carrier back on its feet and the FFP includes those. Thus, the likelihood of the program going away is close to zero. Could it happen? Sure. But, is it likely? No.

All of this does point to the risks associated with hoarding miles & points. Entirely possible that in a new program, what took 50K points today will take 300K.
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Old Mar 19, 20, 8:55 am
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Historically your miles survive but the airline you use/earn them on becomes a much much crappier company to do business with.
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Old Mar 19, 20, 9:00 am
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Originally Posted by Often1 View Post
First, highly unlikely that the government permits any major carrier to enter any form of bankruptcy. $50 Billion in bailout + loans ought to go a long way for a long time.

Second, in the unlikely event of a BR, what happens to FFP accumulated benefits and to the FFP going forward is a matter for the BR court. In theory, "miles" could simply be zeroed out and program closed. But, the practical answer is that brand loyalty is what gets a carrier back on its feet and the FFP includes those. Thus, the likelihood of the program going away is close to zero. Could it happen? Sure. But, is it likely? No.

All of this does point to the risks associated with hoarding miles & points. Entirely possible that in a new program, what took 50K points today will take 300K.
I agree that it seems unlikely that they go bankrupt. If anything too, it'd likely Chapter 11 which allows UA to restructure while operating as normal from a customer perspective. Many companies emerge from Chapter 11 relatively unchanged from an outsider's point-of-view.
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Old Mar 19, 20, 9:05 am
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Old Mar 19, 20, 9:11 am
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There are differences in Chapter 7, Chapter 11 and Chapter 13 bankruptcies.

Bankruptcy is a general term used to described various bankruptcy provisions.

PMUA and PMCO have declared Chapter 11 multiple times including post 9/11.

Having flown and accumulated miles since late 80s, I have not lost one single miles through bankruptcy, including when Pan Am closed for business. Delta honored all my Pan Am miles without any issues.
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Old Mar 19, 20, 9:45 am
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Originally Posted by UA_Flyer View Post
There are differences in Chapter 7, Chapter 11 and Chapter 13 bankruptcies.

Bankruptcy is a general term used to described various bankruptcy provisions.

PMUA and PMCO have declared Chapter 11 multiple times including post 9/11.

Having flown and accumulated miles since late 80s, I have not lost one single miles through bankruptcy, including when Pan Am closed for business. Delta honored all my Pan Am miles without any issues.
I still have my SEARS points for the same reason. Although I wouldn't bet they're going to be useful very soon
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Old Mar 19, 20, 9:45 am
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Originally Posted by UA_Flyer View Post
There are differences in Chapter 7, Chapter 11 and Chapter 13 bankruptcies.

Bankruptcy is a general term used to described various bankruptcy provisions.

PMUA and PMCO have declared Chapter 11 multiple times including post 9/11.

Having flown and accumulated miles since late 80s, I have not lost one single miles through bankruptcy, including when Pan Am closed for business. Delta honored all my Pan Am miles without any issues.
Where miles are at risk is where the FFP is a separate entity from the carrier, e.g. Top Bonus for AB and Aeroplan for AC. In the former, when AB went under, there was nobody to bail out TB and those miles became worthless (although there were some commercial ventures to woo account holders to other carriers with offers). In the case of the US carriers, the FFP is simply an administrative unit of the enterprise and thus, the program can't go independently BR in any of its forms. If AC were to run into trouble, I have no doubt but that Canada will bail it out. I can't imagine anything similar as to AP.
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Old Mar 19, 20, 1:53 pm
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In simpler days when an airline went bankrupt, it was out of business -- think Braniff or Eastern. After 9/11 the more common convention became going Chapter 11 and continuing to operate whilst protected from obligations to creditors and employees -- United operated in bankruptcy from December 2002 to February 2006, which many considered an abuse of a statute intended to give a distressed company time to reorganize, not become a way of life.

Assuming this federal bailout comes through I think all this will be moot -- there is no way USG will allow airlines to both survive on federal funds and be protected from their creditors. The whole point of the liquidity dose is to help airlines pay creditors.
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Old Mar 19, 20, 2:39 pm
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Originally Posted by BearX220 View Post
In simpler days when an airline went bankrupt, it was out of business -- think Braniff or Eastern. After 9/11 the more common convention became going Chapter 11 and continuing to operate whilst protected from obligations to creditors and employees -- United operated in bankruptcy from December 2002 to February 2006, which many considered an abuse of a statute intended to give a distressed company time to reorganize, not become a way of life.

Assuming this federal bailout comes through I think all this will be moot -- there is no way USG will allow airlines to both survive on federal funds and be protected from their creditors. The whole point of the liquidity dose is to help airlines pay creditors.
Eastern filed Chapter 11. I believe (but am not sure that) Braniff did, too. That doesn't mean a company won't cease operations immediately or at some point. It means that the debtor entity begins (and often stays) in possession of its own assets until plan confirmation or other court orders. In a nutshell, if a company survives Chapter 11, and any creditor group is impaired (i.e., it doesn't get paid in full), without creditor consent, ownership of the post-confirmation debtor won't be the same as ownership of the pre-filing debtor.
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Old Mar 19, 20, 3:40 pm
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I think the answer is that in the early 1990s, there were a lot more carriers out there, so one ceasing operations wasn't impossible for the system to absorb. Now that we're back to four carriers making up about 80% of the US market, I don't think any of them would be allowed to fail per se, though something conceptually absurd such as AS swallowing AA is perhaps not inconceivable.

Do consider that as yet, the only failures we've seen (as opposed to operational suspensions having more to do with load factors in the basement and health concerns than insolvency) have been two regional/contract carriers engaging in orderly shutdowns that were possibly impending (TSA and Connect) and Flybe (which was introuble even before the virus). There will be more, but so far nothing disorderly outside of Europe (which has real problems with this sort of thing).
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Old Mar 20, 20, 7:11 am
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Originally Posted by GrayAnderson View Post
Do consider that as yet, the only failures... have been two regional/contract carriers engaging in orderly shutdowns that were possibly impending (TSA and Connect) and Flybe (which was introuble even before the virus). There will be more, but so far nothing disorderly outside of Europe (which has real problems with this sort of thing).
Trans States was due to cease operating at EOY anyway; coronavirus accelerated events. Compass is a surprise. All the other regionals are at varying non-trivial degrees of risk.

As for mainline carriers, I think the most likely action will be desperation mergers in the B-tier to achieve economies of scale: AS+B6, F9+NK+SY, etc. The VLCCs are very profitable in normal times but also depend on discretionary travel and pulling people out of their cars. They do not compete with AA/UA/DL so much as driving, Greyhound, or staying home. It will be interesting to see how they survive 6-12 months of this situation.
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Old Mar 20, 20, 12:52 pm
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Originally Posted by BearX220 View Post
Trans States was due to cease operating at EOY anyway; coronavirus accelerated events. Compass is a surprise. All the other regionals are at varying non-trivial degrees of risk.

As for mainline carriers, I think the most likely action will be desperation mergers in the B-tier to achieve economies of scale: AS+B6, F9+NK+SY, etc. The VLCCs are very profitable in normal times but also depend on discretionary travel and pulling people out of their cars. They do not compete with AA/UA/DL so much as driving, Greyhound, or staying home. It will be interesting to see how they survive 6-12 months of this situation.
According to this, Compass is also owned by Trans States' parent company (as well as GoJet).
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Old Mar 21, 20, 1:55 pm
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I'm actually a bit concerned not only about FF miles, but how will this work if all these airlines are issuing credits to your account right now for future travel?

Sounds like in the past most of your mileage deposits have survived (who knows if that will happen in this weird time)....but what about trips you can't take with money sitting as a credit in your account? I have to imagine that type of thing would get lost during bankruptcy, no?
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