Djlawman

FF miles are a contingent liability to airlines, which the airlines have now been forced to recognize in a fashion in their accounting statements filed with the SEC. If TWA is split up into parts and just sold off for assets, it seems unlikely to me that any other airline will recognize the miles. However, if the AA/TWA deal goes through, it has already been promised that these Aviators members/creditors will get some value for their miles. Therefore, Aviators members might have strong opinions and real interests in which of the deals gets consummated, and one deal might effectively provide more benefit to "creditors" globally if it includes assumption of Aviators miles by the purchaser.

It therefore seems to me that there ought to be some voice for the FF members before the bankruptcy court (although I have not yet investigated fully to establish that there isn't, but I don't believe that there is). I believe that the court ought to appoint an attorney or attorneys to represent the interests of the Aviator members, to take a position before the court as to how each deal will affect this specific set of "creditors."

I am considering talking to some friends in the Del. legal community to team up and try to get appointed to do this, with the fees for the representation coming from the bankrupt's estate (which, while not typical, is possible). I have some friends and family who may be the representative Aviator members.

What does anyone think? Post or e-mail me if anyone has any thoughts about this.

Djlawman

[This message has been edited by Djlawman (edited 01-31-2001).]

[This message has been edited by Djlawman (edited 01-31-2001).]

JS

Since the TW stockholders will be getting nothing, why would FF miles even be considered by the court?

AA may choose to accept those miles' liability out of customer appreciation (i.e., comp everyone), but there is no way the bankruptcy court, and certainly not TWA's creditors, will demand AA to do so. The creditors are not going to be picky with the buyer(s) of TWA's assets, and they sure as heck don't care about FF.

IMHO, retaining most TWA employees' jobs is more important than FF miles, and retaining the jobs of a bankrupt employer is no small feat. It turns out that AA buying TWA can do both.

I re-read your post, and you are saying that FF's are creditors to TWA? How? You didn't loan any money or equipment to TWA.

While FF liabilities may be on the balance sheet, it doesn't mean you will be reimbursed. If all liabilities could be reimbursed, there would be no bankruptcy.


[This message has been edited by JS (edited 01-31-2001).]

Counsellor

Other courts have recognized a property interest by frequent flyers in their mileage accounts, and as you say for at least some purposes the accumulated miles are considered a liability against the airline. I believe it would be worth while trying to get membership on the creditors' committee, or at least recognition as a party to the proceedings (or similar standing).

I'd say to go for it, Djlawman.

P.S. By the legal nature of a corporation, shareholders are equity, and thus come last in line - having a claim only to the extent that equity remains after all obligations are satisfied. The fact that the airline did not promise to pay us cash for our miles does not mean there is no liability.

[This message has been edited by Counsellor (edited 01-31-2001).]

Djlawman

To answer JS's questions (as well as provide some further information):

"Since the TW stockholders will be getting nothing, why would FF miles even be considered by the court?"

Counsellor is of course exactly right here. Stockholders are absolutely LAST on the list of bankruptcy priorities. All creditors, first secured and then unsecured, and sometimes in several sub-classifications get paid first, before stockholders get anything. (And since you usually don't file unless liabilities exceed assets, stockholders usually get nada).

"there is no way the bankruptcy court, and certainly not TWA's creditors, will demand AA to do so."

The question isn't whether the bankruptcy court will demand that AA do so. The question is whether the Bankruptcy Court will be willing to recognize the value being extended to the FF "creditors" as additional compensation going to creditors when weighing the respective merits of competing proposals. For example, say AA bids $500 million for the whole, and Cont., NW, Delta and America West bid $501 million for the various parts. If AA's bid includes a guarantee to recognize the Aviators' members miles, and their total miles are valued at (complete made up number) $100 million, should the bankruptcy court use that factor in its evaluation of which is the better offer for the TWA carcass? I would argue that it should. Creditors, very broadly defined, are going to get $600 million of value in the AA proposal, vs. $501 million in the breakup proposal.

" IMHO, retaining most TWA employees' jobs is more important than FF miles, and retaining the jobs of a bankrupt employer is no small feat. "

Unfortunately, retaining the jobs of a bankrupt company is not usually one of the factors which the bankruptcy court looks to in deciding to evaluate between competing proposals (unless, for example, one proposal includes continuing to operate going forward with the potential of future profitability which might lead to more creditors being paid).

"While FF liabilities may be on the balance sheet, it doesn't mean you will be reimbursed. If all liabilities could be reimbursed, there would be no bankruptcy."

You are missing the point JS. I am contending that the court should evaluate the potential value being conveyed upon the FF members in evaluating between competing proposals for the company. Although, of course, the issue of whether the FF members are real actual creditors who ought to share in any monetary distribution is not a question which has been decided either. These Aviator members paid money to TWA with the promise that they would obtain a rebate in the form of FF miles good for future travel. If some other merchant owed outstanding rebates to customers, that would certainly be considered a clear creditor liability which would have to be compensated along with the other unsecured creditors (if there were enough assets to compensate the unsecureds after the secured creditors get theirs).

By the way, for those who are interested, the Del. Bankruptcy Court is online, and the filings in the TWA case can be found at:
http://www.deb.uscourts.gov/wconnect...LINES,+INC.~~~

Go to "docket" to see a listing of the filings, and you can then click on the various filings to get a PDF format document.

Djlawman

JayBrian

US OKs start of TWA, AMR flier plan merger

See story
http://biz.yahoo.com/rf/010131/n31520984_2.html


Jay

JayBrian

US OKs start of TWA, AMR flier plan merger

Here is the story
http://biz.yahoo.com/rf/010131/n31520984_2.html


Jay