Summary Chapter 11 bankruptcy allows airlines to restructure debts while operating, aided by DIP financing. The automatic stay provision protects airlines from collection activities and lawsuits, expediting the reorganization. Chapter 11's international recognition, flexibility in contracts, and strong voting provisions make it a go-to choice for airlines.
Airlines are among the most volatile businesses in the global economy. They frequently face significant financial challenges due to fluctuating fuel costs, labor disputes, and economic downturns, such as the recent impact of the COVID-19 pandemic. When these challenges become overwhelming, many airlines turn to Chapter 11 bankruptcy proceedings as a strategic tool for restructuring their operations.
Chapter 11 of the United States Bankruptcy Code is designed to allow businesses to restructure their debts while continuing to operate . Unlike liquidation under Chapter 7, Chapter 11 focuses on reorganizing the company's obligations and operations to restore profitability. The ability to continue operations during the restructuring process is crucial for airlines, given the industry's high fixed costs and complex operational structures.
The Brazilian airline entered Chapter 11 last month. The Appeal of Chapter 11 for Airlines Several factors make Chapter 11 particularly attractive to airlines compared to other restructuring options, such as the UK's Scheme of Arrangement or other domestic procedures. These factors include: Debt.