By Kelly DiBlasi and Jason George (Weil, Gotshal & Manges LLP)
Increased competition, rising fuel costs, and the lingering effects of the COVID-19 pandemic have caused financial distress for airlines and other aviation companies and led to an increase in their use of Chapter 11 to address these issues. Chapter 11’s many tools, including the automatic stay, DIP financing, and the ability to reject burdensome contracts or bind dissenting creditors, are available to both domestic and foreign companies. However, one underappreciated aspect of Chapter 11 is its flexibility in different stages of a restructuring with varying levels of stakeholder consent. For example, a company at imminent risk of running out of cash, defaulting on obligations, and/or confronting creditors collecting significant overdue payables can use Chapter 11 to prevent creditors from exercising remedies against the company and its property. Other companies may already have agreement with key stakeholders on the major components of a reorganization plan, only needing an in-court process to implement certain aspects of the plan that cannot be accomplished out of court, such as binding dissenting creditors. Chapter 11 can accommodate all such scenarios. This flexibility, combined with the tools and benefits described above, makes Chapter 11 an attractive option for airlines and other aviation companies in distress. As the aviation industry continues to experience financial distress, it is anticipated that more companies in the industry will look at Chapter 11 as a viable option to pursue a restructuring.
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