|Delta Air Lines' options in bankruptcy court
A new law that would narrow Delta Air Lines' options in bankruptcy court may nudge the ailing airline to file for Chapter 11 before the stiffer code takes effect Oct. 17, say legal experts.
While Delta Chief Executive Gerald Grinstein recently told analysts the pending law wouldn’t figure into Delta’s decision about when or whether to seek the shelter of Chapter 11, some bankruptcy lawyers disagree. They say the new law brings (Protect Upper Management??) significant changes that most top executives involved in corporate bankruptcies will want to avoid.
Under the new law, companies in bankruptcy court can’t award retention pay to executives or directors unless they are essential to the company’s survival and have other job offers at the same or higher pay. The bonuses are also capped at no more than 10 times the average of similar awards to nonexecutive employees.
Some analysts think Grinstein will try for another package of moves to shore up the airline’s cash reserves and buy time for fuel prices to subside and internal changes to shave costs. Such moves might include the sale of an asset such as regional carrier Atlantic Southeast Airlines, more vendor financing, new labor cuts, and a debt exchange to conserve short-term cash, said JPMorgan analyst Jamie Baker.
“Delta must now swing for the fences and attempt to make all the right moves in the next two months,” he wrote in a report last week. He added, “We would still be surprised if management simply gave up and made no incremental moves other than to file for Chapter 11.”
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