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Slight Turbulence Ahead: the Chapter 11 Bankruptcy of Republic Airways

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Slight Turbulence Ahead: the Chapter 11 Bankruptcy of Republic Airways University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange Chapter 11 Bankruptcy Case Studies College of Law Student Work 4-28-2017 Slight Turbulence Ahead: The Chapter 11 Bankruptcy of Republic Airways Sam Ferguson Chad Talbot Follow this and additional works at: https://trace.tennessee.edu/utk_studlawbankruptcy Part of the Bankruptcy Law Commons Recommended Citation Ferguson, Sam and Talbot, Chad, "Slight Turbulence Ahead: The Chapter 11 Bankruptcy of Republic Airways" (2017). Chapter 11 Bankruptcy Case Studies. http://trace.tennessee.edu/ utk_studlawbankruptcy/42 This Article is brought to you for free and open access by the College of Law Student Work at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in Chapter 11 Bankruptcy Case Studies by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact [email protected]. Slight Turbulence Ahead: The Chapter 11 Bankruptcy of Republic Airways Sam Ferguson Chad Talbot April 28, 2017 Table of Contents Table of Contents .............................................................................................................. 2 Cast of Characters ............................................................................................................ 5 Key Dates of Republic’s Chapter 11 Proceedings .......................................................... 8 Company History .............................................................................................................. 9 A. Company Timeline............................................................................................ 9 B. Republic’s Business Model............................................................................. 10 1. Revenue Diversity ........................................................................................... 10 2. Codeshare Agreements .................................................................................... 10 3. Other Revenue Raising Activities ................................................................... 11 C. The Events Leading to Bankruptcy................................................................. 12 1. Labor Dispute with the International Brotherhood of Teamsters .................... 12 2. Pilot Shortage .................................................................................................. 15 3. Increased Costs and Inability to Perform Under the Codeshare Agreements. 16 4. Stepping Outside Its Core Competencies. ....................................................... 17 D. RAH at the Time of Filing. ............................................................................. 19 1. Operations. ....................................................................................................... 19 2. Summary of Capital Structure at the Time of Filing. ...................................... 20 3. Initial Restructuring Plan ................................................................................. 21 First-Day Motions ........................................................................................................... 22 A. Motions re Bankruptcy Administration and Notice ........................................ 22 1. Motion for Joint Administration of Chapter 11 Cases .................................... 22 2. Motion to Extend Deadline to File Schedules or Provide Required Information ......................................................................................................................... 23 3. Motion to Establish and Implement Exclusive and Global Procedures for Treatment of Reclamation Claims .................................................................. 24 4. Motion (i) Establishing Deadline and Approving Procedures for the Assertion, Resolution, and Satisfaction of Claims Asserted Pursuant to 11 U.S.C. § 503(b)(9) and (ii) Prohibiting Vendors from Pursuing Such Claims Outside the Procedures ................................................................................................. 27 2 5. Motion Enforcing and Restating Automatic Stay and Ipso Facto Provisions . 29 6. Motion Establishing Notification Procedures and Approving Restrictions on Certain Transfers of Claims Against and Interests in the Debtors.................. 30 7. Motion to Appoint Prime Clerk LLC as Claims and Noticing Agent ............. 32 8. Case Management Procedures ......................................................................... 33 9. Motion for Authorization to Enter into Agreements under §1110 of the Code ......................................................................................................................... 34 10. Motions Involving Employment for Professional Services ............................. 37 B. Keeping the Plane in the Air ........................................................................... 41 1. Employment of Professionals Used in the Ordinary Course of Business ....... 41 2. Continuation of Systems and Operations ........................................................ 43 3. Other Pre-Petition Payment Obligations ......................................................... 47 DIP Financing and Republic’s Deal with Delta ........................................................... 54 A. Summary of the Agreements .......................................................................... 54 1. Procedural History ........................................................................................... 56 2. Applicable Code Provisions ............................................................................ 58 B. Republic’s Process in Obtaining DIP Financing ............................................ 58 C. Summary of Debtor’s Motions, Financing Agreement, and Related Objections. ...................................................................................................... 60 1. Motion to obtain DIP Financing ...................................................................... 60 2. Credit Agreement ............................................................................................ 62 3. Motion to Assume Codeshare and Related Agreements ................................. 75 4. Hundred Cent Dollars – The Response from Delta and Republic. .................. 78 D. The Orders are Signed .................................................................................... 82 United and American Codeshare Agreements ............................................................. 84 A. United Airlines ................................................................................................ 84 B. American Airlines ........................................................................................... 85 1. The Commercial Settlement ............................................................................ 85 2. The Claim Settlement. ..................................................................................... 86 3. The Official Committee of Unsecured Creditors Objection ............................ 87 Fleet Restructure and Related Claims .......................................................................... 88 3 A. Fleet Restructuring and Related Claims Settlements ...................................... 88 1. Section 1110 Agreements ................................................................................ 89 2. Early Return of Out-of-Favor Aircraft and Related Claims Settlements ........ 90 3. Settlements with Original Equipment Manufacturers ..................................... 99 B. The Shuttle Merger and Single Operating Certificate .................................. 104 1. Taking the Initiative: Planning for the Merger and Its Consequential Benefits ....................................................................................................................... 104 2. The Merger and Consolidation Motion and Approval. ................................. 107 Republic Introduces Its Plan of Reorganization ........................................................ 109 A. The Law ........................................................................................................ 109 B. The Plan ........................................................................................................ 111 1. Liquidation of MAGI, Midwest and Skyway. ............................................... 111 2. Consolidation of RAH, RAS, RAI and Shuttle for Purposes Specified in the Plan ............................................................................................................... 111 3. Classes of Claims and Amendments to the Plan ........................................... 112 C. Defending the Plan ........................................................................................ 115 4 Cast of Characters American Airlines Inc. American is Republic’s largest Codeshare Partner, accounting (“American” or collectively with United for over 50 percent of its revenues. It was also the last and Delta, “Codeshare Partners”) Codeshare Partner to agree to amended terms on the companies’ agreements. Under the approved plan American will have a 25 percent ownership stake in the reorganized Republic. Ad Hoc Committee of Equity Holders Shortly after the Petition Date, certain holders of common stock (“Equity Committee” or “Committee”) in Republic Airways Holdings Inc., one of the Debtors, formed the Ad Hoc Committee and retained counsel to represent their common interests in the Chapter 11 Cases. Bombardier, Inc.
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