Airline Bankruptcy: The Post-Deregulation Epidemic By Paul Stephen Dempsey McGill University Institute of Air & Space Law Copyright © 2013 by the author • “Airline deregulation is a bankrupt policy.” Hobart Rowen Washington Post columnist Every major US interstate airline at the time of deregulation in 1978 has since visited bankruptcy court, several more than once. 15 US AIRLINE INDUSTRY NET PROFIT MARGINS 1950-2009 10 5 0 -5 -10 net profit margins -15 -20 year • 2000 – U.S. profit $2.5 billion • 2001 - U.S. loses $8.3 billion • 2002 - U.S. loses $11.4 billion • 2003 - U.S. loses $1.7 billion • 2004 - U.S. loses $9.1billion • 2005 - U.S. loses $27.2 billion • 2006 - U.S. profit $18.2 billion • 2007 - U.S. profit $7.7 billion • 2008 - U.S. loses $23.8 billion • 2009 - U.S. loses $2.5 billion • 2010 – U.S. profit $3.6 billion US Carriers cumulatively lost $52 billion in this decade. U.S. General Accountability Office • “Structurally, the airline industry is characterized by high fixed costs, cyclical demand for its services, intense competition, and vulnerability to external shocks. As a result, airlines have been more prone to failure than many other businesses, and the sector’s financial performance has continually been very weak . • “Since the 1978 economic deregulation of the U.S. airline industry, airline bankruptcy filings have become prevalent in the United States, and airlines fail at a higher rate than companies in most other industries.” • U.S. Government Accountability Office, Commercial Aviation: Bankruptcy and Pension Problems are Symptoms of Underlying Structural Issues (Sep. 2005). Liquidation or Reorganization? • The purpose of bankruptcy is to give honest debtors a “fresh start” by relieving them of most debt, and to repay creditors in an orderly manner to the extent the assets of the debtor are adequate. • Because the “going concern value” of an airline is typically greater than the liquidation of the carrier, most airlines opt for Chapter 11 reorganization bankruptcy. • Many, however, are dismembered in Chapter 7 liquidations. Voluntary or Involuntary? • Bankruptcy proceedings may be classified as either voluntary or involuntary. • A voluntary bankruptcy is filed by the debtor, whereas an involuntary bankruptcy is filed by the creditors. Tower Air Exec Express America West Kitty Hawk Caribbean Express Midway Airlines Pro Air New York Airways Pocono Airlines, Inc. Flagship Express Aeroamerica Fine Air Services Florida Airlines Virginia Island Seaplane Virgin Island Seaplane Legend Airlines Indiana Airways Princeton Air Link Trans World Airlines National Airlines Air Bahia Qwest Air L’Express Trans World Airlines Tejas Airlines Southern Jersey Airways MarkAir Mountain West Midway Airlines LANICA Eastern Air Lines Hermans/Markair Express Sun Country Airlines Coral Air Big Sky Airlines States West Airlines Vanguard Airlines Pacific Coast Air Kentucky Hawaiian Airlines US Airways Swift Aire Line Braniff, Inc. Florida West Golden Gate United Airlines Pinehurst Airlines Presidential USAfrica Airways Hawaiian Airlines Silver State Resort Commuter MarkAir Midway Airlines Air Pennsylvania Pocono Airlines Trans World Airlines Great Plains Airlines Cochise Airlines SMB Stage Lines Grand Airways Braniff International Atlas Air/Polar Air Cargo Astec Air East CC Air The Krystal Company US Airways Will’s Air Britt Airways GP Express ATA Airlines Aero Sun Int’l Rocky Mountain Airways Business Express Southeast Airlines Aero Virgin Islands Continental Airlines Jet Aspen Altair Aloha Airlines North American Pan Am World Airways Kiwi International Delta Air Lines Island Empire Pan Am Express Conquest Comair State Airlines L’Express Air 21 Northwest Airlines Golden West Eastern Air Lines Sun Jet International Continental Airlines TransMeridian National Florida Bar Harbor Airlines Mahalo Mesaba Airlines Air Vermont Northcoast Executive Air South Era Aviation Pacific Express Midway Airlines Western Pacific Airlines Independence Air Dolphin Grand Airways Mountain Air Express Combs Airways Florida Coastal New York Helicopter Metro Airlines Pan American World Kitty Hawk Aircargo Air Florida Mohawk Airlines Euram Flight Center MAXjet Airways Excellair Jet Express Sunjet International Aloha Airlines American Int’l Metro Airlines Eastwind Airlines Emerald ATA Airlines Hammonds Commuter Northeast Access Air Skybus Airlines Air North Frontier Airlines Wright Air Lines Oceanaire Lines Eos Airlines Atlantic Gulf Sun Country Connectaire US AIRLINE BANKRUPTCIES Primaris Airlines Air One Arrow Air Capitol Air Wien Air Alaska Northeastern Int’l Pompano Airways Far West Airlines American Central Provincetown Boston Sun West Airlines Wise Airlines Cascade Airways Wheeler Airlines Pride Air Southern Express Imperial Airlines Arrow Airways Sea Airmotive SFO Helicopter Trans Air Frontier Airlines Chicago Airlines McClain Airlines Rio Airways Air Puerto Rico Gull Air Royal West Airlines Air Atlanta Air South Inc. Royale Airlines Sun Coast Airlines Air New Orleans Air Virginia Mid Pacific Airlines Defunct European Airlines • Aeris Air Luxor AlpaOne Airways Britannia Airways • France Lisbon United Kingdom BritishJet.com • Bankrupt 2004. Portugal Amber Air Malta International Airport • Aero Flight Ceased operations October 2006 Kaunas Malta Oberursel Air Madrid Lithuania Ceased operations 2008. Germany Madrid Suspended operations October 2007. British NorthWest Airlines Spain Angel Airlines Blackpool • Operating licence not renewed. Ceased Operations Dec 2006. Romania United Kingdom • Air Adriatic Air Polonia Bankrupt and closed in 2004. Ceased operations December 2006 Rijeka Warsaw Armenian International Airlines Centavia Croatia Poland Yerevan Belgrade • Ceased operations in March 2007 Flights Suspended 2004. Armenia Serbia • Air Anatolia Air Scandic Bankrupt April 2003 Declared Bankrupt November 2006. Turkey Ceased Operations Sep 2005. Axis Airways Centralwings • Ceased Operations. Air Scotland Marseille Provence Airport Warsaw Glasgow France Poland • Air Europe United Kingdom Ceased operations December 2009 Merged with LOT 2008/2009. Italy Operations Suspended December 2006. Azzurra Air Centralwings • Operations Suspended. Air Scotland Italy Channel Express • Air Holland Air Turquoise Ceased Operations 2004. Bournemouth Netherlands Béthany BackpackersXpress United Kingdom • Closed. France Startup Failed. Rebranded to become Jet2.com in • Air Italica Ceased operations August 2006. Basiq Air January 2006. Pescara Air Wales Amsterdam Clickair Italy Swansea Netherlands Barcelona United Kingdom Merged with Transavia. Spain • Ceased Operations. Ceased Operations April 2006 Berlin Jet Merged with Vueling, July 2009. • Air Lithuania ADA Air Berlin Club Air Kaunas Tirana Germany Milan Lithuania Albania Ceased Operations. Italy • Bankrupt November 2005. Closed January 2007. Bexx Air Grounded 2008. • Air Littoral ajet Sofia Dalavia Airlines Montpellier Larnaca Bulgaria Khabarovsk France Cyprus Operations Suspended. Russia • Ceased Operations Feb 2004. (Formerly Helios Airways) Bexx Air Operations suspended October 2008. Flights ceased November 2006. Britannia dba • Air Livonia Albatros Airways United Kingdom Munich Tallinn Tirana Rebranded as Thomsonfly in 2005. Germany Estonia Albania Bought by Air Berlin. • Ceased operations Grounded September 2006. dba Direct Fly Warsaw • Flyjet Poland Hapagfly LTU London Luton Suspended operations May 2007. Hanover Düsseldorf United Kingdom Domodedovo Airlines Germany Germany Moscow • Ceased operations October 2007. Merged with HLX in January 2007 to form Merged with Air Berlin 2009. Russia • flyLAL - Lithuanian Airlines TUIfly.com. LTU Suspended operations September 2008 Vilnius Hapagfly Maersk Air due to the AiRUnion collapse. Lithuania Hapag-Lloyd Express Copenhagen Hanover duo • Suspended operations January 2009. Denmark Germany Merged with Sterling, Birmingham • FlyMe Merged with Hapagfly in January 2007 September 2005. United Kingdom Gothernburg to form TUIfly.com. Malev Hungarian Airlines Closed. Sweden DutchBird HLX Budapest • Bankrupt March 2007. Netherlands Helios Airways Hungary Suspended all operations. • FlyNordic Larnaca Bankrupt Feb 2012. EUjet Stockholm Cyprus Malev Shannon Sweden Rebranded as ajet March 2006. MyAir Ireland • Merged with Norwegian Air Shuttle Hellas Jet Athens Closed. • April 2008. Italy Greece Suspended operations July EuroManx • Flying Finn Closed 2005. 2009. Isle of Man Helsinki Hemus Air Nordic Airways United Kingdom Finland Ceased operations May 2008. Sofia Stockholm • Bankrupt 2004. European Air Express Bulgaria Sweden Cologne/Bonn • Fly West Merged with Bulgaria Air. Licence cancelled January Germany Brest JetOnly 2009. Closed September 2007. France Brussels Nordic Regional Fairline • Website Not Found 2005. Belgium Stockholm Now Jetairfly.com Graz • FreshAer Sweden Jetmagic Austria Dublin All operations were Cork Closed. Ireland cancelled in 2008. Ireland Now Falcon Air • Closed. Malmö Closed. London Luton • Futura Sweden Karat Airlines United Kingdom Palma de Mallorca Ceased operations in 2006 Moscow Startup Deferred. Spain Fare 4U Russia Odette Airways Malta International Airport • Ceased trading September 2008. Closed Zurich Malta • Gandalf Airlines LowFare Jet Switzerland Air Malta low cost airline closed. Italy Hannover Closed 2004. Germany Fly Eco • Bankrupt Feb 2004. Closed. France • Globespan Closed. LTE International Airways Glasgow Prestwick Palma de Mallorca Fly Gibraltar United Kingdom Gibraltar Airport Spain • Closed December 2009. Gibraltar Suspended operations