Air Transport World

Section 1110 uncertainties hurt market. (The industry suffers...) (US bankruptcy code)


All Continental Airlines and Pan American World Airways wanted was a rent holiday on their leased aircraft while they reorganized under Chapter 11 of the U.S. bankruptcy code. But the way each went about getting one has reduced the entire U.S. airline industry's access to capital.

Today, a coalition that includes airlines, manufacturers, equipment lessors and financial institutions is lobbying the U.S. Congress to close loopholes in the bankruptcy code that allowed the two airlines to wriggle out of their obligations to their aircraft lessors. Without swift legislative action, warns AMR Corp. Treasurer Dan Garton, the industry could find itself paying hundreds of millions of dollars in higher finance charges, as lenders raise their rates to offset the higher risk that they see in certain lending transactions that previously had been considered relatively risk-free.

What Continental and Pan Am did was challenge, in court, the applicability to some aircraft financings of Section 1110 of the U.S. bankruptcy code (see accompaying article). …

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