Republic Airways Files for Chapter 11 Bankruptcy

What are the reasons for Republic’s filing for bankruptcy and how will it help them regroup?

Republic Airways, based in Indianapolis, filed for bankruptcy this past week in an attempt to revitalize its operation. Republic operates a fleet of smaller planes, providing flights for larger airlines, including American Airlines, Delta Air Lines, and United Continental.

Reasons for Republic’s Financial Troubles

Republic blames its financial woes on a lack of pilots, explaining that this is the primary reason for its failure to succeed during a period when most major airlines are doing remarkably well. According to its report, even though it signed a three-year union contract with its pilots last year, the company still had to ground aircraft while renegotiating agreements with larger carriers and re-establishing the terms of leases for its aircraft.

The Pilot Problem

During negotiation of its labor contract, Republic states that it was losing about 40 pilots every month, but adding only 30. Dan Akins, an aviation consultant involved in the negotiations between Republic and the pilots’ union, the International Brotherhood of Teamsters, explains that while the new contract did stabilize the pilot base, the resulting higher pay for pilots meant Republic had to get increased compensation from Delta, American, and United. Akins view is that Republic turned to bankruptcy as a last resort to coerce the three major airlines to pay the higher fees it required, though he believes “they did not want to do it.”

All of this was complicated by the fact that the U.S. Federal Aviation Administration (FAA) increased required flight experience sixfold for first officers during this same period. Since first officer pilots now must have 1500 hours of flight experience, and the FAA set new limits on duty times, the process of hiring qualified pilots has become even more difficult.

The Need for Bankruptcy

Bankruptcy is never the first choice, but it can be a company’s salvation. Under bankruptcy protection, Republic can request that the judge cancel unprofitable contracts, and will also permit Republic to escape leases for planes that are too expensive or planes that it’s not actually flying. As Republic’s Chairman and CEO Bryan Bedford stated, ” It’s become clear that this process has reached an impasse and that any further delay would unnecessarily waste valuable resources of the enterprise.”

Recent History of Airline Bankruptcies in the U.S

Republic’s filing for bankruptcy is not unprecedented, though it is the first filing by a large airline since American went into Chapter 11 in 2011 and Feeder Pinnacle Airlines filed for court protection in 2012. Other major airlines, far from having financial difficulties, have reported major profits during recent years.

Bankruptcy Provides Hope, Not Certainty

Like so many businesses in similar straits, Republic hopes that by filing for bankruptcy it can ensure a bright future, though, as CEO Bedford recently notified his employees, he “can’t promise how it will all work out.”

If your business is in financial difficulty, for whatever reason, and you are considering bankruptcy proceedings, you should contact a reputable, experienced bankruptcy attorney to help you weigh your options.

Bankruptcy Numbers Down In Wisconsin

Why has there been a decrease in bankruptcy filings in the state?

Bankruptcy filings peaked both nationally and in the State of Wisconsin during and after the recent recession. Now, bankruptcy numbers are coming down and returning to a normal level.  But, why are the numbers coming down? Apparently, many of the factors that drove them up are no longer present.

During and after the recession, most bankruptcy filings were for Chapter 7, which allows the debtor, in most situations, to take advantage of a fresh start. The major causes of bankruptcy were, and still are, job loss, divorce and medical costs. During the recession, an exponentially increasing number of job losses drove the number of bankruptcies through the roof. Now that many people are working again, the number of bankruptcies filed because of unemployment is coming down. Although many people are not making as much money as they used to, they are seemingly making enough to keep them afloat and up to date with their bills.

Rock bottom real estate values are also less of a problem these days. While the numbers are still not where they were, the market is slowly rebounding, allowing owners to see an increase in their assets. This increase in wealth is allowing more and more people to steer clear of bankruptcy.

Another major cause of the recession, easily accessible credit, is less of an issue at this time. Before the recession, too many unqualified individuals were able to obtain credit in various forms. Now, tougher restrictions have made it much more difficult than it once was to obtain credit cards and mortgages. This has made it harder for people to get into financial trouble.

While it seems that the recent recession taught the country a lesson in several areas, we shouldn’t get ahead of ourselves. There is still plenty of work to be done. Some experts believe that even though we are at a more normal level of bankruptcy filings, that the numbers should go even lower. Things could also go the other way. Experts are keeping their eye on the student loan crisis. Many individuals are unable to pay back their student loans and are turning to bankruptcy for relief. This might cause an uptick in the number of filings in the near future.

If you are considering bankruptcy, you should speak to a qualified Wisconsin bankruptcy attorney today.

Verso Bankruptcy May Hurt Wisconsin Paper Mills

What is the latest news about the Verso bankruptcy?

As has been reported, the demand for coated paper has been declining for years and this has had a staggering effect on paper mills in the state of Wisconsin. In fact, Verso Corp., the firm that owns paper mills in the state, recently filed for bankruptcy.

Verso is a Tennessee-based corporation and there is growing concern that the bankruptcy may ultimately lead to job cuts for the 1200 employees of the company, including those who work at the Wisconsin Rapids and Steven Point mills. While company officials have said that reductions in force are not part of the reorganization plan, the company has acquired billions in debt, and, according to industry observers, the future for the coated paper industry looks grim.

This will invariably force paper companies to cut costs and even unwind some of their operations. Some papers mills will cease operation entirely, and some believe the mills in Wisconsin are among those that may shut down. By pursuing a Chapter 11 Bankruptcy, Verso may be able to mitigate or wipe out about $2.4 billion in debt.

What is a Chapter 11 Bankruptcy?

A Chapter 11 bankruptcy is designed to enable a business that has heavy debt burdens to reorganize. In short, a Chapter 11 filing allows a debtor to come up with a post-bankruptcy plan for returning to profitability. Included in the plan are measures like cutting costs by workforce reductions, winding down certain operations, and seeking new sources of revenue or income. Meanwhile, creditors need to agree to a new payment plan for the debt, and may ultimately suffer losses.

What is causing the demand for coated paper to decline?

Deteriorating demand for coated paper is due in part to the fact that this product is used primarily by magazines and catalogs. In the digital media age, subscription for these items has fallen dramatically, and many magazines and catalogs are transitioning to electronic formats. Moreover, foreign competition has also had an impact on the domestic coated paper industry, since suppliers in Asia and Europe produce the paper more cheaply.

Meanwhile, Verso has previously reported a net loss of $111 million for the third quarter of 2015 and said that it was considering selling the Stevens Point Mill. While Chapter 11 is typically relied upon by large corporations, this relief is also available to small businesses. If you are a small business owner and have questions about bankruptcy, you should consult with a qualified  bankruptcy attorney.