As far as the American airlines are concerned, bankruptcy seems to have become just another management strategy, with most carriers having been reorganised under Chapter 11 protection at some time or the other. Continental has gone through it twice, in 1983 and in 1993, to emerge as one of the healthiest players in the US skies. And you wouldn?t know while flying Delta or Northwest that they are still in bankruptcy.
So why are some on Capitol Hill battling against heavy odds (engendered by a bailout fatigue) to save the Detroit three?GM, Ford and Chrysler?from bankruptcy? They cite surveys showing consumers’ unwillingness to pick up autos from bankrupt brands. But given that consumers have been expressing such aversion with their chequebooks anyway, this seems a moot point. Even the idea that the Big Three?s bankruptcy would strike a death knell for the entire American auto industry has been negated by representatives of states hosting more efficient enterprises like Honda, whose competitive advantages range from greener technology to younger labour. Actually, the real menace that could follow on the Big Three?s bankruptcy seems to be liquidation.
Chapter 11 reorganisation works by enabling companies to shed their unaffordable debts and contracts, then draw upon debtor-in-possession (DIP) financing for restructuring. Assuming that companies have assets substantive enough to be retrimmed into a meaner, leaner shape, they can be turned around over time. But in the current climate, with even expensive cash in short supply, there is a very real possibility that DIP financing will simply not be available. This would push the Big Three from Chapter 11 into Chapter 7 territory, where all of one?s assets are rather rapidly converted to cash for the creditors. Kind of like turning over a lame horse to the butcher instead of the doctor.