In re Continental Airlines Corp., Bankruptcy No. 83-04019-H2-5
| Decision Date | 17 January 1984 |
| Docket Number | 80-04020-H1-5,and 83-04022-H3-5.,83-04021-H3-5,Bankruptcy No. 83-04019-H2-5 |
| Citation | 38 BR 67 |
| Parties | In re CONTINENTAL AIRLINES CORPORATION, Debtor. In re CONTINENTAL AIR LINES, INC., Debtor. In re TEXAS INTERNATIONAL AIRLINES, INC., Debtor. In re TXIA HOLDINGS CORPORATION, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of Texas |
Michael E. Abram, James L. Linsey, Cohen, Weiss & Simon, New York City, Chris Dixie & Associates, Houston, Tex., for Air Line Pilots Ass'n, Intern.
Joseph P. Manners, John O'B. Clarke, Jr., Kimberly A. Madigan, Highsaw & Mahoney, Washington, D.C., Marc A. Zito, Houston, Tex., for International Association of Machinist & Aerospace Workers, AFL-CIO.
Jay D. Roth, Anita C. Knowlton, Taylor, Roth & Hunt, Los Angeles, Cal., Stephen M. Vaughan, Mandell & Wright, Houston, Tex., for Union of Flight Attendants.
Professor Vern Countryman, Harvard Law School, Cambridge, Mass., Special Counsel to the Union Parties.
Barry Simon, Houston, Texas, Lenard M. Parkins, Sheinfeld, Maley & Kay, Houston, Tex., John A. Donovan, David Lombardero, Hughes, Hubbard & Reed, Los Angeles, Cal., John J. Gallagher, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C., for Continental.
Judge William M. Schultz, B.J. Walter, Houston, Tex., for Official Committee of Unsecured Creditors.
Phillip Pierce, Booth, Lipton & Lipton, New York City, for Labor & Pension Committee.
On September 24, 1983, Continental Airlines Corporation and the above-related entities filed a voluntary Chapter 11 proceeding under Title 11 of the United States Code. On September 27, 1983, Continental Air Lines, Inc., and Texas International Airlines, Inc. filed a joint motion to reject their Collective Bargaining Agreements and other employee-related executory contracts. On the 11th of October 1983, three of the debtors' unions (representing approximately one-half of the employees of Continental Airlines) jointly filed a motion to dismiss the proceeding; alleging as their principal ground that the Chapter 11 was filed in bad faith and further alleging that rejection of these contracts would violate the United States Constitution.
Immediately upon filing its Chapter 11, Continental Airlines unilaterally imposed on its employees new wage rates and work rules which had the effect of making those costs comparable with those of "New Entrant" airlines who are in competition with Continental. It also cut back severely on its operations.
The unions filing the motion to dismiss were the Air Line Pilots' Association ("ALPA"), the Union of Flight Attendants ("UFA"), and the International Association of Machinist and Aerospace Workers ("IAM"). The debtors and the Unsecured Trade Creditors Committee have opposed the motion.
The evidence taken at the hearing on the motion to dismiss consumed 11 days of testimony, including two evening sessions to 10:00 p.m.; two evening sessions to 12:00 p.m.; and one evening session to 1:15 a.m. A considerable amount of evidence in oral and in written form was introduced. Both parties have filed extensive briefs. The oral arguments extended for approximately 4 hours. The matter has been thoroughly presented to the court by all parties.
The evidence showed that since the airlines were deregulated in 1978, Continental Airlines (and Texas International when considered on a combined basis) has lost money consistently. Up to September 24, 1983, the date of filing, Continental Airlines had lost $521,900,000, as follows:
1979 lost $ 27.4 million
1980 lost 76.8 million
1981 lost 138.6 million
1982 lost 119.9 million
1983 to September 24 lost 159.2 million
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$521.9 million
These losses were caused in some part by the fact that the new entrant airlines have lower labor costs and can and did charge lower fares than Continental could charge and still make money on routes where they were flying in competition. The new entrant airlines have increased these competitive routes in the past several years and have even run Continental Airlines out of some markets.
The unions have not challenged the fact that Continental Airlines has lost substantial sums of money; nor that the company was in a severe financial crisis at the time of the filing. In fact, ALPA and UFA both indicated in testimony that they were willing to agree to the dollar amount of the labor cost concessions which had been requested of them by the company, and indicated that agreement to these concessions (which they were not lawfully required to make) was motivated by the recognition of these two unions that Continental Airlines was having a significant financial crisis. However, although efforts had been made to get agreement on concessions since the first of the year and longer, no agreement had been reached with these unions at the time of the filing of this proceeding.
The IAM appeared to be taking the position that the financial condition of the company was not a significant element of consideration in negotiating for their new contract. The IAM had refused an increase of wages in their agreement with Continental Airlines and held out for what they termed "industry standards"; even though the rates requested were higher than with many other carriers. On August 13, 1983, the IAM struck the airlines. Its purpose was to shut down its operations. It is still on strike.
The unions did offer testimony that Continental had weathered a bad cash crisis in the winter of 1982-83 and argued that this crisis was much worse than the cash crisis of the airline at the time of filing of the proceeding. The unions argue that this comparison shows that Continental Airlines could have survived its cash predicament of September 1983 had it chosen to do so. However, while Continental Airlines' cash position was worse in the winter of 1982-83, it nevertheless had resources which it did not have in September 1983. It had unencumbered assets which it sold for cash, and it was projecting an upswing in its profit picture. This enabled it to obtain credit from several sources.
Texas Air Corporation, an affiliate, purchased City of Houston Bonds on which Continental Airlines was principal obligor. This raised $7.75 million for the debtor. The debtor sold a subsidiary for $15 million. The debtor obtained $25 million revolving credit from major lenders. It obtained $37.5 million in April 1983 by public offering and $40 million from American General Corporation by a secured loan. These transactions enabled Continental Airlines to survive its cash crunch in the winter of 1982-83.
By September 24, 1983, Continental Airlines had sold its free assets. It had experienced severe losses in 1983 instead of gains it had been predicting and had no optimistic outlook for the future. It had lost $23 million in the July-August period, traditionally its most favorable period of operations, and was facing the winter season, traditionally a poor season in the airline industry.
At filing,...
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