Bankruptcy In The Skies: Soaring

By Priya Jestin, Staff Writer

Would you like to take on someone else?s debts and help them work their way out of bankruptcy? I doubt any sane person would want to do it ? excepting of course near and dear relatives and friends. That?s why initially, I was quite confused when I heard about USAirways wish to merge with the now bankrupt Delta Air Lines. What does USAirways CEO Doug Parker stand to gain by buying bankrupt Delta?

Quite a bit it would seem. Parker, who is well versed in this game of merging with bankrupt airlines, knows the benefits he can garner from such a deal. USAirways was a bankrupt airline until Parker came along with America West Airlines and merged the two. Now USAirways is one of the most profitable in the airline industry.

With Delta under his belt, Parker will be able to create one of the world’s biggest carriers, with 350 destinations. Still wondering what bankruptcy?s got to do with all this? Well, I?m coming to it. Bankruptcy is quite advantageous to companies and helps them enter into deals they may not have been able to negotiate if they were solvent. For instance, you can work your way through the company?s assets and discard things that may seem useless and a drain on the resources. In the case of Delta, this may mean cutting back on or stopping unprofitable routes. This would also help to make the fleet more efficient. Another benefit of bankruptcy is that you can return unnecessary assets like gas-guzzling planes or jets that are too huge to the lessors.

Back office operations also become easier because information systems, airport and maintenance facilities and vendor networks can be consolidated. With all this benefit, will it be any surprise if shareholders and creditors too prefer merger over going it alone?

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