Undoing Chapter 11: learning from the United Airlines deal; Gaining consensus for the deal to restructure United Airlines was not easy, with sacrifices from all its constituencies. With the airline finally pursuing its new path, the lead attorney and two partners who crafted the deal share some lessons learned.

• Author: Sprayregen, James H.M.
• Position: Restructuring of United Airlines

When the Air Transportation Stabilization Board (ATSB) rejected United Airlines Inc.'s request for $1.8 billion in loan guarantees in 2002, the company sought protection from debtors by filing for Chapter 11. In doing so, it became the 11th U.S. airline bankruptcy since the industry was deregulated in 1978. The second largest U.S. airline, United was the largest airline in U.S. history to invoke Chapter 11. It had 85,000 employees worldwide and served more than 120 cities. Its 2004 revenues were $16.39 billion.

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At the time of its bankruptcy, the airline was losing more than $7 million a day and faced nearly $1 billion in deferred debt obligations.

On filing for bankruptcy Dec. 9, 2002, Chairman and CEO Glenn Tilton said, "We took the right decision to do today what is right for the company now," and said that it would emerge a different company.

On Feb. 1, 2006, after more than three years in Chapter 11, a deal was sealed, and United emerged from Chapter 11. Its restructuring was comprehensive, but focused on fixing cost and operational rigidities: aircraft debt, lease and municipal bond obligations, labor costs and collectively-bargained constraints on flexibility, retiree medical costs and pensions.

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Like air travel itself, sometimes United's case was extraordinarily smooth, and other times it was turbulent. Even though the story is still being written, most will agree that the restructuring successfully positioned the company to compete for the long term in the new--and constantly changing--industry paradigm. Even just a few months since its emergence, United's case offers the following lessons about restructuring.

Bankruptcy is merely a process, not a panacea.

Some think that bankruptcy is a solution to a company's problems. But bankruptcy is merely a forum for a troubled company to engage in collective negotiations (and potentially litigation) in a court-supervised process. Although the Chapter 11 process brings clarity, urgency and a focal point to a restructuring, it is up to the company and its stakeholders--not the court--to implement that restructuring in an organized and strategic manner.

For example, using the tools of the U.S. Bankruptcy Code, United was able to restructure certain of its labor costs in 2003, accomplishing in the first few months of its case what would have taken years of labor negotiations outside of bankruptcy. But this result would have been impossible without the hard work and sacrifices of many stakeholders. So...