Before the reforms to the Bankruptcy Code of the United States in 2005 through the Bankruptcy Abuse Prevention and Consumer Protection Act (Bankruptcy in the United States, Sec #1). companies that applied for the protections granted by the code and decided that their best option was to merge with a bigger company encountered the limitation of the CleytonAntitrust Law and The Federal Trade Commission Act. These acts prohibit monopoly and unfair business practice (United States Antitrust Laws, Sec #1).
The merge of two airlines that have the same flight routes was considered anti-competitive behavior because it was limiting the options of airlines flights to the costumers. For this main reasons the mergers between airlines, where one of themis dealing with bankruptcy, was not approve by the Federal Trade Commission(Chapter 11, United States Bankruptcy Code, Sec #1). This gave no choice to the airline industry but the sell parts of their business in liquidation, and in that way pay to some of their creditors.
A main problem arises when a business is liquidating its assets, and this has to deal with the “going concernprinciple”. The going concern principle stands for a company’s ability to continue running as a business entity. When a company is liquidating its assets, then it is known that it has a problem of going concern, this causes that the actual prices of the assets to be liquidated drop up to a 50%. The airlines were not able to sell their assets in the liquidation process in the price they wished. Because ofthis the cash flow resulted of the liquidation were not enough to pay all their creditors (Chapter 11, United States Bankruptcy Code, Sec #1).
Availability to merge (after)
After the reforms of the Bankruptcy Code of the United States, companies that applied for the protections granted by the code were able to reorganize themselves. In the new reform of the Bankruptcy Code, thecongress concluded that the price of a business is greater when is reorganized and then sold, than the price or value the company has if it’s sold off individually. Also is better to allow to the bankrupt company to continue running, and in that way cancel some of its debt meanwhile is being reorganized. If it’s the case that another airline wants to buy the troubled airline and merge there will be norestriction to that (Chapter 11, United States Bankruptcy Code, Sec #1).
That is the case of US Airways Group Inc. The new bankruptcy law allowed US Airways to reorganize the company and complete the merge with American West Holdings. There are also other benefits that help the airlines industry like the so-called exclusivity period that grant airline a protection against takeover. Thisexclusivity period is for 18 months and the airline has to summit to the court a plan of reorganization, but as it is the case of United, which has been in bankruptcy for two years and a half, and has not yet submitted the reorganization plan to the court and United has asked for several extensions which have been granted (Struggling Airlines, New Law on Bankruptcy, Sec #1).
In order tomerge the Federal Trade Commission has to review the reorganization plan submitted by the troubled airline, also the troubled airline has to have no other way to pay all its debt. The Federal Trade Commission has to approve the price in which the troubled airline is being bought; this price has to be greater than the value that can be obtained trough a liquidation process. All this practice is tomake sure that the merge is for real proposes of clear all the liabilities, and to protect the employees and stockholders of the bankrupt airline. All this insure a fair business practice and avoid monopoly (United States Antitrust Laws, Sec #1).
The troubled airline has no need to go through a liquidation process if it is not desired, also in the process of getting money to pay all the...