Airline Focus: Using Section 1113 to Navigate Stormy Skies

The continuing financial malaise of U.S. air carriers has featured prominently in recent headlines, as airlines such as Northwest, Delta, Mesaba Aviation, Independence Air and Era Aviation all sought chapter 11 protection in 2005 in an effort to manage a staggering confluence of nearly five years of lagging demand, high fuel prices and escalating labor costs. A fair amount of scrutiny in connection with these developments has been devoted to the carriers’ reliance on a chapter 11 filing (or the threat of one) as a way to reduce unionized labor costs by taking advantage of a provision in the Bankruptcy Code that allows a chapter 11 debtor-in-possession ("DIP") or bankruptcy trustee to reject a collective bargaining agreement. The bankruptcy court overseeing the chapter 11 case of Delta subsidiary Comair recently had an opportunity to examine the circumstances under which a labor agreement can be rejected in a chapter 11 case. The court denied the rejection motion, ruling that Comair