“But, Yossarian, suppose everyone felt that way.”
Bankruptcy is intended to give a fresh start to persons and enterprises overwhelmed by creditors. In the case of American (like other airlines before it), the main “creditors” are its employees. The costs of American’s bankruptcy will be borne mainly by its workers and secondarily by taxpayers. The contracts being broken are union contracts and legal promises to honor pension obligations. American is laying off 13,000 workers, slashing wages, and reducing its annual pension contribution from $97 million to $6.5 million. The airline hopes to stick the federal Pension Benefit Guaranty Corporation with liability for much of the $6.5 billion that it owes its workers and retirees.
This national indulgence for corporate bankruptcy has a certain logic. The Wall Street Journal editorial page recently termed bankruptcy “one of the better ways in which American capitalism encourages risk-taking,” and that is the prevailing view. Thanks to Chapter 11, a potentially viable insolvent enterprise is given a fresh start as a going concern, rather than being cannibalized for the benefit of its creditors.
However, what’s good for corporate capitalism is evidently too good for the rest of us. Suppose everyone felt that way?
by Robert Kuttner, The American Prospect | Read more:
“Then,” said Yossarian, “I’d certainly be a damned fool to feel any other way, wouldn’t I?” —Joseph Heller, Catch-22
Last November 29, American Airlines declared bankruptcy under Chapter 11, the provision of the bankruptcy code that allows a corporation to stiff its creditors, break contracts, and keep operating under the supervision of a judge. This maneuver, politely termed a “reorganization,” ends with the corporation exiting bankruptcy cleansed of old debts. In opting for Chapter 11, American joined every other major airline, including Delta, Northwest, United, and US Airways, which has been in and out of Chapter 11 twice since 2002. No fewer than 189 airlines have declared bankruptcy since 1990. As the sole large carrier that had not gone bankrupt, American missed out on savings available to its rivals and thus was increasingly uncompetitive.
by Robert Kuttner, The American Prospect | Read more:
