ATA Business Bankruptcy Plan Blown To Bits

April 14, 2008 8:00 am Published by

At the beginning of the month, ATA Airlines closed forever, two years after a Chapter 11 Reorganization.  In several earlier blogs, I explained that bankruptcy is meant to buy time for businesses to work out a plan and, hopefully, get back on their feet or at least complete an orderly liquidation of assets.  That’s what ATA was trying to do.  The airline was engaged in talks with five potential buyers of their company, all the while keeping their 29 jets running.

Then, something unexpected went very wrong.  FedEx, who administers charter transport of supplies and of troops for the Pentagon, using ATA jets, decided to take that business away from ATA.  Without that source of revenue from the military charters, ATA was unable to continue working its plan to emerge out of bankruptcy.

As a bankruptcy attorney in Indiana, I’m dealing with both personal and small business bankruptcies every day.  In this bankruptcy blog, I’ve explained that the primary difference between personal and business bankruptcies is that with a personal bankruptcy, some debts can be discharged by the court.  In a business bankruptcy, debts are not discharged.  While some compromises may be negotiated with creditors, assets must be liquidated to pay the debts.

What is happening now in the ATA situation is that the company is petitioning the federal bankruptcy courts to let it sell off the assets it owns and get out of leases it has on its airplanes.  Meanwhile, all flights have been cancelled and all employees let go. 

This is a sad example showing that sometimes the bankruptcy safety net isn’t enough to save all companies, or, in this case, all airlines.

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This post was written by Mark Zuckerberg

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