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United's Long Journey into the Far Reaches of ' 1110
It looks like James Sprayregen and his team at Kirkland & Ellis have brought United Airlines to the verge of a successful exit from Chapter 11. That is all the more remarkable because a year ago, they seemed nowhere close. United was struggling with a host of problems, not the least the one that concerned me, the retention of its fleet of aircraft. The creditors who controlled those aircraft had the leverage of ' 1110 of the Bankruptcy Code that allowed them to repossess the planes as if the bankruptcy did not even exist. When some of those creditors attempted to exercise the right, however, the bankruptcy court — notwithstanding ' 1110 — enjoined them. And it did so on a theory that seemed to contradict the essential idea that bankruptcy is a procedure for the collective negotiation and resolution of creditors' claims: by coordinating their bargaining, United successfully argued, the aircraft creditors were guilty of an unlawful conspiracy in restraint of trade. The ensuing litigation finally established that United was wrong: There are no qualifications to ' 1110's absolute protection of aircraft creditors' rights, and coordinated bargaining by creditors of a common debtor in bankruptcy is permitted under the antitrust laws. But, it took not one, but two opinions of the Seventh Circuit Court of Appeals to establish those principles.
Background
When United Airlines filed its bankruptcy petition on Dec. 9, 2002, its fleet included about 175 airplanes financed by public investors in about 30 transactions. Their acquisition had been financed by the sale in public markets of certificates representing interests in trusts. The trusts lent the proceeds for the purchase of the aircraft, securing the resulting debt with liens in the aircraft and (in leveraged lease deals) the leases. Richard Hiersteiner of Palmer & Dodge LLP was lead counsel for the indenture trustees for most of those deals, and my firm became their co-counsel.
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