Withdrawal of Limited Objection of HSH Nordbank to Section 1110 Election
HSH Nordbank, AG (“HSH Nordbank”), individually and as agent for itself and other lenders, withdrew its limited objection to election pursuant to section 1100(a) of the Bankruptcy Code with respect to certain aircraft because it received the proper cure amounts as set forth in the limited objection.
Application to Retain McKinsey as Management Consultants
AMR Corporation, American Airlines, Inc., AMR Eagle Holding Corporation, and certain of their subsidiaries (collectively, the “Debtors,” and together with their non-Debtor subsidiaries, “AMR”), filed an application seeking to retain McKinsey Recovery & Transformation Services U.S., LLC (“McKinsey RTS”), McKinsey & Co., Inc. United States (“McKinsey U.S.”), and McKinsey & Company, Inc. Japan, (“McKinsey Japan” and together with McKinsey RTS and McKinsey U.S., collectively, “McKinsey”) as their management consultants, retroactive to the petition date, in accordance with the terms and conditions set forth in the engagement letter dated December 12, 2011. According to the application, McKinsey and its affiliates have considerable experience working with airlines, airports, and other parties in the aviation industry. In the last five years, McKinsey and its affiliates world-wide have completed approximately 400 engagements and 600 consultant years serving aviation-related clients, including scheduled air transportation providers, and various airport authorities/operators and aviation authorities. In addition, McKinsey claims that it has become familiar with the Debtors and their business, including the Debtors’ financial affairs, debt structure, operations, employee groups, cost structures and related matters.
McKinsey’s proposed services involve three separate phases:
(a) Phase I will consist of business plan support services. Professionals at McKinsey will work with members of the Debtors’ senior management team to evaluate the Debtors’ five-year business plan and associated models. McKinsey will catalogue macroeconomic, competitive, and core business driver assumptions built into the Debtors’ existing business plan and business plan models. McKinsey professionals will also work with the Debtors to test assumptions built into the Debtors’ existing business plan by conducting key sensitivities on multiple scenarios concerning macroeconomic growth and competitor actions.
(b) Phase II will consist of business plan adaptation services. During this phase, McKinsey professionals will adapt the initial business plan to reflect changes in competitive and economic climate.
(c) Phase III will consist of assisting the Debtors in third party business plan discussions. During this phase, McKinsey professionals will assist the Debtors in responding to inquiries from the Debtors’ key third-party constituents (e.g., representatives of the Committee, banks, suppliers, employee unions, and the Debtors’ other advisors and professionals) on specifics of the business plan.
In addition, an Executive Vice President will provide the following restructuring advisory services to the Debtors:
(a) Assist the Debtors in managing their bankruptcy process including working with and coordinating the efforts of other professionals representing various stakeholders of the Debtors;
(b) Assist in obtaining and presenting information required by parties in interest in the Debtors’ bankruptcy process including any official committees appointed in the Debtors’ chapter 11 process and the Bankruptcy Court itself;
(c) Assist the Debtors in maintaining a 13-week cash receipts and disbursements forecasting tool designed to provide on-time information related to the Debtor’s liquidity;
(d) Assist the Debtors in developing an actual to forecast variance reporting mechanics, including written explanations of key differences; and
(e) Assist with all such restructuring matters as may be requested that fall within McKinsey’s expertise and that are mutually agreed upon.
In exchange for its services, the Debtors will compensate McKinsey in accordance with the terms of the engagement letter, which provides a compensation structure (the “Fee Structure”) in relevant part as follows:
(a) Hourly Fees: McKinsey’s fees are to be based on the hours worked by McKinsey’s personnel at the following hourly rates:
i. Practice Leader: $750-$985
ii. Executive Vice President: $650-$750
iii. Senior Vice President: $500-$650
iv. Manager: $450-$500
v. Senior Associate: $350-$450
vi. Associate: $300-$350
vii. Analyst: $200-$300
viii. Paraprofessional: $100-$175
(b) Expenses: The Debtors will reimburse McKinsey for all reasonable out-of-pocket expenses incurred in connection with the engagement, such as travel, lodging, and postage, and communications charges.
McKinsey intends to file interim and final fee applications with the Court for the allowance of compensation for services rendered and reimbursement of expenses.
The engagement letter also provides for certain indemnification provisions. In short, the Debtors will indemnify, hold harmless, and defend McKinsey (including its past, present, and future affiliates) and the directors, officers, managers, shareholders, partners, members, employees, agents, representatives, advisors, and controlling persons (collectively, the “Indemnified Parties”) against liabilities arising out of or in connection with the engagement letter and/or its retention by the Debtors in these chapter 11 cases, except for any liabilities judicially determined by a court of competent jurisdiction to have resulted primarily and directly from the willful misconduct or gross negligence of any of McKinsey or the other indemnified parties in connection with McKinsey’s services provided under the engagement letter. In addition, if any court holds that the indemnification or reimbursement obligations are unavailable (other than circumstances where a court determines that liability is primarily and directly from the willful misconduct or gross negligence of the indemnified party), the engagement letter allocates contribution obligations based on the relative benefits and faults of McKinsey and the Debtors, subject to a limitation on McKinsey’s aggregate liability in an amount equal to its fees (but not expenses) actually received under the engagement letter.
Before the petition date, an affiliate of McKinsey provided services to the Debtors for which the Debtors paid $888,000 in fees. Neither McKinsey nor any of its affiliates have received any payments from the Debtors in the ninety days before the bankruptcy filing. As of the petition date, McKinsey does not hold a prepetition claim against the Debtors for services rendered and has not received a retainer or advance from the Debtors.
According to the engagement letter, the Debtors or McKinsey may terminate McKinsey’s engagement with or without cause at any time upon five (5) days written notice.
The hearing on the application is scheduled for January 27, 2012 at 10:00 a.m. (Eastern). Objections are due by January 20, 2012 at 4:00 p.m. (Eastern).
Application to Retain Morgan Lewis & Bockius as Special Counsel
AMR Corporation, American Airlines, Inc., AMR Eagle Holding Corporation, and certain of their subsidiaries (collectively, the “Debtors,” and together with their non-Debtor subsidiaries, “AMR”), filed an application seeking to retain Morgan, Lewis & Bockius LLP (“Morgan Lewis”) as special counsel to provide labor and employment advice to the Debtors, retroactive to the petition date. According to the application, Morgan Lewis has provided labor and employment advice and litigation and arbitration representation to the Debtors for over 25 years, and is the Debtors’ primary labor and employment counsel. Morgan Lewis has also represented and advised the Debtors for many years with respect to employee benefits matters, including pension and ERISA-related issues, and has assisted the Debtors in the evaluation of their pension obligations and assessment of pension-related labor proposals and in benefit-related arbitration and litigation. Morgan Lewis also regularly assists the Debtors with technical compliance under ERISA, as well as litigation arising under ERISA.
Morgan Lewis will provide services with respect to the following:
· collective bargaining and other labor-related negotiations on behalf of the mechanics and other union-represented employee groups during these chapter 11 cases, including labor agreement benefit provision negotiations, and excluding preparation and presentation of any motion under Bankruptcy Code sections 1113 or 1114, which will be handled by Paul Hastings LLP;
· labor and employment claims in arbitration and litigation around the country involving the Debtors and arising under collective bargaining agreements, benefits plans, ERISA or other applicable law, as well as proceedings before the IRS and U.S. Tax Court relating to the taxation of compensation and benefits paid by the Debtors to employees, all to the extent not stayed by the chapter 11 cases;
· continuing retirement plan work required under ERISA, including plan administration, preparation of plan summaries, technical IRS compliance, and effectuating changes to retirement plans under ERISA, but excluding matters to be handled by the Groom Law Group, Chartered; and
· such other matters as may arise in connection with the foregoing.
In exchange for its services, the Debtors will compensate Morgan Lewis in accordance with its current hourly rates and will reimburse Morgan Lewis for expenses according to Morgan Lewis’s customary reimbursement policies. Morgan Lewis’s 2011 hourly billing rates range from $128.00 for Legal Assistants to a maximum of $900.00 for Partners. Notably, Morgan Lewis provides the Debtors with a 10% discount from standard rates and will continue to provide such discount throughout the course of the bankruptcy. Morgan Lewis intends to file interim and final fee applications with the Court for the allowance of compensation for services rendered and reimbursement of expenses.
Morgan Lewis has received regular payments for services rendered to some or all of the Debtors before the petition date, including payments made to Morgan Lewis within the 90-day period before the petition date on account of legal services rendered prepetition totaling $2,950,440.45. As of the petition date, Morgan Lewis had outstanding fees and expenses totaling $109,701.19.
The hearing on the application is scheduled for January 27, 2012 at 10:00 a.m. (Eastern). Objections are due by January 20, 2012 at 4:00 p.m. (Eastern).
Application to Retain Paul Hastings as Special Labor Counsel
AMR Corporation, American Airlines, Inc., AMR Eagle Holding Corporation, and certain of their subsidiaries (collectively, the “Debtors,” and together with their non-Debtor subsidiaries, “AMR”), filed an application seeking to retain Paul Hastings LLP (“Paul Hastings”) as special labor counsel, retroactive to the petition date, in accordance with the terms and conditions set forth in the engagement letter dated November 17, 2011.
According to the application, Paul Hastings has a nationwide reputation and extensive experience and expertise in airline labor law and employment law and on labor and employment issues in airline bankruptcy proceedings. Many of Paul Hastings’ attorneys who will represent the Debtors in the bankruptcy have represented numerous air carriers on a broad range of Railway Labor Act issues, including collective bargaining, arbitration and litigation. In addition, Paul Hastings has represented one or more of the Debtors on various issues of airline labor and employment law since 1991. For example, Paul Hastings (i) previously served as Southeastern Regional Counsel on Employment Law issues for all AMR affiliates; (ii) represented American Airlines Inc. in extended Interest Arbitration proceedings, which followed a strike by the Association of Professional Flight Attendants at Thanksgiving 1993; (iii) represented Eagle in its 2000 Interest Arbitration with the Airline Pilots Association to resolve open issues in their multi-year agreement; and (iv) represented American Eagle Holding Corp. in multiple arbitration proceedings to resolve contract disputes with pilots, including multiple arbitration proceedings regarding a four-party “Flow-Through” agreement relating to pilots among American Airlines, American Eagle, the Allied Pilots Association, and the Air Line Pilots Association. As a result of its efforts, Paul Hastings asserts that it is intimately familiar with the complex legal issues that have arisen and are likely to arise in connection with the Debtors’ labor issues.
Paul Hastings’s proposed services include the following:
(a) advise the Debtors regarding matters of litigation, labor law, and employment law, including but not limited to grievance arbitrations, employment litigation, and collective bargaining obligations under the Railway Labor Act;
(b) advise the Debtors on all issues relating to labor or employment law as applied to a debtor-in-possession under the Bankruptcy Code, including but not limited to issues arising under section 1113 of the Bankruptcy Code;
(c) assist and counsel the Debtors in objecting to and litigating any potential bankruptcy claims by employees and/or unions; and
(d) such other issues as may be assigned by the Debtors in relation to (a) through (c) above (collectively, the “Special Labor CounselMatters”).
In exchange for its services, the Debtors will compensate Paul Hastings in accordance with its current hourly rates, and will reimburse Paul Hastings for its actual necessary expenses. Paul Hastings’ current hourly rates in the United States are $585 to $1100 for partners and counsel, $345 to $790 for associates, and $50 to $460 for paraprofessionals. Paul Hastings intends to file interim and final fee applications with the Court for the allowance of compensation for services rendered and reimbursement of expenses.
During the one-year period before the petition date, Paul Hastings received from the Debtors a total of approximately $2.6 million for services rendered, and costs and expenses incurred, in representing the Debtors. In accordance with the engagement letter, before the petition date, Paul Hastings received a $1 million advance payment to cover anticipated fees and expenses incurred, including those relating to the bankruptcy case. Paul Hastings represents that it has applied a portion of the advance payment to credit the Debtors’ account for Paul Hastings’ estimated charges for professional services and expenses incurred through the petition date and has reduced the balance of the credit available to the Debtors by the amount of such charges. As of the petition date, Paul Hastings estimates that it has a remaining credit balance in favor of the Debtors for postpetition services in the approximate amount of $987,000.
According to the engagement letter, the Debtors may terminate the engagement with Paul Hastings with notice at any time. Paul Hastings may terminate the engagement for non-payment of fees or other reasons, subject to applicable legal ethics standards.
The hearing on the application is scheduled for January 27, 2012 at 10:00 a.m. (Eastern). Objections are due by January 20, 2012 at 4:00 p.m. (Eastern).
Application to Retain Groom Law Group, Chartered as Special Employee Benefits Counsel
AMR Corporation, American Airlines, Inc., AMR Eagle Holding Corporation, and certain of their subsidiaries (collectively, the “Debtors,” and together with their non-Debtor subsidiaries, “AMR”), filed an application seeking to retain Groom Law Group, Chartered (“Groom”) as special employee benefits counsel, retroactive to the petition date, in accordance with the terms and conditions set forth in the engagement letter dated March 4, 2003. According to the application, Groom is a Washington, D.C. law firm with more than 50 attorneys and other professionals practicing exclusively in the employee benefits law field, and has represented debtors on employee benefit matters in a number of large chapter 11 cases, including Northwest Airlines, Continental Airlines, and US Airways Group. In addition, Groom has provided services to the Debtors on employee benefit matters for over ten years and is uniquely qualified to serve as special counsel to the Debtors for these matters.
Groom’s proposed services include advising the Debtors on the following:
(i) issues related to the Debtors’ employee benefit obligations under ERISA, the Internal Revenue Code, and the Bankruptcy Code;
(ii) any investigations, inquiries, or claims relating to their employee benefit plans made by the Department of Labor, the IRS, the Pension Benefit Guarantee Corporation, or the United States Trustee for the Southern District of New York;
(iii) claims by plan participants or beneficiaries that relate to the Debtors’ employee benefit plans; and
(iv) any proceedings before the Court, or any appellate court, relating to the Debtors’ employee benefit plans.
The Debtors and Groom have agreed that Groom will be paid its standard hourly rates, which range from $190.00 for paraprofessionals to $875.00 for Principals, minus a 10% discount. The Debtors will reimburse Groom for expenses incurred according to Groom’s customary reimbursement policies. Groom intends to file interim and final fee applications with the Court for the allowance of compensation for services rendered and reimbursement of expenses.
Groom received a $100,000 retainer from the Debtors before the petition date. Groom is owed $21,238.35 for services provided and expenses incurred between November 1, 2011 and the petition date, and intends to apply the retainer fee against the $21,238.35 Groom will apply the balance of the retainer fee against services provided and expenses incurred postpetition.
The hearing on the application is scheduled for January 27, 2012 at 10:00 a.m. (Eastern). Objections are due by January 20, 2012 at 4:00 p.m. (Eastern).
S. Jason Teele, Esq.
Member of the Firm
LOWENSTEIN SANDLER PC