The purpose of the proposed stipulation is to enable American to continue hedging its jet fuel costs through Morgan Stanley uninterrupted. In order to do so, the parties have agreed to amend the Contract by requiring, among other things:
- (i) certain increases in the requirement to provide credit support;
- (ii) the elimination of the bankruptcy filing as an event of default;
- (iii) the addition of certain events of default relating to conversion of the chapter 11 case to a chapter 7 case or dismissal of the chapter 11 case, the appointment of a trustee (i.e., a court appointed official who essentially becomes the CEO of the debtor, exercising day-to-day control as he or she deems appropriate) or examiner with expanded powers (i.e., an official appointed by the bankruptcy court to investigate issues or problems identified with the debtor), and other actions taken by American or a third party during the chapter 11 case;
- (iv) the addition of certain representations and warranties; and
- (v) the addition of various acknowledgements regarding waiver of the automatic stay. The automatic stay begins at the moment the bankruptcy petition is filed and serves to halt a number of actions that could be taken by creditors, including collection of debts, actions to create liens against the debtor’s property, the beginning or continuance of lawsuits or proceedings against the debtor, and setoff of payments the debtor owes the creditor with payments the creditor owes the debtor.
In addition, Morgan Stanley’s lien with respect to American’s collateral provided under the Contract will be unquestionably effective against the Debtors and will take first priority over other liens on the same collateral. Although American currently does not owe Morgan Stanley any cure amounts with respect to the Contract, the stipulation also provides that American’s liabilities and any amounts American owes under the Contract will be treated as administrative expenses and will be entitled to a higher priority under the Bankruptcy Code. Finally, American will have no recourse to recover any payments or transfers to Morgan Stanley under the Contract.
The stipulation will be presented to the Court for approval on December 16, 2011 at 12:00 noon (Eastern Time). Objections are due by December 16, 2011 at 11:30 a.m. (Eastern Time)
Sabre’s Motion for Authority to Pursue Counterclaims Against American Airlines, Inc.
Sabre Inc., Sabre Holdings Corp., and Sabre Travel International, Ltd. d/b/a, Sabre Travel Network (collectively, “Sabre”) filed a motion (the “Motion”) seeking relief from the automatic stay to permit Sabre to assert and continue to pursue counterclaims against American Airlines, Inc. (“American”) in lawsuits started by American against Sabre in the U.S. District Court Northern District of Texas (the “Federal Action”) and in the District Court of the 67th Judicial District in Tarrant County, Texas (the “State Action”), and in any future actions that may be started by American against Sabre arising out of the same set of circumstances alleged in the Federal and State Actions.
According to the Motion, Sabre operates a computerized reservation system (“GDS”) that is used by travel agents, corporate customers, and the public to search, price, and book air travel services offered by airlines, hotels, and other travel providers. American created, owned, and operated the Sabre GDS until 2000. Although American continues to use the Sabre GDS, American has begun marketing its own computerized reservation system to travel agencies and corporate customers and is a competitor of Sabre in that market.
In November 2010, American brought the State Action against Sabre’s competitor, Travelport. In January 2011, American filed amended pleadings in the State Action, asserting claims against Sabre for breach of contract and unlawful interference with contracts under Texas law. At that point, both American and Sabre agreed to an abatement period, which brought the litigation to a halt so that Sabre and American could entertain settlement negotiations. During the abatement period, American brought the Federal Action against Travelport and Orbitz, asserting claims similar to those American had asserted against Sabre in the State Action. On June 1, 2011, the day after the abatement period ended, American amended its complaint in the Federal Action to assert federal antitrust claims and unlawful interference with contract claims against Sabre. On July 8, 2011, American amended its complaint in the State Action to include state antitrust law claims against Sabre. On September 7, 2011, American filed another amendment to its complaint in the State Action, asserting claims against Sabre for breach of contract, unlawful interference with contract, and state antitrust violations. On October 7, 2011, Sabre answered and counterclaimed for violation of Texas antitrust law and breach of certain contracts. As it stands, the State Action is scheduled for jury trial beginning on June 13, 2012 and the state court has issued a detailed discovery plan and briefing schedule to ensure that trial will not be hindered.
On November 21, 2011, the Judge in the Federal Action dismissed the state law unlawful interference claims, dismissed some but not all of American’s federal antitrust claims, and allowed American to file an amended complaint. On December 5, 2011, American filed a second amended complaint in the Federal Action, alleging that Sabre violated federal antitrust laws. Sabre has not yet filed an answer or counterclaims in response to the second amended complaint. According to the Motion, all document production is scheduled to be completed by March 1, 2012 and, with certain exceptions, all pretrial motions are due by June 15, 2012.
Based on the Motion, American has represented to Sabre that it intends to litigate its claims aggressively, regardless of the bankruptcy filing. Because the automatic stay prevents Sabre from asserting its counterclaims, which Sabre represents are integral to its defense against American, enforcing the automatic stay would be unfair and inappropriate. As such, Sabre seeks relief from the automatic stay, which will allow Sabre to assert its counterclaims against American in both the State Action and Federal Action and in doing so, ensure that the related claims are resolved at the same time and before the same court. Sabre represents that American does not oppose the Motion.
The hearing on the Motion is scheduled for December 22, 2011 at 10:00 a.m. (Eastern Time). Objections to the Motion are due by December 15, 2011 at 4:00 p.m. (Eastern Time).
Motion to Establish Procedures for Approval of Certain Aircraft Purchases from the Boeing Company and Certain Related Sale Leaseback or Financing Transactions
On December 12, 2011, the Debtors filed a motion seeking to establish procedures for approval of certain postpetition aircraft purchases from The Boeing Company (“Boeing”) and certain related sale leaseback or financing transactions (the “Procedures Motion”). According to the Procedures Motion, the Debtors have arrangements to buy 32 aircraft from time to time from Boeing pursuant to prepetition purchase agreements (the “Purchase Agreements”) with Boeing. On December 7, 2011, Boeing delivered and American paid for one aircraft (“Aircraft #1”), and Boeing is scheduled to deliver another aircraft on December 13, 2011 (“Aircraft #2”). Boeing’s delivery of additional aircraft through 2012 is scheduled to begin on January 10, 2012.
Under the Purchase Agreements, on each delivery date, the Debtors make a final cash payment to Boeing for the remaining purchase price for an aircraft. Boeing then delivers the aircraft to the Debtors along with a bill of sale conveying title to the aircraft. The Debtors then fly the aircraft to one of their facilities, where the aircraft undergoes preparation for placement into the Debtors’ operations. Soon after delivery, the Debtors typically close on a customary sale leaseback transaction (i.e., a financial transaction in which the owner sells an asset and leases it back for the long-term – in the Debtors’ case, for a period typically between 12 and 14 years) or a financing arrangement with respect to the aircraft. The Debtors have existing agreements with three counterparties to enter into sale leaseback transactions for 25 of the Boeing Aircraft scheduled for delivery through 2012. Although the Debtors mostly enter into sale leaseback transactions with respect to newly purchased aircraft, from time to time the Debtors may finance the acquisition of an aircraft or borrow on the value of an owned aircraft.
In order to avoid the time and expense of seeking individual orders of the Court with respect to each delivery of aircraft, the Debtors have developed procedures for the purchase of aircraft from Boeing, and their entry into related sale leaseback or financing transactions for deliveries through the period ending December 31, 2012. The proposed procedures are as follows:
- (i) The Debtors must provide notice of the purchase of an aircraft to the attorneys for the Committee on or before five (5) business days before any scheduled delivery, together with (1) the most recent drafts of any sale leaseback or financing agreement (the “Transaction Agreements”) that the Debtors intend to enter into with respect to the aircraft, and (2) a proposed order to be submitted to the Bankruptcy Court approving the sale leaseback or financing transaction
- (ii) Confidential terms will be redacted from the Transaction Agreements, but will be provided to the Committee’s professionals after a confidentiality agreement between the parties has been executed.
- (iii) The Committee will have three (3) business days after receiving the purchase notice to file an objection with the Bankruptcy Court. If the Committee files an objection to the delivery of the aircraft, Boeing will not deliver the aircraft on the scheduled delivery date and the Debtors will not enter into any sale leaseback or financing transaction with respect to the aircraft, pending further order of the Bankruptcy Court. The Debtors may schedule a hearing at the earliest possible date with the Bankruptcy Court, on notice to the Committee only, for a determination with respect to the Committee’s objection.
- (iv) If the Committee does not file an objection within three (3) business days after receiving the purchase notice,
- a. without further order of the Court, (1) Boeing may deliver the aircraft on the scheduled delivery date, and may apply any payment received by Boeing in respect of the sale, and (2) the Debtors may make their final payment for the aircraft on the delivery date and take delivery of the aircraft; and
- b. upon entry of the proposed order, the Debtors will be authorized to close with respect to the proposed sale leaseback or financing transaction pertaining to the aircraft.
- (v) If the Committee timely objects to any proposed sale leaseback or financing transaction, but not the delivery of the aircraft,
- a. without further order of the Court, (1) Boeing may deliver the aircraft on the scheduled delivery date, and may apply any payment received by Boeing in respect of the sale, and (2) the Debtors may make their final payment for the aircraft on the delivery date and take delivery of the aircraft; and
- b. the Debtors will not enter into any sale leaseback or financing agreement with respect to the aircraft pending further order of the Bankruptcy Court. The Debtors may schedule a hearing at the earliest possible date, on notice to the Committee only, with respect to any such objection.
In addition to approving the proposed procedures, the Debtors have also requested that the Court ratify the purchases of Aircraft #1 and Aircraft #2.
On December 12, 2011, the same day the Procedures Motion was filed, the Court entered an order allowing the Procedures Motion to be heard on an expedited basis. The hearing on the Procedures Motion is scheduled for December 22, 2011 at 10:00 a.m. (Eastern). Objections are due by December 19, 2011 at 4:00 p.m. (Eastern Time).
Lowenstein Sandler PC
Sharon Levine, Esq.
S. Jason Teele, Esq.
Nicole Stefanelli, Esq.