Dallas/Fort Worth International Airport Board’s Objection to the Debtors’ Request for Entry of a Final Order on the Debtors’ Tax Motion
Dallas/Fort Worth International Airport Board (“DFWIAB”) filed an objection to the Debtors’ motion for entry of an order authorizing the Debtors’ to pay prepetition taxes and assessments and authorizing financial institutions to honor and processes related checks and transfers (the “Tax Motion”). According to the objection, DFWIAB is the operator and manager of the Dallas/Fort Worth Airport (“DFW Airport”) where the Debtors maintain significant operations.
Under federal law, the Debtors collect passenger facility charges (“PFCs”) on behalf of DFWIAB that are sent to DFWIAB on a monthly basis for DFWIAB’s use in paying for certain improvement projects at DFW Airport. In general, PFCs are fees charged to passengers flying out of various airports. Airlines collect these fees along with the passenger’s payment for flight. PFCs are held in trust by airlines and are not property of the a debtor’s estate. Instead, the airlines collect and hold these trust funds for the beneficial interests of the airports imposing the fees and are required to send the PFCs to the airports on a monthly basis. Because of the trust fund status given to PFCs, airlines do not have a legal or equitable interest in the PFC revenues. The airlines hold a mere possessory interest in the PFCs thought their handling and collecting of the fees.
Under federal law, a debtor airline is required to segregate PFC revenues in a designated separate PFC account that must be used solely for PFC transactions. Regardless of the amount of PFC revenues held by the debtor airline at the time of the filing of bankruptcy, the PFC account must include a reserve, the minimum amount of which is determined by federal law and regulations.
DFWIAB points out that the interim order approving the Tax Motion provides that the Debtors will timely pay PFCs and maintain a separate PFC account in accordance with federal law and regulations. Despite this directive, DFWIAB requests that the final order approving the Tax Motion include the specific requirements provided for in the relevant federal law and regulations in order to ensure that the Debtors’ obligations are fully understood and DFWIAB and other airports’ rights are fully protected. Accordingly, by the objection, DFWIAB requests that the final order on the Tax Motion:
i. Set forth the segregation and funding requirements as outlined in the federal laws and regulations;
ii. Direct the Debtors to send PFCs to DFWIAB on a monthly basis as required under federal law;
iii. Require the Debtors to provide DFWIAB with: (a) the PFC account information, (b) the PFC reserve amount, and (c) how the PFC reserve amount was calculated immediately upon the Debtors’ establishment of the segregated PFC account and the PFC reserve; and
iv. Provide that in the event of a default on sending of PFCs or on any other requirement under the federal laws and regulations or the final tax order, DFWIAB may seek to force the Debtors to comply with such requirements on an expedited basis before the Court.
DFWIAB has also indicated that it may be more beneficial to provide for the Court’s order regarding PFCs in a separate order apart from the other tax-related issues in the Tax Motion.
The final hearing on Tax Motion is scheduled for December 22, 2011 at 10:00 a.m. (Eastern Time).
Joinder of the City of Los Angeles (Department of Airports) to the DFWIAB Objection to the Tax Motion
The City of Los Angeles (Department of Airports) (the “City”) joined in the objection of DFWIAB to the Tax Motion, requesting the same relief sought in the objection also be afforded the City with respect to its airports where the Debtors maintain operations (i.e., Los Angeles International Airport and LA/Ontario International Airport).
Stipulation between the Debtors and Xiaoyi Li to Lift the Automatic Stay for a Limited Purpose
The Debtors have proposed to enter into a stipulation with Xiaoyi Li (the “Claimant”). According to the stipulation, the Claimant was a passenger on American Airlines Flight 331, which had a runway incident in Kingston, Jamaica on December 22, 2009 (the “Incident”). The Claimant alleges that she has claims against the Debtors relating to the Incident (the “Claims”) and has requested that the Debtors agree to lift the automatic stay to allow the Claimant to proceed with a lawsuit relating to the Incident (the “Action”), but solely as against insurance proceeds. The Debtors have agreed to lift the automatic stay with respect to the Claims on the following terms and conditions:
The Claimant may attempt to recover any judgment or settlement from the insurance coverage, if any, available under one or more insurance policies issued to the Debtors that cover the Claims (the “Available Coverage”).
The Claimant will not be allowed to recover from any party for intentional conduct or punitive damages.
Any judgment or settlement in the Action will be reduced by (i) the amount of any deductible or self-insured retention (i.e., the dollar amount specified in an insurance policy that must be paid by the insured before the insurance policy will respond to a loss) under the relevant insurance policy; and (ii) any share of liability under the relevant insurance policy of any insolvent or non-performing insurer or co-insurer.
The Claimant fully releases and waives any and all claims against the Debtors arising from the Incident. The Debtors will not be liable to the Claimant in any way whatsoever related to the Action or the Claims.
If an order is later approved by the Court that modifies the automatic stay with respect to other claimants who have claims against the Debtors that are fully covered by insurance, and the order contains provisions that are more beneficial to the claimants than the provisions of the stipulation are to the Claimant, then the beneficial provisions in the order will automatically apply to the Claimant and will supersede any conflicting provisions in the stipulation.
In the event the stipulation contains a provision that is more restrictive or burdensome than the provision in the order, the provision in the stipulation will not apply, but the provision in the order, if any, will apply to the Claimant.
The stipulation will be presented to the Court for approval on December 22, 2011 at 12:00 noon (Eastern Time). Objections to the stipulation are due by December 22, 2011 at 9:30 a.m. (Eastern Time).
Motion to Dismiss AMR Bankruptcy
Vern Englert, a shareholder of AMR who apparently represents himself, sent a hand-written letter to the Court requesting that the AMR bankruptcy be dismissed on a variety of grounds, including:
AMR has not proven itself to be in dire financial straits sufficient to warrant a bankruptcy filing;
AMR suffers from a case of bad management;
Other U.S. industries have recently chose a less disruptive path than bankruptcy to resolve financial problems;
AMR has not provided the Court with any evidence that shows AMR attempted to restructure via negotiation with creditors; and
Any potential takeover bid for AMR, if successful, would lessen competition and increase airline fares.
No hearing date has been scheduled to address Mr. Englert’s letter.
Request to Establish a Shareholder Committee
Simon Mark Tabashnick, a shareholder of the Debtors and self-proclaimed professional investor and trader, sent a letter to the Court requesting that the Court and U.S Trustee assist Mr. Tabashnick in establishing a shareholder committee to represent the interests of Mr. Tabashnick and other common shareholders who currently holder over 300 million shares of equity in AMR Corporation. According to the letter, Mr. Tabashnick’s main concern is that because equity holders are not treated as creditors in bankruptcy and typically bear a total loss of investment, a shareholder committee should be created to represent the interests of equity holders.
No hearing date has been scheduled to address Mr. Tabashnick’s letter.
Limited Objection of BAE Systems Controls Inc. and FADEC International to the Debtors’ Critical Vendor Motion
BAE Systems Controls, Inc. (“BAE Systems”) and FADEC International LLC (“FADEC”) filed an objection to the Debtors’ Motion For Entry of Order (i) Authorizing, But Not Directing, Debtors To Pay Prepetition Obligations of Critical Vendors, (ii) Authorizing and Directing Financial Institutions To Honor and Process Related Checks and Transfers, and (iii) Scheduling Final Hearing (the “Critical Vendor Motion”). On the day of the bankruptcy filing, the Debtors filed the Critical Vendor Motion seeking entry of an order that would set up processes and procedures with regard to entities that the Debtors identify as critical vendors. That same day, the Court entered an interim order approving the Critical Vendor Motion.
According to the objection, before the bankruptcy filing, BAE Systems and FADEC supplied various materials to the Debtors, including engines and engine controls, flight controls and cockpit and cabin systems. BAE Systems and FADEC also provided maintenance services in regard to these materials and equipment. As a result, BAE Systems and FADEC assert that they may be critical vendors. In the objection, BAE Systems and FADEC point out that the Debtors do not identify the names of critical vendors in the Critical Vendor Motion. Instead, the Debtors indentify classes or types of goods and services wherein the creditors who supply such service or materials may be critical vendors. Accordingly, BAE Systems and FADEC object to the Critical Vendor Motion to the extent that it does not identify the names of the critical vendors. BAE Systems and FADEC contend that without knowing the identity of the critical vendors, a creditor such as BAE Systems or FADEC is prejudiced in formulating a response to the Critical Vendor Motion. Moreover, a creditor does not know whether the Debtors are selecting a proper creditor as a critical vendor in accordance with the requirements the Debtors have laid out to the Court. BAE Systems and FADEC also assert that in a typical critical vendor motion, a debtor identifies and lists the critical vendors at a minimum by name and often with amounts owed and why they are critical to the debtor. As such, BAE Systems and FADEC request that the Court require the Debtors to list the critical vendors before the Court enters an order approving the Critical Vendor Motion on a final basis, and allow an opportunity for creditors to respond to the Critical Vendor Motion with the additional information.
The final hearing on the Critical Vendor Motion is scheduled for December 22, 2011 at 10:00 a.m. (Eastern Time).
Reclamation Demands
Under the Bankruptcy Code, if certain conditions are met, a creditor has the right to reclaim goods delivered to a debtor within 45 days of the debtor’s bankruptcy filing. Numerous creditors have filed reclamation demands with the Bankruptcy Court.
Reclamation Demand of Interline Brands, Inc.
On December 14, 2011, Interline Brands, Inc. d/b/a AmSan (“Interline”) served a written demand for reclamation on the Debtors. According to Interline’s demand letter, during the 45-day period before the bankruptcy filing, Interline supplied American Airlines, Inc. with janitorial supplies having a value of $70,590. Of this amount, Interline asserts that $44,895 worth of janitorial supplies was delivered during the 20-day period before the date of the bankruptcy filing. Interline asserts a demand for reclamation of the goods delivered to all the Debtors within 45 days of the bankruptcy filing. In addition, Interline requests that the Debtors segregate and refrain from using the goods until arrangements can be made for their return to Interline. Finally, to the extent the goods or their full monetary value are not returned to Interline, Interline intends to file claims against the Debtors concerning the goods, including administrative priority claims for the value of goods that Interline delivered within 20 days of the filing of the bankruptcy. Interline has not specified a date by which the goods must be returned before it will file claims against the Debtors.
Reclamation Demand of Pratt & Whitney
On December 15, 2011, Pratt & Whitney, a division of United Technologies Corporation (“Pratt & Whitney”) served a written demand for reclamation of goods delivered to the Debtors that have a total value of $1,522,296.06. By the demand letter, Pratt & Whitney demands that the Debtors return all goods of any kind received by American Airlines, Inc., or any of the other Debtors from Pratt & Whitney in the 45-day period before the bankruptcy filing. Pratt & Whitney also intends to file claims against the Debtors concerning the goods, including an administrative priority claim for the value of goods that were received by the Debtors within 20 days of the filing of the bankruptcy. Finally, Pratt & Whitney demands that the Debtors segregate the goods and refrain from the resale, co-mingling, and/or use of the goods in any manner whatsoever.
Amended and Supplemental Reclamation Demand of Rockwell Collins, Inc.
On December 15, 2011, Rockwell Collins, Inc. (“Rockwell Collins”) served an amended and supplemental demand for reclamation of goods delivered to the Debtors. The supplemental demand describes the goods subject to Rockwell Collins’ demand for reclamation, the name of the Debtor receiving the goods, invoices, packing lists, and other evidence demonstrating when the goods were shipped to and received by the Debtor.
Reclamation Demand of Chromalloy Gas Turbine Corporation
On December 15, 2011, Chromalloy Gas Turbine Corporation n/k/a Chromalloy Gas Turbine LLC and its unincorporated divisions Chromalloy Arizona, Chromalloy Connecticut, Chromalloy Dallas, Chromalloy Georgia, Chromalloy Los Angeles, Chromalloy Nevada, Chromalloy Oklahoma, Chromalloy Southwest as well as its subsidiaries, Chromalloy Component Services, Inc., Chromalloy Holland B.V., Chromalloy San Diego Corporation, and its joint venture BELAC LLC (collectively “CGT”), served a written demand for reclamation of goods delivered to the Debtors that have a total value of $3,900,100.94. By the demand letter, CGT demands that the Debtors return all goods of any kind received by American Airlines, Inc., or any of the other Debtors from CGT in the 45-day period before the bankruptcy filing. CGT also reserved its right to file claims against the Debtors concerning the goods, including an administrative priority claim for the value of goods that were received by the Debtors within 20 days of the filing of the bankruptcy. Finally, CGT demands that the Debtors segregate the goods.
Lowenstein Sandler PC
Sharon Levine, Esq.
S. Jason Teele, Esq.
Nicole Stefanelli, Esq.