As noted in previous posts here, here, here, here and here, it is extremely difficult to liquidate even an insolvent airline. Rather, such companies seem to go out to pasture in chapter 11 for an indefinite period until creditors approve some debt for equity swap that cleans up the balance sheet enough for exit financiers to risk the capital necessary to give the airline another swing at the plate.
In that regard, this US Today article examines the question of why it is so difficult to put an airline out of its misery, and essentially concludes that creditors, government, employees, and politicians have created such barriers to exiting the industry that it’s almost impossible for an airline’s owners simply to liquidate the damn thing and be done with it. This is too bad because the relatively scarce airline gates — which remain the main barrier of entry into the airline market — need to be allocated to savvy companies that are positioned to succeed. As Professor Ribstein reminds us here and here, airlines such as United, U.S. Air “and their ilk are starting to resemble nothing so much as Amtrak.” Professor Ribstein follows up with these typically insightful comments on today’s article.
By the way, speaking of Amtrak, Professor Gordon has comments and has helpful links on that black hole for money.