Arch Coal Inc. (fka ACIIQ)

[LouisDesyjr]

AAMRQ was a unique situation, not the same as ACIIQ

Normally, just based on the financials going into the filing, I would have agreed that AAMRQ was going to be worth nothing, but anyone following the process would have seen and realized that the problem was costs and it could be fixed. What is different about AAMRQ from ACIIQ, that is not present in this situation, is that AAMRQ was able to present a plan that would pay all other classes off in full over time. This was possible because AAMRQ used the bankruptcy process to reduce their labor costs and breaking any other contract that was causing the losses.

In the situation with ACIIQ, there is no way to restructure costs so the company is profitable. The main problem is that coal prices are too low, partly because of the large drop in natural gas and oil prices.

Here that is not possible to lower costs enough. Even after the bankruptcy ACIIQ is probably going to still be losing all kinds of money and has no hope of ever being able to make all of the liabilities whole.

I found a PDF case study that discusses how it was possible for AAMRQ at:
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&uact=8&ved=0ahUKEwi_3MDag8jKAhWCgj4KHVZfDD4QFgg-MAQ&url=https%3A%2F%2Fturnaround.org%2Fcmaextras%2FCarl-Marks-Competition-American-Airlines.pdf&usg=AFQjCNGtuGF6n8XYusxi2lGyYW5zVawKfA
( Google search term 'american airlines bankruptcy' )

If you look at the chart on page 9 of the PDF, you will see that all classes are 'Full Recovery' or '100% recovery'. The classes listed as 'Impaired' are only impaired because they would not be getting their money on the original terms, but they would still get 100% over time.

Some selected quotes from the case study:

The primary driver for AMR’s bankruptcy was to restructure its operating costs.

With 70% of AMR’s workforce unionized, management could use Section 1113 of the bankruptcy code for modification or rejection of Collective Bargaining Agreements (CBAs) and thus restructure its labor costs and achieve necessary cost savings.

In addition to labor restructuring, AMR utilized the bankruptcy code to restructure other liabilities and create significant costs savings.

As with the unsecured claims, all creditor claims were to be paid out in full including principal, interest, and interest on unpaid interest.

Using the bankruptcy process to 'restructure' their labor costs was not unusual in that time period, it is something that almost all of the airlines have done since the 1980s; the airlines were not able to operate with the high costs from the labor contracts so the airlines used the bankruptcy process to break the contracts. (As a side note, I do not agree with this tactic, the unions and airlines should have come an agreement without the management of the airlines using bankruptcy to break all of their contracts and force the concessions on the unions and other contracts or lease holders. Now if the other side was refusing to negotiate and making it so the airlines were never going to be profitable, then they forced them into that situation of using bankruptcy and breaking all of the contracts.)

Louis J. Desy Jr.