Q: What are the major airline bankruptcies you’re involved with?
A: I currently have some involvement with Northwest, Delta, United and Aloha. I represented US Airways as their lead restructuring counsel.
Q: What was your experience like working on the US Airways restructuring?
A: It was a group of people who worked around the clock for about a year with a primary objective of having a successful reorganization and ultimately saving jobs for about 29,000 employees who would have lost their jobs if there had been a liquidation.
There were lots of times when all the industry experts said liquidation was virtually certain and US Airways would fail. To have had such a successful outcome, in the context of the dark days from where we came from, is really a rewarding professional experience.
Q: How long do you think this phase will be, if it is a phase, of Chapter 11 restructurings?
A: That’s hard to say because of certain macro factors. Historically, the airline industry had about between seven- and eight-tenths of 1 percent of GDP in revenue. And more recently, for about the past five years, it has drifted down to about a half, or .55 of 1 percent. So the difference between those two is essentially the loss of the economic pie. And that amounts to about $20 billion a year.
It’s really in the pockets of consumers. So it’s a great thing from a consumer standpoint, but it causes a lot of distress and pain in the industry.
Q: What do you think makes the difference in an airline restructuring being successful or not?
A: Certainly part of it is macro factors and part of it is the opportunity set that the airline faces. The third part I think is how the company addresses those opportunities. And there’s not a lot of room for error most of the time. So a few wrong judgments in choosing from the opportunities that are available I think can be potentially devastating.
Q: With such volatile fuel costs, how do you restructure an airline and account for that volatility?
A: Well, fuel is obviously a cost that all the airlines have to take into account essentially in the same way. Southwest, as everyone knows, has had some fuel hedges in place that have given it a short-term advantage. But I think if you do the math you see that Southwest, in the last year or so, would have made more money if it had just been in the commodity speculation business hedging fuel than if it actually ran an airline. In the long term, the cost of fuel will have to be one of the costs that an airline can recover in its overall ticket price.
Q: What are the biggest challenges in working with management in a restructuring?
A: It’s a very stressful environment. Usually management ranks have been thinned out because management tends to leave during a reorganization. You have fewer people with more responsibilities, and very often, they may have to work very late at night and on weekends in a context where they have a very uncertain future, where they’re not really sure what they’re actually working for or if there will be any reward for their effort.
Q: Why do you think that attorneys’ hourly rates capture the imagination of the public?
A: It’s an easy, objective thing to focus on. There are times when people pay too much for lawyers, and the lawyers are too expensive and inefficient, and the company doesn’t get value for what is paid. And there are times when companies get extraordinarily good value. That may occur even when hourly rates are high.
Q: Why are you in Denver rather than D.C. or New York?
A: I had been in D.C. for nine years practicing and liked the city a lot. I also had three small boys at the time, and we came out West on a vacation. I discussed it with my wife and kind of concluded that maybe the kids would have more fun growing up in the kind of environment … in Evergreen than the kind of environment they had in Bethesda, Md., at the time.
Q: How did you learn to sail?
A: I learned to sail late in life. I took my sons, and we went to a two-and-a-half-day sailing school. At the end, they gave us the boat. The first thing that happened was our steering cable broke. And my oldest son, who I think was like 14 at the time, maybe even 13, said, ‘Hey, let’s take down the sails.’ I thought, ‘What a great idea.’ And so we took down the sails. We could turn the engine on and go in forward and reverse.
We were able to sort of navigate over to a place where we could put the anchor down. The experience was great because we had this kind of adversity with some serious risk. For the kids to be able to see it and deal with it and realize that it could not be solved with Dad’s credit card was really a great experience. Now we have a lot of fun doing it.
Edited for space and clarity from an interview by staff writer Kelly Yamanouchi.
