Republic Airlines (Indianapolis International) is a step is closer to exit Chapter 11 bankruptcy proceedings with the closure of a dispute this week with Residco over breaking an agreement in the lease of seven E145.
Republic filed for bankruptcy protection in February 2016, blaming a pilot shortage. Being unable to recruit, train and retain sufficient crew left them in a position where they could not fully carry out operations for partner airlines United Airlines (United Express), Delta Air Lines (Delta Connection), and American Airlines (American Eagle).
As part of its bankruptcy reorganisation plan, Republic Airways Holdings consolidated its various indebted businesses: Republic Airlines Holdings, Republic Airlines, Shuttle America Corporation, and Republic Airways Services Inc (RASI). This is a procedure known as 'substantive consolidation'.
It also extracted itself from unwanted aircraft leases, including its ERJ-145 fleet leased from Residco. These leases were for N288SK, N561RP, N259JQ, N286SK, N287SK, N563RP and N562RP, with Shuttle as the lessee and Republic acting as guarantor.
Residco claims that Republic's substantive consolidation reduces their ability to recoup damages from Shuttle over the broken lease agreements, because under the Plan creditors give up their guarantee claims. In fact, Residco contends that the guarantee claims against Republic are worth $50 million more than the lease claims against Shuttle.
In order to avoid any prejudice to Residco, Republic has proposed a Carve-Out, which allows Residco to make its claims either under the substantive consolidation, or as though the consolidation had not occurred.
In light of this, the court rejected Residco's objections to the substantive consolidation, finding that the carve-out provides robust protections. It observed that in making its objections, Residco "very much wants to 'have [its] cake and eat it too'." It also accused Residco of making a last minute ambush in order to try to secure a preferential settlement.
As part of its reply, Republic urged the importance of exiting Chapter 11 as soon as possible, stating that delays will further impair their ability to hire pilots – a contributing factor to the bankruptcy proceedings in the first place. The sooner Republic can close Chapter 11, the sooner it can secure transactions and improve its liquidity.
With this objection dealt with, the Plan is now close to being finalised. Almost 95% of the unsecured creditors are in favour of the Plan, under which they will be able to recover approximately 45 cents on the dollar.
