AA, AMR subs agree to $24.9M in FAA fines

[eolesen]

This makes them as an unsecured claimant, which in turn means they've already agreed to be treated the same as the PBGC, Boeing, or the TWU.

 

[FWAAA]

What choice would the FAA have?

I haven't read the POR in detail, but unless it provides that unsecured claims of $19.5 million or less will be paid in cash (I doubt it does), then the FAA will get $19.5 million of new stock, just like every other unsecured claim (as eolesen pointed out).

The bankruptcy code provides no priority for pre-petition fines owed the FAA, so the FAA's claims are general unsecured claims.

 

[WorldTraveler]

The government has the right to demand cash and some obligations are not subjected to the claims process along with other claims.

It is not clear what position the FAA is taking but it is not a given that the FAA will accept stock in lieu of a cash payment.

They did withhold cash from payments other branches of the US gov't owed to AMR.

 

[eolesen]

The only government obligations I'm aware of that aren't subject to being treated on the same basis as any other unsecured creditor are taxes, and penalties directly due to non-payment of taxes.

That's written into the bankruptcy law specifically to prevent individuals and entities from avoiding their taxes thru bankruptcy.

The cash payments withheld that WT refers to have are already proposed to be debited from the final claim.

Treating the federal government differently than any other government agency (i.e. state airport authorities, local municipalities who own airports) would be considered preference.

I don't see the courts agreeing to a preference payment to the federal government on a fine, and this judge has already shown that he's willing to kick stuff out which doesn't comply with the letter of the laws.

 

[Glenn Quagmire]

I don't see how the FAA could ever own any airline stock.

 

[OldGuy@AA]

You're not telling me anything I didn't already know. You're preaching to the choir. Nothing about the 2008 MD-80 fiasco had anything to do with airworthiness or safety. Very little about the FAA's inspections and penalties have anything to do with actual safety. For the most part, the FAA strings up airlines by their own language - didn't AA engineers write the specs that were adopted by Boeing for these wiring wraps? And then some FAA inspectors caught AA not following their own specs. The failure was inconsequential as safety was not compromised. But far too many people think: "AA management and mechanics failed to do something this simple - like follow ther own specs - what else are the failing to do with respect to maintenance?"

But nothing about that fiasco can be pinned on the pilots or FAs or fleet service or agents, yet they all get to help pay (along with all the other AA creditors) for management's failure to demand that AA's mechanics stick to the script without any deviation. And some mechanics' failure to pay strict attention to detail when performing the task.

If it's supposed to be one inch, and not 0.95 inches and not 1.05 inches, then the only acceptable outcome is that every single example measure out at exactly 1.0 inches. That ain't rocket science - it's simply attention to detail. AA managers and AA mechanics failed, and the FAA found out. Most of the time, that's gonna cost the airline some $$$.

The point is that AA should have refused to pay on the grounds that there never was a safety issue with these aircraft. They should have also added that everyone who flys aircraft outside of the country for maint. gets a free pass from the FAA. But the only people AA fights are their own employees.

 

[eolesen]

I don't see how the FAA could ever own any airline stock.

FAA won't own the stock -- control will probably pass to Treasury.

Not the first time something like this has happened -- the federal government was one of the largest shareholders of GM at one point. As long as DOT/FAA isn't trying to influence what Treasury is doing with the stock, there are enough degrees of separation to avoid conflict of interest.

Also not really much different from GSA being a client, demanding steeper discounts in exchange for having the FAA lighten up on oversight of that particular carrier...

The point is that AA should have refused to pay on the grounds that there never was a safety issue with these aircraft.

Sounds like a great idea, right up to the point where the FAA ups the ante, and gives AA the finger while revoking your operating certificate...

 

[Glenn Quagmire]

The point is that AA should have refused to pay on the grounds that there never was a safety issue with these aircraft. They should have also added that everyone who flys aircraft outside of the country for maint. gets a free pass from the FAA. But the only people AA fights are their own employees.

Violation of policy is just that. SMS are built on the foundation of following protocol, directives, and technical manuals, etc.

The FAA is charged with oversight of that. Just because you rolled through the stop sign and did not cause an accident does not mean that you were not in violation. Every time regulations, technical manuals, checklists, etc. are fudged, risk is introduced into the system. Accidents and incidents are rarely ever attributed to a single failure in any complex system.

 

[Glenn Quagmire]

Also not really much different from GSA being a client, demanding steeper discounts in exchange for having the FAA lighten up on oversight of that particular carrier...

Come now E, you would have to assume that the GSA and FAA actually talk to each other to make that leap.

 

[Bob Owens]

Or the FAA could say its $24.9 million or your operating certificate. Allowing a company to get out of fines by declaring BK makes no sense. So the next time a mechanic or pilot gets fined they can declare BK, not pay the fine and keep their tickets? I doubt it.

The FAA is not a creditor, its a regulator, the fines were levied.

 

[eolesen]

The point you might be missing is that company isn't using bankruptcy to get out of the fines. They negotiated them down, which happens all the time out of bankruptcy.

The only thing related to the bankruptcy is they're being handled the same as any other unsecured creditor. Maybe DOT's financial guys see the potential upside on the stock worth the risk.

 

[FWAAA]

I haven't seen anything that says that the FAA will accept stock in lieu of cash... that's why US currency says "In God We Trust - all others pay cash."

While humorous, that's not the applicable law.

This makes them as an unsecured claimant, which in turn means they've already agreed to be treated the same as the PBGC, Boeing, or the TWU.

Precisely. The settlement agreement makes clear that the FAA agreed to a reduced civil penalty that will be a general unsecured claim. Here is the settlement agreement and motion to approve:

http://www.amrcaseinfo.com/pdflib/8094_15463.pdf

The government has the right to demand cash and some obligations are not subjected to the claims process along with other claims.

It is not clear what position the FAA is taking but it is not a given that the FAA will accept stock in lieu of a cash payment.

They did withhold cash from payments other branches of the US gov't owed to AMR.

The "government has the right to demand cash"? I'm a lot more familar with 11 USC § 507 than you are and there is nothing in the bankruptcy code that grants priority to the FAA's general unsecured claims. As eolesen pointed out, the major government debts entitled to priority would be taxes, and the FAA civil penalties aren't taxes.

The $5 million in cash owed to AMR was set-off against the potential penalties, a common law right of creditors. AA and the FAA negotiated the $162 million potential claims down to $25 million and AA agreed that the FAA could set-off the cash owed to AMR. That has nothing to do with the form of payment that the government will receive when the AA POR is confirmed. If the POR provides that claims of $19 million or more get stock, then stock is what the government will get. If the POR provides that claims of $19 million get paid in cash, then everyone owed $19 million or less (including the FAA) would get cash. I'm fairly certain that is not the case.

I don't see how the FAA could ever own any airline stock.

As eolesen pointed out, it will likely be titled in the name of "US Treasury," not "Federal Aviation Administration."

Treasury still owns billions of dollars of GM. What's a tiny percentage of new AA? Recall that PBGC received stock of DL and UA when they terminated their pilot pensions. Perhaps even stock in US when it terminated its pensions in Bankruptcy part Deux.

The point is that AA should have refused to pay on the grounds that there never was a safety issue with these aircraft. They should have also added that everyone who flys aircraft outside of the country for maint. gets a free pass from the FAA. But the only people AA fights are their own employees.

One thing you might be overlooking is that AA management doesn't have free reign to spend money fighting the FAA, as the Unsecured Creditors Committee is in charge. The settlement document says there are about 90 separate enforcement actions that would need to be litigated if AA and FAA didn't settle. While I love a good legal battle as much as the next person, Horton isn't completely in charge and couldn't authorize that battle even if he wanted to if the UCC told him "just settle for 15 cents on the dollar." The UCC is running the show. Recall that pilots and FAs own a lot more of the new AA than the TWU. And a lot of the TWU claim will go to Fleet, and they had nothing to do with the MD-80 fiasco. Then there's all the other non-employee creditors (Boeing, HP, various banks) who just want this to go away, and at 15% of the initial potential claim, they think they got a good deal.

I can appreciate how AA's mechanics (whose work on the MD-80s did not threaten airworthiness or safety in any way) might want AA to fight that one to the death. But if that cost millions in legal fees and caused lots of people to have to testify (and that testimony almost always brings up some embarrasing facts nobody really wants to dig up), and AA lost the battle, then AA might end up spending a lot more $$$ than $25 million and might have a determination that its maintenance was negligent. In this settlement, AA admits nothing. I doubt any AA mechanics are willing to fund the difference in case a legal battle ended up costing $50 million total instead of the $25 million settlement.

Ever since November 29, 2011, Horton has been marching to the drumbeat of the UCC. Hate him for being an Evil SOB, but he's been taking marching orders from the new owners of AA: the unsecured creditors. That's been true since Day 1 of this bankruptcy. Prior to filing for bankruptcy protection, Arpey and Horton could spend all the money they wanted fighting the FAA subject to approval by the AMR board of directors. Of course, the board gave those guys a lot of latitude. The UCC isn't quite as chummy as the bod was.

The FAA is not a creditor, its a regulator, the fines were levied.

That's not quite correct. The FAA is most certainly a creditor. An unsecured creditor. Everyone owed money by AA (or any other AMR subsidiary that filed) on November 29, 2011, is a creditor. The FAA didn't levy any fines - AA and the FAA agreed that AA would permit an unsecured claim in the amount of $25 million and that the G could offset the $5 million owed by the USPS and the Dept of Defense, leaving less than $20 million as a general unsecured claim. The FAA is in no better position for this $20 million than the hotels that were stiffed by AA and Eagle.

 

[Bob Owens]

That's not quite correct. The FAA is most certainly a creditor. An unsecured creditor. Everyone owed money by AA (or any other AMR subsidiary that filed) on November 29, 2011, is a creditor. The FAA didn't levy any fines - AA and the FAA agreed that AA would permit an unsecured claim in the amount of $25 million and that the G could offset the $5 million owed by the USPS and the Dept of Defense, leaving less than $20 million as a general unsecured claim. The FAA is in no better position for this $20 million than the hotels that were stiffed by AA and Eagle.

Sure they are, they can take their certificate back. Then AA flies no more.

You seem to forget that AA flies with the permission of the FAA and the FAA can revoke their permission, especially if they dont pay the fines.

Like I said, do you think if a pilot or mechanic declared BK and tried to use that as a means to avoid paying a fine that the FAA would allow them to keep their tickets? Our certificates remain the property of the FAA. Are you saying that the FAA is being treated like workers in that they are the only other creditor that cant simply take their property and leave?



The comparasion to GM is flawed, GM didnt use BK to escape legal punishment, the government loaned them money.

If the FAA agreed to it then it just shows how corrupt our system has become, how these "legal persons" have put themselves above the law and are immune to prosecution when they violate the rules. but nothing suprises me any more, when the peasants start putting heads on pikes them maybe the system will work towards at least a semblance of fair and equitable again. Between saying "too big to fail", to "too big to prosecute" now we have it where they cant even enforce fines against a company, it just shows how in reality laws do not apply to corporations, unless they want them to.

Paying fines in stock just shows what a mockery our government has become.

 

[eolesen]

The comparasion to GM is flawed, GM didnt use BK to escape legal punishment, the government loaned them money.

AA didn't use BK to escape legal punishment, either.

If the FAA agreed to it then it just shows how corrupt our system has become, how these "legal persons" have put themselves above the law and are immune to prosecution when they violate the rules.

If you want to go looking for a real mockery and some abject corruption, I suggest you start with the TWU/IAM "alliance" just announced.

Looking for fault in the bankruptcy process isn't going to yield much success at this point. Everything that's happened in court so far seems to be above reproach.