BNDES reiterates concerns over American confirmation plan

Washington DC
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The Brazilian development bank BNDES reiterates its concerns over the status of its loan agreements with American Airlines under the bankruptcy court’s confirmation of the carrier’s reorganisation plan.

The lender maintains that the renegotiated loan term sheets covering 177 Embraer regional jets could be terminated under the current plan as written even with amendments made in August following earlier discussions over a similar issue with the Fort Worth, Texas-based carrier, in a reservation of rights filing with the bankruptcy court today.

The termination would occur if either party deemed the confirmed reorganisation plan a “non-conforming plan”. In this case, BNDES claims that because the term sheet is “not executory” the contracts may not be eligible for assumption of the company post-bankruptcy.

American could be required to surrender the 177 Embraer 140 and 145 aircraft and pay $132.7 million in administrative expense claims under a snap-back claim in the event of termination, asserts BNDES.

“Given the size of the snap-back claim and number of aircraft at issue, termination would have potentially serious consequences for the debtors’ [American] operations and ability to move forward under the plan,” says the lender.

American objects to the three “clarifying changes” to the bankruptcy judge’s confirmation order that BNDES proposes, claiming that the export credit agency does not have standing.

In the event that the lender does have standing, the airline argues that the changes are “unnecessary” and calls them “parochial interests”.

“At this stage of these proceedings, enough is enough,” says American, citing the fact that BNDES has never objected to the reorganisation plan.

The loans in question were renegotiated by the two parties and approved by the bankruptcy court in November 2012. Under the deal, $1.75 billion in outstanding debt was reduced to $1.08 billion with all 39 Embraer ERJ-135s in American’s regional fleet returning to the lender by the end of this year.

The remaining 177 aircraft include 59 ERJ-140s and 118 ERJ-145s operated by American’s regional subsidiary American Eagle Airlines.

Without these aircraft, American would be left with only 85 aircraft in its regional fleet, based on the 30 June count. This does not include the at least six Embraer 170s operated by Republic Airlines that entered service on 1 August.