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TheStreet Open House

The Airlines Could Show Big Three the Way

The airlines "had been protected, and they had built in the cost of relationships that might or might not have made sense, but were unmanageable after deregulation," Levine says. "It is basically the same story for the automakers."

That history makes it hard for GM's Wagoner to consider bankruptcy, Levine says: "It's hard for him to get his head around the idea that he would take the company through a bankruptcy restructuring, in which you have to become politically unpopular." After all, bankrupt companies reject decades-old financial relationships with partners including dealers, suppliers and other leaseholders and, of course, labor unions.

"Part of the reason you have to go into bankruptcy is to renegotiate labor contracts ," he says. Given that the once adversarial relationship is now more of a partnership, "it's easier in bankruptcy court, with a gun to your head."

Without question, it took time for the airline industry to reach the point where bankruptcy fell within its comfort zone. "When airlines first contemplated going into Chapter 11, they were told no one would fly on a bankrupt airline," Levine says. "It turns out that wasn't true."

In the 1980s, two airlines used bankruptcy largely as a technique for battling their unions. Both Continental (CAL) and Eastern were Frank Lorenzo properties. A 1983 Continental bankruptcy was intended to break union contracts. The 1989 Eastern bankruptcy came in response to a strike.

Eastern eventually shut down, as did Pan American World Airways, which followed it into bankruptcy in 1991.

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