Direct Air In Chapter 7 Bankruptcy

The American Airlines bankruptcy isn’t the only headline describing the trouble in the airline industry these days. Direct Air has also been in the midst of a Chapter 11 case for the last few months. However, after continued troubles with debt restructuring the company has asked the judge to approve a conversion to a business Chapter 7 bankruptcy case instead.

Reorganization to Liquidation

Direct Air’s problem stem from many sources. For one, their current operations had ceased while in Chapter 11 and their management team resigned. The company was facing numerous obstacles before operations could have resumed including access to better terminal leases, aircrafts and fuel capabilities. Posting nearly a $10 million loss in profits in 2011, Direct Air wasn’t going to be able to realistically resolve their debts.

Their underfunded escrow and inability to maintain basic operating costs has pushed them past the point of reorganization. Their initial plan was to request for additional time to reorganize, but as more scrutiny over their financial management was called into question they changed course. This week, Direct Air petitioned the bankruptcy court requesting a conversion of their case into a Chapter 7 liquidation.

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