## Facts

- Braniff Airways, Inc. and its parent filed Chapter 11 petitions and operated as debtors-in-possession.
- Braniff negotiated a transaction with Pacific Southwest Airlines, Inc. (PSA) to transfer substantially all significant assets, including aircraft, equipment, airport gates/slots, and related contract and operating rights.
- The transaction included a creditor distribution component, under which certain creditors (including ticket holders and other unsecured creditors) would receive PSA travel scrip/discount travel certificates in satisfaction or partial satisfaction of claims.
- The transaction also conditioned aspects of the deal on future plan terms, effectively constraining how a later Chapter 11 plan could classify and treat creditor claims.
- The bankruptcy court approved the transaction as an asset sale outside the ordinary course of business under 11 U.S.C. § 363(b).
- On de novo review, the district court admitted evidence and affirmed approval under § 363(b).
- Multiple creditors and parties in interest, including PBGC and Continental, appealed, arguing the transaction improperly bypassed Chapter 11 plan safeguards.

## Issues

1. Whether 11 U.S.C. § 363(b) permits a debtor-in-possession to sell substantially all assets outside the ordinary course of business without proceeding through Chapter 11 plan confirmation procedures.
2. Whether the PSA transaction constituted an impermissible sub rosa plan by restructuring creditor rights and dictating distributions and plan terms without compliance with Chapter 11’s disclosure, voting, and confirmation requirements.

## Decision

- The Fifth Circuit reversed the district court’s order approving the transaction.
- The court held the transaction exceeded the permissible scope of a § 363(b) sale because it did more than transfer assets and instead implemented plan-like creditor treatment and allocation of value.
- The case was remanded for further proceedings consistent with the opinion, precluding approval of the transaction in its plan-determining form.

## Legal Principles

- Section 363(b) authorizes sales outside the ordinary course after notice and a hearing, but it cannot be used to short-circuit Chapter 11 plan confirmation requirements.
- A transaction is improper under § 363(b) if it has the practical effect of a reorganization plan by restructuring creditor rights, allocating value among creditor constituencies, or dictating the terms of any future plan.
- Chapter 11’s plan process (including disclosure, claim classification, voting, and confirmation standards) is the required mechanism for imposing binding distributions and creditor treatment; those protections may not be avoided through a sale order.

## Conclusion

The Fifth Circuit rejected a pre-confirmation § 363(b) transaction that transferred substantially all assets while simultaneously prescribing creditor distributions and constraining future plan terms, holding that such a deal functions as a sub rosa reorganization plan and must be tested through Chapter 11’s confirmation process.


In re Braniff Airways, Inc., 700 F.2d 935 (5th Cir. 1983)