## Facts

- A regional airline holding company and affiliates entered Chapter 11 amid severe liquidity constraints and high operating costs.
- The debtors were party to a collective bargaining agreement (CBA) with a pilots’ union.
- The debtors asserted the CBA imposed labor costs that were materially above market and impaired competitiveness and contract retention.
- The debtors proposed CBA modifications that included significant reductions in pilot wages and benefits, along with changes to work rules.
- The proposal included management concessions and a profit-sharing feature for pilots; the union criticized the profit-sharing as offering inadequate upside and challenged the comparability of management sacrifices.
- Negotiations failed; the debtors maintained an overall concession target while negotiating structure and allocation.
- The debtors moved under 11 U.S.C. § 1113 for authority to reject the pilots’ CBA, asserting rejection was required to avoid likely liquidation.

## Issues

1. Whether the debtors satisfied 11 U.S.C. § 1113’s requirements to reject a pilots’ CBA, including a proposal based on reliable information, necessity to reorganization, fairness and equitableness, good-faith bargaining, union refusal without good cause, and equities clearly favoring rejection.

## Decision

- The court granted the § 1113 motion and authorized rejection of the pilots’ CBA.
- The court found the proposed modifications were necessary to permit reorganization, in that they provided a realistic path to continued operations and competitiveness rather than merely minimal cost savings.
- The court concluded the proposal was fair and equitable in the statutory sense despite uneven burden allocation, given pilots’ above-market compensation and concessions required from other constituencies.
- The court found the debtors bargained in good faith; maintaining an aggregate concession target did not, by itself, establish bad faith where grounded in credible financial need.
- The court held the union refused the proposal without good cause in light of the debtor’s financial distress and liquidation risk.
- The court determined the balance of equities clearly favored rejection because the likely alternative was liquidation and broad loss of jobs and contractual protections.

## Legal Principles

- A debtor may reject a CBA under 11 U.S.C. § 1113 only if it proves: (1) a proposal based on the most complete and reliable information available, (2) necessary modifications to permit reorganization, (3) a fair and equitable proposal, (4) good-faith negotiations, (5) union refusal without good cause, and (6) equities clearly favoring rejection.
- “Necessary” under § 1113 can permit modifications aimed at a feasible, competitive reorganization, not solely the minimum concessions needed to avoid immediate failure.
- “Fair and equitable” does not require identical sacrifices across groups; differential concessions may be permissible when justified by comparative prepetition economics and overall distribution of burdens.
- Hard bargaining and insistence on a fixed aggregate concession level can be consistent with good faith when supported by credible financial constraints and accompanied by meaningful negotiations over structure and implementation.
- In assessing “good cause” and the equities, courts may weigh liquidation risk and the consequences to the broader estate, including other employees and creditors.

## Conclusion

The court authorized rejection of the pilots’ CBA under § 1113 after finding the debtors’ proposed concessions were necessary for a viable reorganization, sufficiently fair and equitable, negotiated in good faith, refused by the union without good cause, and justified by equities strongly favoring rejection given the likelihood of liquidation absent relief.


In re Pinnacle Airlines Corp., 483 B.R. 381 (Bankr. S.D.N.Y. 2012)