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Law360 (September 4, 2020, 7:05 PM EDT) -- Over the objections of the U.S. trustee, Dallas-based Superior Air Charter LLC secured confirmation Friday for a Delaware Chapter 11 plan that will see the company's three remaining aircraft resume operations under a new business model.
Judge Christopher S. Sontchi brushed aside opposition from the Office of the U.S. Trustee, which argued that Superior's plan was not feasible and that the company was actually liquidating its business after letting go of 10 of its 13 aircraft without showing that it can operate profitably.
Referring to the economic downturn caused by the coronavirus pandemic, the judge said his ruling reflected the flexibility emerging in bankruptcy court under the current "extraordinary circumstances."
"There was some criticism that people were being cautiously optimistic about the business plan," Judge Sontchi said. "I think in today's reality, if you're anything more than cautiously optimistic, you're delusional. Cautiously optimistic sounds pretty good to me."
The judge said he would be "be surprised but not shocked" if the business ended up back in bankruptcy within a year.
"That kind of gets me to: What does 'feasibility' mean? I think it means that it's more likely than not that there will not be a further reorganization," Judge Sontchi said.
The more than a decade-old company had never turned a profit, the U.S. trustee noted, and flew into a pandemic-shriveled economy not long after attempting a major expansion of its service areas. It sought bankruptcy protection April 28 with about $75 million in unsecured debt and about $50 million in prepaid flight hours owed to about 870 subscribers.
In addition to suffering from pandemic-related economic disruptions, Superior Air reported that much of its business was grounded by reliability and other problems with many of the aircraft it operated. The company expects to emerge from Chapter 11 with only three four-seat aircraft in its fleet and a handful of employees.
Before the filing, Superior operated on a thin margin as a charter affiliate of JetSuiteX LLC, a regional air carrier with flights to southern California, Phoenix and Las Vegas, according to the company. The model before bankruptcy involved enrollments of prepaid costumers, or SuiteKey clients, who could schedule trips on Superior's small aircraft to locations not always served by regular airlines.
"This business is in trouble. It was in trouble before the petition date. It shut down post-petition and it is reorganizing with an extremely depleted fleet and an unproven business model," Judge Sontchi said. But currently, he added, "Every business has a chance of being back in bankruptcy."
Judge Sontchi overruled the objections of two SuiteKey customers, Richard Brown and Julius Glickman, who each had more than $70,000 in flying time credits at the time the company sought bankruptcy protection. Both challenged releases from liability for the company's officers, directors and managers and sought additional disclosures about liability insurance coverage that could be a source of damage awards for unhappy customers. Judge Sontchi said that, although the plan includes an injunction barring suits against released parties, arguments to allow individual suits can still be considered by the court after confirmation.
About a quarter of Superior's holders of prepaid flight time rights chose to cash out their claims in exchange for a fractional, and as yet undetermined, return. The rest retained their credits for rights to fly on reorganized routes.
Evan T. Miller of Bayard PA, counsel for Superior, said that the reorganized company would operate under a service brokerage model with affiliate Delux Public Charter LLC, rather than in direct consumer interactions. The business also would be resuming operations at a time when travel is on the increase.
"There is an absolute resurgence of interest in this industry," Miller said.
Judge Sontchi said that although the reorganized company was much smaller and will operate in a different way, that did not trigger a requirement to discharge the company from bankruptcy without confirmation.
"I think there's a lot going on right now in the Bankruptcy Court that is very much dependent on the extraordinary circumstances we're operating under," the judge said. "It's not business as usual, but at some point, God willing, we will return to business as usual, and the flexibility and benefit of the doubt, flexibility of due process that we're providing to help alleviate the economic problems we're seeing today, are no longer going to be available."
Superior Air Charter LLC is represented by Evan T. Miller, Daniel N. Brogan, Gregory J. Flasser and Sophie E. Macon of Bayard PA and David B. Stratton, Evelyn J. Meltzer and Marcy J. Mclaughlin Smith of Troutman Pepper.
Richard Brown and Julius Glickman are represented by William D. Sullivan of Sullivan Hazeltine Allinson LLC.
The Office of the U.S. Trustee is represented by Benjamin A. Hackman.
The case is In re Superior Air Charter LLC, case number 1:20-bk-11007, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Jill Coffey.
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