Lawyers to Profit From Airline Bankruptcy

Delta and Northwest have tapped legal consultants to handle corporate tax and immigration issues. And they've put on the payroll financial and aviation experts to advise them on government procurement matters.


Delta and Northwest have hired law firms to lead their bankruptcy cases. They've tapped legal consultants to handle corporate tax and immigration issues. And they've put on the payroll financial and aviation experts to advise them on government procurement matters.

It's the business of bankruptcy, and these days, with four major airlines in Chapter 11, it's big business.

The litany of firms that will provide professional services to Delta and Northwest as they wade through bankruptcy court will rack up fees of tens, perhaps hundreds of millions of dollars over the next few years. A partner at one of the firms helping Delta charges $795 an hour.

Unlike most creditors, however, those firms in general won't have to worry about getting their money since they are given priority by the court.

"Is there a price that is too expensive for open heart surgery, because that is what we've got here?" said New York bankruptcy lawyer William Rochelle. "We've got a terminally ill patient presented in the emergency room with life-threatening injuries."

He added, "And unfortunately, heroic measures are expensive for lawyers just like they are for doctors."

The new bankruptcy law that goes into effect on Oct. 17 doesn't restrict the amount that bankrupt companies can pay their lawyers, although a bankruptcy judge can.

Just how much the process will cost Atlanta-based Delta Air Lines Inc. and Eagan, Minn.-based Northwest Airlines Corp. is an open question. The bankruptcy case of UAL Corp.'s United Airlines has cost more than $250 million in the nearly three years it has been in court.

In court papers last week, Delta said partners at its chief bankruptcy law firm, Stroock & Stroock, charge $550 to $950 an hour. One of the firm's primary attorneys on the Delta case, Lawrence M. Handelsman, bills at $795 an hour. Paralegals and clerks at the firm bill at $170 to $275 an hour.

Northwest, meanwhile, has already spent almost $12.4 million on retainers and pre-bankruptcy legal advice, according to court records. That includes $5.6 million to its lead bankruptcy lawyers at Cadwalader, Wickersham & Taft LLP of New York before Northwest even entered bankruptcy court. The firm has also already received $1 million toward future fees.

That money will go fast. The firm bills $590 to $800 per hour for partners, and as much as $645 per hour for other attorneys. It bills up to $220 per hour for its legal assistants, according to Northwest's motion seeking permission to pay the firm.

Northwest knows many of the firms well.

Cadwalader, Wickersham & Taft represented it in its buyout of Republic Airlines in 1986, and has represented Northwest on tax issues since 1985. A $300,000 retainer went to Simpson Thacher & Bartlett LLP of New York for "special corporate and litigation counsel." It is already representing Northwest in its fight with two unions over preferred stock it was supposed to buy back under a 1993 wage-cut deal.

"If you talk to the average person, I think there's sort of a feeling out there that professionals are getting paid and creditors aren't, and they don't understand why the system works that way," said Ronald Barliant, a bankruptcy lawyer in Chicago, who has represented clients on both sides of the aisle.

But, Barliant said, creditors in a big case tend to be more understanding. He said they realize that "for them to get maximum recovery, they need professionals working on the estate."

Companies in bankruptcy generally account for their professional service fees in monthly court filings. The lawyers will file claims for the amount of their services, and the court will be asked to approve the payments. In United's case, a committee was set up to review fees paid out for professional services, and legal experts say they believe the same will be done in the case of Delta and Northwest.

A consulting firm called Seabury Group will be deeply involved in Northwest's restructuring. The restructuring firm has worked with troubled airlines before, including helping bankrupt US Airways in its merger with America West.

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