Despite the increased liberalisation of the skies, many in the aviation industry still argue the lack of a level playing field.
With the rise of the Gulf carriers operating globally, a friction has emerged between the Gulf and US carriers, with the former claiming that US carriers enjoy subsidy in the form of Chapter 11.
Chapter 11 encapsulates the section of the US bankruptcy laws that allow firms to restructure their operations. Practically, all major US carriers have gone through the Chapter 11 process in the past.
Does Chapter 11 constitute a subsidy?
In the paper, we dive into the legal and economic framework of Chapter 11, and dismantle the claims and find that Chapter 11 broadly does not constitute a subsidy. Only the termination of pension plans might involve a subsidy, but only using a legal definition of doubtful relevance, since there is normally no use of public funds. Hence, access to bankruptcy laws can be perceived as a locational advantage similar to tax and labor laws.
The manuscript is forthcoming in the Journal of Air Transport Management.
For more details about this paper, please contact Prof. Benny Mantin.