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With a potential Chapter 11 filing looming, Delta Air Lines’ business woes could mean millions of dollars in legal fees. But despite the airline’s longstanding and extensive relationships with Atlanta firms, local lawyers may not get huge billings from the company’s reorganization. Delta’s bankruptcy counsel is a New York firm, Davis Polk & Wardwell. Whether the Atlanta bankruptcy bar sees additional work depends on if the airline files in Atlanta, which likely would mean business from Delta’s creditors. It also depends on how Delta chooses to allocate its own legal work. The airline’s deputy general counsel, Walter A. Brill, said Delta does work with “just about every major Atlanta firm on one thing or another.” But because the company spreads its work among many firms, he added, it’s likely that no single Atlanta firm would benefit dramatically from a filing. As Brill put it, “If we have a relationship with a firm, we would feel free to use them regardless of where the proceeding was.” Even though a Delta bankruptcy won’t be the next Enron for any Atlanta-area firm — which generated $70 million for Alston & Bird, the court-appointed examiner — it still would generate a lot of fees. Billings in other recent airline filings indicate that a Delta bankruptcy could generate well over $100 million in professional fees. More than half of those fees would go to the lawyers, said Lynn M. LoPucki, a law professor at UCLA who studies bankruptcies. US Airways Group’s initial nine-month stint in Chapter 11, for example, cost $112 million in professional fees (which included work by accountants and other nonlawyers), according to filings with the Securities and Exchange Commission. United Air Lines, which has been in Chapter 11 since December 2002, had racked up $235 million in professional fees by the end of June, SEC documents show. Delta, with $24 billion in assets, is about twice the size of US Airways, based in Arlington, Va., and three-quarters the size of United, based in Chicago. New Jersey-based Global Crossing Ltd., which had pre-bankruptcy assets roughly similar to Delta’s, paid $174 million in professional fees during its 15-month period in Chapter 11, according to bankruptcy filings. It would be reasonable to expect similar fees for Delta, LoPucki said. NATIONAL, NOT LOCAL, LAWYERS Delta’s bankruptcy counsel, Davis Polk, is likely to see the lion’s share of the legal fees for any Chapter 11 work. And even if Delta were to file for Chapter 11 in Atlanta, it might not have much impact on that area’s legal market, lawyers said. Geography is not particularly relevant when it comes to the bankruptcy of a large national company such as Delta, said James H.M. Sprayregen, the lead bankruptcy counsel for United and a partner at Chicago-based Kirkland & Ellis. In such a high-stakes bankruptcy, Delta and its creditors would be likely to hire firms with national practices, he said. “It’s a bet-the-company endeavor, so historical relationships and geographical convenience are there — but not high up on the list in putting together a team of professionals,” Sprayregen said. If Delta were to file for Chapter 11 outside of Atlanta, he added, it would be merely “a blip on the local legal scene.” WHERE TO FILE? Delta’s deputy general counsel, Brill, said the company has not decided where a potential Chapter 11 filing would be. Local lawyers, bankruptcy and otherwise, are busily speculating. Many think Delta would file here to gain the home-court advantage. “They would be wise to file [in Atlanta], since they are so revered here,” said Claud L. “Tex” McIver III, a labor lawyer at Fisher & Phillips. Another lawyer said, however, that Delta might want to file far away from its pilot union to avoid the specter of angry employees picketing outside the bankruptcy court — and the ensuing media coverage. What’s more, there is little precedent for a major bankruptcy filing in Atlanta. There hasn’t been a mega bankruptcy case there since the late 1980s, when Texas-based Southmark Corp. filed in a case that ultimately was transferred to Dallas, said C. David Butler of Shapiro Fussell. “The judges here are untested on bigger cases,” he said. Butler, who has practiced bankruptcy law in the Southeast for more than 30 years, represented the examiner for Southmark, an Atlanta-based real estate services conglomerate. Other lawyers think Delta might file in Delaware, where it is incorporated and where 70 percent of large-company bankruptcies are filed; the court has a reputation for being debtor-friendly and acting expeditiously. However, the Delaware court is not the bankruptcy haven it used to be, said Butler, a former U.S. bankruptcy trustee. The court is short on judges, he said, so it does not work as speedily as in the past. Also, he added, a couple of its recent decisions have not been as favorable to debtors. “I think everything is going to go up to New York with a giant sucking sound,” he said. Like Delaware, the U.S. Bankruptcy Court of the Southern District of New York has a reputation as being debtor-friendly. “It’s hard to imagine something better than a New York bankruptcy judge,” Butler said, pointing out that New York also would be a convenient venue for Davis Polk, Delta’s bankruptcy counsel. IMPACT OF AN ATLANTA FILING Even if Delta were to file in Atlanta — assuming they file at all — opinions are mixed as to how much work there would be for local firms. “There would be an immediate boost to the local legal economy of over $50 million,” said Butler. Other lawyers agreed, citing the increase in work from both Delta and its creditors. Atlanta lawyers would get “significantly more work” if Delta were to file in Atlanta, said Charles E. Campbell, a bankruptcy specialist at McKenna Long & Aldridge. But Delta’s Brill said a potential Atlanta filing “may or may not make a difference” to local firms. He pointed out that many of Delta’s outside counsel are big national and international firms, capable of working in any venue. “It’s very hard to say that bankruptcy would create work for firms in any [specific] location,” he said. And Delta spreads its work among many Atlanta firms. “Unlike some companies that have one primary firm, we have a lot of close relationships that have developed over the years,” Brill said. These firms include Ford & Harrison and Paul, Hastings, Janofsky & Walker for labor work; Alston & Bird, King & Spalding, McKenna Long & Aldridge and Troutman Sanders for corporate work; and Rogers & Hardin and Kilpatrick Stockton for litigation. Brill also said that the Delta legal department’s philosophy is to do work in-house, if possible, because it’s more efficient and less costly. The airline has about 45 lawyers in its legal department. Delta’s labor negotiations are primarily done in-house, Brill said. For creditor negotiations, the airline would continue using its existing firms on dealings with specific business partners, he said. For example, he said, Delta would continue using Debevoise & Plimpton, based in New York, to handle its aircraft financing and leasing work. If Delta filed Chapter 11, it would continue to use its regular firms for day-to-day work, Brill said. Those firms might do some bankruptcy work from time to time, he said, but Davis Polk would handle the bulk of it. CREDITORS LOOK ELSEWHERE An Atlanta filing would not necessarily net local firms major work from Delta’s creditors either. Though creditors would need local counsel, this might not translate into huge fees for local lawyers. “We would probably not be using a significant amount of services in the Atlanta area,” said John Mazor, a spokesman for the Air Line Pilots Association, Delta’s pilot union. ALPA’s outside counsel is Cohen, Weiss and Simon in New York, which specializes in labor unions, he said. If the union were to retain Atlanta counsel, it would be a small local firm familiar with the courts — “nothing of a major role,” he said. In general, creditors would seek out local firms that know the judges and the ground rules, not to “plan the grand strategy,” said Jeff J. Friedman, a bankruptcy lawyer at Katten Muchin Zavis & Roseman in New York. Delta’s major hub, Hartsfield-Jackson International Airport, which leases gates and runways to the airline, does use an Atlanta firm as outside counsel — King & Spalding — a spokeswoman said. However, Delta is current on its lease payments, meaning the airport, which is owned by the city, has no potential claim, she said. A Chapter 11 filing could even cause some local firms to see their Delta dollars dry up — for a while, at least. That’s because all litigation is stayed when a company enters bankruptcy court, until the judge lifts the stay. There is also an outside chance that litigation could be transferred to the bankruptcy court, wherever that may be, in an effort to dispose of it more quickly, said Butler, the former U.S. trustee. This is not to say that local lawyers won’t make a dime if Delta decides to file for reorganization in Atlanta. “Local bankruptcy firms would do well, and firms representing the creditors’ committees would do reasonably well,” said Friedman, the New York bankruptcy lawyer. Depending on the duration, a Chapter 11 filing could result in legal fees “in the substantial seven figures for Delta’s main law firms, so even local counsel could see fees in the hundreds of thousands,” he said. “Would it make their year? Probably not,” he said. “But it’s a perfectly nice piece of business.”

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