This kinda sucks

[Michael]

How would you like to be a business owner, thinking everything is looking up, you've landed that big airline contract and the money should start rolling in anyday now..unless your in Arizona...and your airline contract was with northwest...

NWA bankruptcy 'stiffs' Arizona hotels out of $1M, paper says

Northwest's bankruptcy filing forced it to skip payments due to some of the hotels it used to house 500 mechanics who were training to replace Northwest Airlines mechanics ahead of last August's strike. Now, at least three Tucson hotels say they've been stuck with more than $1 million in unpaid bills, according to the Arizona Daily Star of Tucson. "I've been dumped by girlfriends and taken a lot of other hits, but this one really, really hurt," says John Cousins, general manager of the Smuggler's Inn -– one of the affected hotels. "I lost a lot of sleep over this." Roger Golden, general manager of the Hotel Arizona, is also peeved by the turn of events. Not only did the room payments not come through, but he says full rooms meant extra costs for things like supplies and utilities. "Not only did our property have higher costs than we would have had, but at the time, we were affiliated with Radisson, so we had to pay franchise fees based on revenue that we never got," Golden says. "And their business (Northwest) displaced other business."

Posted at 02:02 PM/ET, Feb 03, 2006 in Northwest, Offbeat​

 

[Let'sgoflying!]

Did they not know the airline was not A rated last summer? Sounded a bit like a managed risk decision, I could be wrong. Probably should have handled the transaction like all their other clients, payment up front please.

 

[SCCutler]

...not taking sides in the battle between the union and the carrier (and God knows I am no fan of the IAM), but a hotel owner, approached about committing a substantial proportion of their inventory for a long time, should always do a credit review and consider, as part of that review, the reasons for the lodging.

NWA was not fighting with its mechanics because they had too much money in the bank and the mechanics would not accept enough of it! And, their precarious financial position was a matter of public record.

A simple escrow agreement and COD from escrow would have been a reasonable business practice and, if the airline was unwilling to pay for the rooms at the time they were used, why should any rational business owner expect that they'd be more likely to pay later?

As another (very practical) reason they should have done it this way (and had they been my client, would have been so counseled...) is that, even if they had been paid in full, if that payment came less than 90 days prior to the bankruptcy filing, the payments would likely have been characterized as "preference" payments, and the hotel owners might well have had to return the money to the bankruptcy estate anyway.

Feel bad for these guys, but there are no victims, only volunteers.

 

[AdamZ]

Yeah its a risk for sure. problem is even if $$ was put into escrow the Bankruptcy Trustee can scoop up all the money in escrow or even the money paid to the hotel. Thats were bankruptcy can kill a business. But Spike as you and I previously discussed the lure of big money has sunk more than one contractor. Just look at any stadium or airport deal. If the payday is too good to be true it probably is not worth it.

 

[SCCutler]

Oh, Adam, I know any funds in escrow as of the filing are worm food, but as a hotel-owner, if I insist upon escrow funds as a condition of renting the space, and being paid (say, weekly) from such escrow, the money would be reasonably well-protected.

 

[Dave Siciliano]

What we don't know is how many hotels in the area turned NW down.

Can't tell you how many deals I've passed on and had others step up on terms I thought were nuts. Didn't derive much satisfaction with their later belly aching they never should have done the deal.

Dave

 

[wsuffa]

I agree with Dave. SOmetimes it's better to pass on a deal. And sometimes making that call is the hard part.

I've probably walked from more deals than I've done. Sometimes it isn't easy.

Spike, I know sometimes there is recourse against escrows and other funds paid as a group goes into bankruptcy. Would that apply here?

 

[SCCutler]

Bill, were I counseling businesses providing services to an at-risk organization like NWA, I would counsel first that the terms should be either (1) paid in advance, or (2) fast-pay with escrowed funds from which payment would be made. Hence, each week (a good period to work with), that week's lodging bill would be paid, the payment would be in accordance with the agreed-upon arrangement, would be "in the ordinary course of business," and could be structured to be a contemporaneous exchange. This arangement, properly-structured,should withstand a preference claim.

The funds still in the escrow as of the BK filing would likely be out of reach, but none of the amounts already paid would be lost. The point of the escrow is not that the money therein would be protected from the bankruptcy court (they likely would not), but rather, funding the escrow account would be a condition to my even agreeing to rent the rooms out.

 

[wsuffa]

Thanks, Spike, I wasn't sure if there was clawback.

 

[RogerT]

If NWA made this arrangement and knew at the time that they
were going to be or considering filing for bankruptcy protection then
I'd think that the hotel may have some claim as to fraud and might
look into getting it excluded from the bankruptcy.

 

[astanley]

For the business types - do you find it easier to walk away from deals at work versus deals in your personal life? I can't always be as exacting or negotiate as hard with things that I want (like, I paid $50 more than I could have paid on my new road bike, etc), but since I have no emotional attachment to the finances I work on at work...

Maybe it's a maturity thing? I have noticed that I'm not as "attached" to things as I was when I was first starting out.

Cheers,

-Andrew

 

[wsuffa]

For the business types - do you find it easier to walk away from deals at work versus deals in your personal life? I can't always be as exacting or negotiate as hard with things that I want (like, I paid $50 more than I could have paid on my new road bike, etc), but since I have no emotional attachment to the finances I work on at work...

Maybe it's a maturity thing? I have noticed that I'm not as "attached" to things as I was when I was first starting out.

Andrew, part of it is experience. And part is wanting to impress.

When you first join a company or take a position that involves making deals, you want to impress. That often means getting enough attachment to the deal that you want to see it happen, rather than blow it up. Often, there is substantial investment in making the deal, even if it blows up (and in the case of a big deal, there might be breakup fees). So, it becomes harder and harder to break up a deal the longer time goes on. It really is not much different than a good salesman recognizing that the buyer who spends more time studying a deal is likely to follow-through with the purchase, even if it's not the best deal out there.

That's the emotional attachment part. Now, if you are supervising someone making deals (e.g. you're on the board), you want to incentivize people to make good deals... and that means assuring them it's OK to blow up a deal if it gets out of hand, or to walk away from a prospect that's not good.

As you get more experience, it becomes easier to recognize the bad deals at the outset. And to recognize that *at the right price* certain deals that have hair on them can work out OK. The key is knowing which is which, and identifying it early.

I think a lot of folks feel pressured to go through with the deal because "a competitor might buy it" or "I need to impress management that I can do a deal" or "I've invested a lot of time in this". If you can counter those kinds of urges, dealmaking becomes easier.

At home, it's a different dynamic entirely. It becomes "I want that" and you become emotionally attached to the deal. But there is less of the "how much do I have invested in the deal" because you value your home time differently. Well, usually, because there is no one beating you up over it. (married couples excepted).

On the other hand, you also will have no one but yourself chastizing you for making a bad deal at home (married couples excepted). Thus, it is easier to rationalize a bad deal.

I find it as easy to walk away either way. But I will admit that I did feel pressure when I first started making deals at work. Now, I'd rather tout to potential employers that I CAN walk from a bad deal - good ones will recognize the value of that statement.