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ATA reorg a bonanza for lawyers, financial firms: Court still must decide whether to approve $21 million in fees and expenses sought in case so far

May 15, 2006

Lawyers and other professionals have asked for more than $21 million in fees and expenses for their work on ATA Holdings Corp.'s reorganization, in what appears to be the most expensive case ever in U.S. District Bankruptcy Court for the Southern District of Indiana.

But fees and expenses might rise to $33 million after a handful of remaining professional firms file their claims by the end of this month, said James Carr, a veteran Baker & Daniels attorney who quarterbacked the 16-month reorganization for ATA.

Carr said even if professional fees and expenses rise to that level, the cost was relatively inexpensive. The reorganization of Chicago-based United Airlines, which is larger than ATA, rang up professional costs of $335 million and took 38 months.

ATA emerged from Chapter 11 on Feb. 28 with new management and as a slimmed-down airline that no longer flies scheduled service from Indianapolis International Airport.

ATA's reorganization took many twists and turns in court, with the plan originally to rebuild the carrier at Indianapolis International and to abandon its Chicago Midway Airport hub. ATA also switched gears and wound up raising more equity than many initially expected.

Experts say ATA's restructuring was already costly, in part because of numerous aircraft lease negotiations and because the airline had to resolve issues with the federal government, which had guaranteed loans the carrier took out to survive after the 2001 terrorist attacks.

"ATA and its partners ran this case very lean, very efficiently. Sixteen months from start to finish is a very good time frame," Carr said.

His law firm, Baker & Daniels, submitted claims for professional fees and expenses of $5.13 million.

But legal experts said they were surprised to learn that the counsel for unsecured creditors, New York-based Akin Gump Strauss Hauer & Feld, has asked for virtually the same amount: $5.12 million.

That's unusual, given that the debtors' counsel generally racks up the bulk of legal bills in a 2-to-1 or even 3-to-1 ratio because it is involved in virtually all aspects of a bankruptcy.

"I don't think I've ever seen the fees of a committee [counsel] equal to the fees of the debtor's counsel," said Henry Efroymson, a veteran bankruptcy attorney at Indianapolis law firm Ice Miller.

Akin Gump's most seasoned lawyer on the case, Lisa Beckerman, billed up to $775 an hour-an eye-popping amount in Indianapolis, where Baker & Daniels big gun Carr charged $430 an hour.

New York-size hourly rates aren't necessarily a bad thing if the firm maximized returns for its client, the unsecured creditors, while helping ATA survive.

"Could the creditors' committee have also done it more efficiently? The answer is probably yes," Carr said. On the other hand, Carr said Akin Gump's costs may appear high only because ATA's counsel ran the case so efficiently.

But Efroymson, who followed the case closely, said he wonders whether the New York firm got too involved in some aspects of the reorganization. He points to concerns expressed early in the case by Judge Basil Lorch about Akin Gump's time spent on labor and collective bargaining issues.

"The judge in essence warned the [creditors'] committee that when fees are considered, he would take that into consideration," Efroymson said.

Lorch is scheduled to hold hearings next month on a number of the fee and expense reports submitted by professional firms. Objections are due by the end of May.

The last objection filed by U.S. Trustee Nancy J. Gargula, last July, cited "unnecessary and per se unreasonable" hours billed by Akin Gump. She complained that Akin Gump accounted for 42 percent of the professional time spent on the case between the Oct. 26, 2004, bankruptcy filing and early 2005-versus 39 percent for ATA law firm Baker & Daniels.

"It is readily apparent that the hours expended by Akin Gump have been unreasonable ... Akin Gump's actual hours billed in ATA either almost match or significantly exceed the hours billed by the debtor's own lead counsel."

At the time, Akin Gump attorneys criticized the trustee's accounting methods and said the time spent was necessary because of complex lease agreements and the sale of subsidiary Chicago Express along with a web of issues surrounding the federal bailout of ATA.

"It's an issue the court has to address," Efroymson said.

An Akin Gump spokeswoman said the law firm had no comment.

Without argument, "it was a hard case," said Charles E. Greer, a veteran Indianapolis bankruptcy attorney who now heads his own business turnaround firm.

Greer said he wasn't surprised by the amount billed, but he cautioned that without a thorough review of expenses it's hard to say whether expenses are reasonable.

"The amount of professional fees was more than offset by the benefits obtained from the restructuring," said Sean Frick, ATA's VP and chief restructuring officer. For her part, Akin Gump attorney Beckerman wants $803,387. Besides legal expenses, Akin Gump seeks nearly $270,000 in other expenses, such as $117,836 in long-distance phone calls, $66,859 for travel, and $7,420 for meals. Locally based Baker & Daniels reported expenses of $126,453. While professional firms stand to reap much of what they request, not so for ATA creditors such as Brehob Electrical Equipment in Indianapolis.

Treasurer Bill Donlan said the firm hasn't received a portion of the $7,000 it is owed from ATA.

"I'd just like to own the paper company that sells the paper for these mailing lists," he said of the numerous reports Brehob receives from court about the case. On the upside, Brehob has resumed business with ATA.

Meanwhile, Bill Shields, principal of Martinsville plastics firm Form/Tec, has all but written off the $600 it says ATA owes for parts used in aircraft maintenance.

"I think the lawyers and accountants will get it all," he said.

ATA was already one of the largest bankruptcies in Indiana history, with assets of $745 million and debts of $940.5 million at its 2004 Chapter 11 filing. As for fees and expenses in the case, "I would be surprised if it's not the largest" in U.S. District Bankruptcy court here, Efroymson said.

The Chapter 11 case of Carmel-based Conseco Inc. rang up more than $70 million in legal costs, but that case was filed in Chicago.
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