US Bankruptcy Laws Draw Foreign Airlines to Chapter 11 Courts

Favourable bankruptcy laws in the United States are increasingly attracting foreign airlines to US courts, as carriers seek restructuring tools and legal protections often unavailable in their home jurisdictions. Brazilian carrier Azul has become the latest airline to pursue Chapter 11 bankruptcy protection in the US, joining a growing list of international operators that have turned to the American legal system to stabilise their finances and reset their balance sheets.

Azul follows in the footsteps of other major Latin American carriers, including Avianca, LATAM Airlines Group, and Grupo Aeroméxico, all of which have previously used Chapter 11 proceedings to restructure debt, renegotiate contracts, and emerge with stronger liquidity positions. While these airlines operate primarily outside the US, they have been able to establish jurisdiction through factors such as aircraft leases governed by US law or financial arrangements with American creditors.

Industry observers often refer to such carriers as “bankruptcy tourists,” reflecting their decision to seek relief in a foreign legal system. However, airline executives and restructuring experts argue that the motivation is practical rather than opportunistic. Chapter 11 offers a level of flexibility, speed, and predictability that many national insolvency frameworks lack, particularly in emerging markets where bankruptcy processes can be slow, uncertain, or heavily influenced by political considerations.

One of the most attractive features of the US system is the ability to reject or renegotiate aircraft leases. For airlines burdened with high lease costs or surplus capacity, this tool allows them to return uneconomic aircraft and realign fleets with post-crisis demand. In many countries, aviation-specific leasing protections limit an airline’s ability to exit contracts, making meaningful restructuring far more difficult.

Access to debtor-in-possession (DIP) financing is another key advantage. Chapter 11 allows airlines to secure new funding with court approval, often on favourable terms, providing essential liquidity to continue operations during restructuring. This type of financing is either unavailable or extremely limited in many non-US jurisdictions, leaving struggling carriers vulnerable to cash shortages and operational disruption.

The trend highlights broader disparities in global insolvency regimes and raises questions about regulatory harmonisation in aviation finance. Lessors and creditors, while sometimes critical of Chapter 11 outcomes, generally recognise the US process as transparent and rules-based, offering clearer recovery prospects than protracted proceedings elsewhere.

As airline balance sheets remain under pressure from high fuel costs, interest rates, and lingering post-pandemic debt, Chapter 11 is likely to remain an attractive option for foreign carriers. For now, the US bankruptcy system continues to serve as a global restructuring hub, shaping how international airlines manage financial distress and chart a path back to long-term viability.

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Sources: AirGuide Business airguide.info, bing.com