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In the year before United Airlines filed for bankruptcy reorganization, the firm lost $3.2 billion. Fierce competition in the airline industry prevents United from stemming its losses solely through increases in revenues. Costs will have to be cut. The necessary expense reductions could come from reductions in employee pay and benefits, reductions in the amounts owing to creditors (which reduce interest expense), or both. Which should it be? United's situation is complicated by the fact that its employees own 55 percent of its stock and that their wage levels are protected by a collective bargaining agreement. But if we assume those protections away, we reach a fundamental issue that has divided bankruptcy scholars for two decades: whose interests should bankruptcy reorganization serve? The currently prevailing contractarian theories of the firm and of bankruptcy recommend cutting labor costs first. Bankruptcy, these theorists postulate, exists solely for the benefit of the creditors and shareholders of the firm. The theorists recognize that the interests of employees, suppliers, customers, and communities should be taken into account to the extent particular members of those constituencies are creditors with enforceable legal rights against assets under nonbankruptcy law. But they assert that to take any other interest of those constituencies into account would-as one writer put it- constitute "prima facie theft." The theorists' first premise derives from the agency theory of the firm. Shareholders own the firm. The board of directors, the managers, and the employees are the shareholders' agents, mere hired hands. When the firm is insolvent, ownership shifts to the creditors. In bankruptcy reorganization, the owners' interests, and theirs alone, are to be served. Debt, it follows, should be cut only as a last resort- after any possible cuts in labor costs.