Philadelphia Orchestra bankruptcy drags on

When the Philadelphia Orchestra filed for Chapter 11 last spring, its leaders said the reorganization would cost $2.9 million in legal and administrative fees, and they predicted the orchestra would be out of bankruptcy in the latter part of 2011.

The legal tab now looks likely to be triple that initial estimate, and the case is entering its second year.

On April 16, 2011, the ensemble's 75-member board voted - with a few abstentions, and all five musicians on the board voting "no" - to become the first major U.S. orchestra to file for bankruptcy.

From the start, board and musicians were riven, disputing the need for, and consequences of, bankruptcy.

Musicians saw the move as an act of corporate-style brutality aimed at breaking their labor contract and downgrading the ensemble from a great orchestra to a regional one. Steep cuts, they argued, would drive musicians out.

Where would they go? board members asked. Management said the orchestra had been running deficits for years, audiences had dwindled, and the best chance for survival was to reduce the cost structure - musician salaries, pensions, and lease and other contractual obligations.

Orchestra lawyer Lawrence G. McMichael said last week that through bankruptcy, the orchestra has carved out about $6 million in annual operating expenses.

"I can tell you, in my view, going into bankruptcy is one of the smartest things the orchestra could have done," he said in an interview. He now forecasts a July exit from Chapter 11.

Management succeeded in stripping competitive pay and pension benefits from the musicians' contract, and now the players are voting again - with their feet. Several star members have accepted jobs elsewhere, and others are actively auditioning, raising the possibility that after achieving destination status in the 1930s, the Philadelphia Orchestra may lose it.

Players "look at the numbers, and you go where you think the future will be brightest," said Jonathan Chu, a section violist who joined the orchestra in 2009, and who has accepted the same position with the Boston Symphony Orchestra. Several longtime members said they could not recall the last time a musician made a lateral move to another orchestra (as opposed to a section player here lured by a principal chair elsewhere).

A year since its Chapter 11 filing, the Orchestra Association is not yet on a path that can assure players, donors, or listeners a bright future - even with the arrival in the fall of new music director Yannick Nézet-Séguin.

If association leaders believed the sound of Philadelphia's most prestigious cultural group gasping for survival would immediately stir generosity, they were right. Nearly 1,500 donors have given a total of $36 million to the orchestra's Transformation Fund, a spokeswoman said. (That is in addition to regular fund-raising for the annual fund.) Attendance this season is 81 percent of capacity, compared to last season's 68 percent. Yet the support so far hasn't been nearly strong enough to solve the orchestra's problems.

Bankruptcy will certainly wipe the slate clean of certain obligations, but leaders say that, even after exiting, the path to success is narrow. A business plan calls for raising more than $160 million over five years to underwrite deficits, support new initiatives, and boost endowment.

It is the association's most ambitious fund-raising drive ever. The most recent - an endowment campaign ending in 2008 with $130 million - took more than five years to complete, even with the dual efficacy of a $50 million gift from the late Leonore Annenberg and a much rosier economic climate.

Bankruptcy has achieved a new contract with musicians and, in a deal expected soon, lower rent at the Kimmel Center. But one major negotiation has proved more nettlesome. The pension plan from which the association withdrew Nov. 1, the American Federation of Musicians and Employers' Pension Fund (AFM-EPF), says it is entitled to millions of dollars as a result of the withdrawal.

Settlement talks between the association and AFM-EPF so far have failed, and the pension fund promises it isn't going away empty-handed, or perhaps anytime soon. A trial set for April 30 will address the fund's latest claim: that $3.1 million be set aside for it from the bankruptcy estate.

The howl over the orchestra's withdrawal from the fund has echoed nationally. Musicians all over the country are participants, and the fund and others have accused the orchestra of shirking an obligation to its brethren.

"One of the flagship orchestras of the United States chose to take this path, which transferred its burden to other orchestras and individual musicians," Deborah Borda, president of the Los Angeles Philharmonic, told the New York Times. "It's an abrogation of responsibility."

The fund claims it is owed about $35 million as a result of the withdrawal.

Not so, says the association. The actual loss incurred "ranges from zero to only several million dollars," it responded in a motion Wednesday in U.S. Bankruptcy Court. "The alleged withdrawal liability represents a subsidy of the fund's past and present other participants."

The association hopes to begin exiting bankruptcy soon, submitting a confirmation plan to Judge Eric L. Frank in late April or early May. But absent a settlement soon, the pension fund may oppose the plan at July's expected confirmation hearing.

"We don't need a settlement with the AFM to get confirmation of a plan," says McMichael, "but we prefer to have one because it will cost less, because fighting costs money.

He says he's confident that nothing will hold up the exit from bankruptcy. The fund can appeal a decision it doesn't like, he said, but unless a stay is obtained, the exit will remain on track. He added, "I can say with a very high level of confidence, this case will end some time this summer."

In addition to emerging from bankruptcy and a lofty drive goal of $160 million or more, the orchestra has considerable work ahead in deploying a strategic plan that would, if it does its intended job, outline an artistic direction and compel city support for its orchestra at a higher level than in recent years.

The slog of bankruptcy and attendant squabbles among the association, players, and the Kimmel has obscured a statistic that represents an indisputably troubling trend: In 1989, the orchestra was heard by about 255,000 listeners in its main season-subscription series. Today, the total is about 150,000. That's an audience erosion of 41 percent.

Orchestra chairman Richard B. Worley, in an interview the day the orchestra filed its Chapter 11 petition, correctly fingered one common enemy: apathy.

"You can't support a great orchestra with 150,000 attendees and the kind of contributed revenue that we get," he said.

No one would argue with his math. The big question - one year ago, and still - is how that inequity resolves itself.