Avaya Files for Chapter 11: What Can You Do to Protect Yourself?

As to be expected, we have received a number of inquiries from clients regarding the recent Avaya Chapter 11 announcement.  On January 19th Avaya announced voluntary protection from creditors.

It is Avaya’s stated expectation that daily business operations will remain unchanged – for the present.

But for those of us who lived through the Nortel bankruptcy in 2008 or the Aspect bankruptcy in 2015, this seems like “déjà vu all over again.”  While there may be some differences, the fact that a major industry player – a market icon – is in peril is both troubling and sad.  However, for those of us in the industry, this shouldn’t be a surprise.  Despite Avaya’s valiant attempts to manage resources and costs, the handwriting has been on the wall for some time with Avaya’s decision to pull back from their initial public offering, inability to turn the Nortel base into Avaya solutions, declining revenues, declining market share, and questionable technical decisions.  I, for one, just thought we would have a little more warning and a little more time.

Right now, there is not a lot of detail yet about how Avaya’s eventual exit from Chapter 11 will be structured.  There are major impacts depending to what extent arrangements with creditors have been already worked out or whether this will become a free-for-all to be decided by the court.  If the former, things may move ahead quickly.  If the later, not so much.  In these situations, time is the enemy.  The fact that it seems that Avaya was unable to negotiate with creditors for a “planned bankruptcy” like Aspect did is not encouraging for a rapid exit from Ch 11.  Uncertainty breeds fear and fear results in making “safe” decisions.  Avaya needs to announce a clear path forward in the next month or so or the erosion of customer base, goodwill, and good faith may be unrecoverable.

The major question remains how will Avaya emerge from this bankruptcy?  Could this, in fact, be a good thing resulting in a stronger, leaner, more innovative Avaya or will Avaya be split up and sold as pieces?  Even if this is a good thing in the long term, what will the short and medium term hold for Avaya customers?  What will this mean for Avaya partners, many of who are already expanding to other products to hedge their bets?

On the positive side, this is only an Avaya US issue (less than half of Avaya worldwide) and Avaya Canada, Australia, and New Zealand all remain strong.   Avaya’s intellectual property and patents still have high value.  While that may be of some comfort to Avaya creditors, it doesn’t do much for Avaya customers.

HOW TO PROTECT YOURSELF

If you are an Avaya customer (newer Avaya “Red” or old Nortel “Blue”), have recently contracted for an Avaya solution, or are in the process of procuring a new system (possibly including Avaya), what should you do?

Present/Current Customer

If you are a present Avaya customer on a current system, I would not expect any immediate impact.  However, this might be the time to start those discussions about resources, planning, and budgeting with an eye toward replacement.  Have a frank discussion with your Avaya Value-Added Reseller (VAR) and use this time to begin assessing options should the situation not improve.

Considering Replacements

If you have an older Avaya system that has been approaching the end of its useful life, this is an opportunity to consider accelerating that replacement.  Use this as the impetus to press for resources and begin actively planning for replacement.

Signed a Recent Contract

If you have recently contracted for an Avaya solution, this might be the time to re-read that contract.  Can you put the project on hold, opt out, or cancel the agreement while you consider your alternatives?  Many contracts have a clause that addresses bankruptcy or insolvency or the right to cancel the agreement “for convenience”.

In Procurement

If you are in the procurement process, consider delaying or using this event to refine your decision while we see what Avaya’s future holds in store.

The answer in all cases is don’t panic; these things take time to sort themselves.  Don’t resort to a knee-jerk reaction without taking the time to assess options and alternates.  But the time to start that assessment is now!  Do not back yourself into a corner where decisions outside of your control drive decisions that you are not prepared to support.

In the meantime, we’re here if you need us.  If you would like to discuss any aspect of this posting, please give me a call at 978-610-3805 or email [email protected].