But this doesn’t mean the company will close down, fire all its employees and have a big, yard-sale type auction of all its possessions. Far from it. Chapter 11 is a useful process for companies in financial difficulties, in that it gives them protection from creditors while they seek ways to get things back to a reasonably normal state. And that recovery process can take several months, during which time the company’s management remains in exclusive control to take whatever actions it wishes before requesting its emergence from Chapter 11.

As Philip Falcone, billionaire owner of LightSquared’s parent, Harbinger Capital Partners–he reportedly has more than $2 billion of his own money invested in LightSquared–put it, “Today’s filing was not an option the company embraced quickly or easily, but it was necessary to protect LightSquared against creditors who were looking for a quick profit, as opposed to our goal to create long-term market competition, [jobs] and the promise of wireless connectivity for every American.”

In fact, telecom industry officials feel confident that LightSquared will emerge from Chapter 11, although no one knows how and in what form that will be, since Falcone has an almost Houdini-like flexibility in his corporate strategies. Certainly, an oft expressed thought within the industry is that without the DOD’s final behind-the-scenes veto of LightSquared’s plan, the company possibly could have pulled off some sort of compromise deal to co-exist with GPS. Here, too, the earlier proposed swap of LightSquared’s frequencies close to GPS, in trade for unused DOD frequencies elsewhere, is not regarded as completely off the table, given the increasing telecom industry pressure to transfer some of the DOD’s extensive spectrum holdings to the “ballooning“ and “ravenous” civil broadband market, as it is described in the industry press. In such a swap, however, observers expect strenuous opposition to new entrants such as LightSquared from market heavyweights Verizon and AT&T, even while, paradoxically, both are leading the charge to unshackle DOD spectrum.

Market for LightSquared Debt

Falcone’s mention of “creditors looking for a quick profit” may sound rather odd, but it does shed light on high finance as played by the big hitters. To most of us, buying someone’s debts sounds like a tricky way to make money. But in fact, debt is a tradable commodity on Wall Street, just like gold or real estate. So it was for Carl Icahn, sometimes described as a “corporate raider.” In February, when the FCC withdrew LightSquared’s approval to proceed with its broadband plan due to excessive GPS interference, the company’s investment debt was reportedly on the order of $1.6 billion. But the market’s evaluation of that debt started to fall, based on the probability of its being repayable in full. In March, it had dropped to 40 cents on the dollar, which was when Icahn stepped in and bought a $250 million slice of it. In early May, perhaps due to Icahn’s intervention, the value had risen to 60 cents on the dollar. Icahn’s holding then became worth $375 million and he promptly sold it, at a 50-percent profit of $125 million.

And the market moves along. The $375 million slice was bought by Charlie Ergen, current owner of the Dish and TerreStar satellite networks, both of which he had previously bought out of their respective bankruptcies for approximately $1.5 billion apiece. Shortly after Ergen’s move, LightSquared debt started to move toward 70 cents on the dollar. Observers believe Ergen is unlikely to sell and move on. Icahn–who lifted Trans World Airlines out of bankruptcy, made a great deal of money and then sold it, putting TWA almost back into bankruptcy–was not a well connected telecom industry person, while Ergen is. So could all this somehow see Falcone and LightSquared–even under another name–reappear in some aviation-related way? Don’t bet that it will never happen.

For example, should LightSquared make a spectrum swap with the DOD, it has been suggested that, just as an ADS-B ground station takes in general aviation’s UAT transmissions at 978 MHz, “translates” them into the airline 1090-MHz frequency and then uplinks them to aircraft equipped for 1090 MHz (and vice versa), LightSquared’s proposed 40,000 powerful ground stations could retransmit the “translated” satellite’s downlink data over its newly acquired DOD frequency, far from the GPS band.

That particular idea may or may not be technically feasible, but you can bet that Falcone and his people will be examining all sorts of unusual possibilities in the next several months. Remember also that LightSquared has an interesting legal issue with the FCC, whose spectrum engineering experts–the custodians of the nation’s spectrum–apparently never raised any red flags about the project’s effect on GPS, but in fact encouraged and “fast tracked” its progress until, $4 billion or so later, the DOD lowered the boom.

The saga retains legs.