Nov. 30 (Bloomberg) -- Few may feel more pain from AMR Corp.’s bankruptcy than owners of $49.5 million in unsecured municipal bonds, due to be paid tomorrow and guaranteed by American Airlines.
The bonds, which traded at 99.7 cents on the dollar as recently as Nov. 15, tumbled to 16.5 cents following AMR’s bankruptcy yesterday, for a loss of as much as 83 percent. Alliance Airport Authority Inc. sold $125.7 million of the debt in 1991 to build an engineering and maintenance base for American in Fort Worth, Texas, the airline’s home town. MacKay Shields, an investment unit of New York Life Insurance Co., reported holding $4.2 million of the debt on Sept. 30.
“That’s painful -- they missed it by two days,” said Matt Dalton, who oversees $925 million of municipal securities as chief executive officer of Belle Haven Investments Inc. in White Plains, New York. “American had a fair amount of debt that was due on Dec. 1, plus interest payments on other maturities.”
Among its $29.6 billion in liabilities, AMR and American backed $3.2 billion of securities called special-facilities bonds sold through airports and municipal authorities to pay for gates and maintenance hangars in cities such as New York, Los Angeles and Dallas. American is the last large full-fare U.S. carrier to seek protection after the Sept. 11 terrorist attacks.
American, which leased the airport facilities, and AMR guaranteed payment of the Alliance securities, according to an offering document. About $76.2 million of the debt was redeemed in 2004, according to data compiled by Bloomberg.
Mike Petty, who manages New York-based MacKay Shields’ Mainstay High Yield Municipal Bond Fund, didn’t immediately respond to a telephone call seeking comment on the holdings.
Capital Research & Management Co., a mutual-fund company based in Los Angeles, reported owning $2.5 million of the Alliance bonds as of June 30. Neil Langberg, manager of the firm’s American High-Income Municipal Bond Fund, declined to comment.
--With assistance from Darrell Preston in Dallas and Bert Louis in Princeton, New Jersey. Editors: Ted Bunker, Rick Levinson.
To contact the reporter on this story: Martin Z. Braun in New York at mbraun6@bloomberg.net
Wednesday, November 30, 2011
American Airlines Parent AMR Files Bankruptcy; Horton Is CEO
Nov. 30 (Bloomberg) -- American Airlines parent AMR Corp. filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world's largest airline to No. 3 in the U.S.
With the filing, American became the last of the so-called U.S. legacy airlines to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air-mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Manhattan.
“It's painful but probably necessary,” John Strickland, an aviation analyst at JLS Consulting in London, said in a telephone interview. “They will have to go through the whole process that their peers have gone through.”
Job and flight reductions are likely in the future as AMR seeks to trim expenses and leave bankruptcy in less than 15 months, Chairman and Chief Executive Officer Tom Horton said yesterday. Normal flight schedules will continue on American and its American Eagle regional unit for now, along with the airline's frequent-flier program, the company said. A spinoff of American Eagle, which already had been delayed from this year into 2012, is on hold, Horton said.
Court Hearing
American's cost structure compared with other airlines had become “untenable,” said Harvey Miller, the company's bankruptcy lawyer, at a court hearing yesterday in Manhattan. The airline “fought ferociously” to avoid filing for bankruptcy, and now planned to use the court process to turn around its business to become a profitable global airline, Miller said.
At the hearing, U.S. Bankruptcy Judge Sean Lane approved American's requests to pay employees, continue its customer programs, and pay what the company said are vendors that are critical to maintaining its operations.
American said in court papers that it needed permission to pay $50 million in claims from critical vendors. Miller said the company will later request approval to pay an additional $35 million in claims.
“We are talking about an emergency and the survival of this company,” Miller said about the request. “We have to operate this airline and assure customers that when they book on American, that flight is going to be there and that flight is going to depart on time.”
Arpey Retires
Horton, 50, most recently AMR's president, replaced Gerard Arpey yesterday as chairman and CEO. Arpey, 53, opted to retire after the board asked him to stay, Horton said. Arpey will join Emerald Creek Group LLC, a private-equity firm founded by former Continental Airlines Inc. CEO Larry Kellner, on Dec. 1, the firm said in a statement.
Arpey supported the bankruptcy filing, Horton said. Arpey decided to leave after concluding that AMR would be better served with new leadership “because it was going in a different direction,” Tom Roberts, an attorney at Weil, Gotshal & Manges LLP who represents AMR, said in a telephone interview. “It was his decision because he had been the one that had been leading the charge for so many years to avoid bankruptcy.”
AMR doesn't plan to seek so-called debtor-in-possession financing to fund operations during bankruptcy, Horton said at a news conference at Dallas/Fort Worth International Airport.
AMR's board voted unanimously Monday night to file for bankruptcy after considering options for months, Horton said. AMR was determined to avoid Chapter 11 as air travel fell and losses mounted after the 2001 terrorist attacks, even as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. Rival carriers later combined, giving them larger route networks that were more attractive to lucrative corporate travel customers.
‘Untenable' Gap
“It became increasingly clear that the cost gap between us and our biggest competitors was untenable,” Horton said on a conference call. “The economic climate has been most uncertain, oil prices remain high and volatile, and all of that taken together led to the conclusion that now is the right time to take this step and put the company back on the path to long-term success.”
AMR plunged 84 percent to 26 cents in New York Stock Exchange composite trading yesterday. The shares earlier fell as much as 88 percent. Unlike secured creditors, shareholders typically get paid last in a bankruptcy and often receive nothing for their shares.
The stock had declined 79 percent this year on concern that a Chapter 11 filing was inevitable as AMR's losses drained cash reserves. AMR had $4.1 billion in unrestricted cash and short- term investments as of Nov. 25, Chief Financial Officer Isabella Goren said in an affidavit.
Union Talks
AMR's bankruptcy filing “resets” the process for union talks, Horton said. American had been engaged in negotiations with unions for all of its major work groups as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.
The company has the highest operating costs among the four surviving major U.S. network airlines, Goren said in court papers. AMR is set to post its fourth-straight annual loss this year and analysts had forecast a loss for next year as well.
“AMR cannot continue to progress toward a viable and stable future without further, significant remediation of its uncompetitive cost structure,” Goren said.
American fell from its perch as the biggest airline by traffic after Delta Air Lines Inc. bought Northwest Airlines Corp. in 2008, then slid to No. 3 last year when UAL Corp.'s United Airlines and Continental Airlines Inc. merged.
Hub-and-Spoke
All operate traditional hub-and-spoke systems, with their own regional units or partner airlines ferrying passengers to be collected at larger airports. US Airways Group Inc. is the other major carrier with that kind of route network. It ranks No. 5 in the U.S. by traffic, behind Southwest Airlines Co., the largest discounter.
In late 2005, Delta, Northwest and UAL were all under bankruptcy protection. US Airways left Chapter 11 in September of that year through a merger with America West Holdings Corp.
American and leaders of its pilots' union were scheduled to meet with federal mediators on Dec. 6 to provide an update on contract talks that stalled two weeks ago. The two sides hadn't set a date to resume negotiations since Allied Pilots Association leaders declined to send a Nov. 14 contract offer to union members for a vote, saying it “clearly” would be rejected.
‘Leaner, Stronger'
“You would expect a leaner, stronger company to emerge from bankruptcy,” said Chris Logan, an analyst at Echelon Research & Advisory LLP in London. “As they are in Chapter 11, it will be more easy to demand concessions from the labor force.”
American's pilots, flight attendants, mechanics and baggage handlers wanted to use the contract talks to regain some of the $1.6 billion in annual concessions they gave in 2003 to help the company avoid bankruptcy.
“We agreed to sacrifice based on the expectation that our airline would regain its leadership position,” David Bates, president of the Allied Pilots Association, told members in an e-mail. “What has transpired since has been nothing short of a ‘perfect storm.'”
The Transport Workers Union, which represents aircraft mechanics and baggage handlers, “will fight like hell to make sure that front-line workers don't pay an unfair price for management's failings,” James Little, the union's international president, said in a statement.
‘Loss of Jobs'
“It's a loss of jobs I worry most about,” Laura Glading, president of the Association of Professional Flight Attendants, said in an interview. “That's a horrible, horrible nightmare in this economy. We'll do what we can to mitigate that as much as possible.”
AMR had about 80,800 employees at the end of September, including 67,100 at American, with the rest at American Eagle, cargo operations and other units, according to the company's October earnings release. American has 8,700 active pilots, with another 950 on furlough, and 17,000 flight attendants.
Among the company's largest unsecured creditors listed in court papers was Wilmington Trust Corp., trustee for holders of $460 million in 6.25 percent convertible senior notes due in 2014. AMR on Sept. 27 sold $725.7 million of 10-year bonds backed by aircraft to refinance maturing debt. The company paid the highest interest rates since 2009 to raise the cash.
The 8.625 percent notes due in October 2021 fell 2.5 cents to 96 cents on the dollar as of 8:20 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Sept. 11
After the Sept. 11 terrorist attacks in 2001, carriers saw “a dramatic drop in air travel” for 18 months to two years, FareCompare.com CEO Rick Seaney said in an interview. Airlines in the U.S. lost about $9.7 billion in the year following the attacks that destroyed the World Trade Center's twin towers in New York and damaged the Pentagon. American, which operated two of the four hijacked planes used in the attacks, posted losses for four straight years afterward.
American responded by negotiating the union concessions that helped to restore profit in 2006 and 2007. The carrier had blamed losses since then partly on its labor costs and slower- than-expected gains from business ventures with partners across the Atlantic and Pacific.
The airline also has a fleet of older, less fuel-efficient planes that put it at a disadvantage when fuel prices rise. AMR spent $1.56 billion more on fuel through the first nine months of this year than a year earlier, according to the company's third-quarter earnings release.
Flights Shuffled
In September 2009, the carrier shuffled flight schedules to increase operations in Chicago, New York, Dallas-Fort Worth, Los Angeles and Miami to attract more high-fare business travelers.
“Airlines still face that fundamental issues of cost levels versus achievable revenues in the market place,” Strickland, the JLS analyst, said. “Higher fuel prices and the weaker U.S. economy would have given them the final push.”
AMR said in July it would buy 460 single-aisle jets -- 260 from Airbus SAS and 200 from Boeing Co. -- in the industry's biggest-ever order. The orders remain “rock solid,” Horton said yesterday.
“When we're completed with this process, our company will be competitive and poised to grow and prosper and go out and capitalize on these aircraft orders,” he said.
MD-80s Replaced
American's mainline jet fleet of 619 planes includes 247 twin-engine MD-80s made by McDonnell Douglas Corp., according to the airline's website. Boeing acquired McDonnell Douglas in 1997. Those planes, which are no longer in production, are being replaced by Boeing 737-800s that are about one-third more fuel efficient.
Placing an order for aircraft “creates a contract,” and in bankruptcy accepting or rejecting the contract will be up to AMR, said Scott Peltz, the national leader of RSM McGladrey's Financial Advisory Service in Chicago. Boeing and other suppliers will probably have representatives at AMR's bankruptcy hearings who “will be looking at what their options are,” he said.
Boeing said it has “no reason to doubt” that the jet order remains pivotal to AMR. Boeing and Airbus will provide $13 billion of financing on the first 230 jets, American said in July.
‘Key Part'
“We anticipate as part of American's reorganization that new, fuel-efficient airplanes will be a key part of their ongoing success,” Mark Hooper, a spokesman for Chicago-based Boeing, said in an e-mailed statement.
International Consolidated Airlines Group SA, a U.K.-based joint venture partner with AMR that owns British Airways and Spain's Iberia, said it has “every confidence in the future of American Airlines” and looks forward to working with Horton.
Weil Gotshal, based in New York, is AMR's lead bankruptcy counsel. The company's financial adviser is Rothschild Inc.
American Airlines was formed from companies including Robertson Aircraft Corp. of Missouri, which employed Charles A. Lindbergh as a mail pilot, according to the carrier's website. The companies began consolidating in 1929 and became American Airlines in 1934.
Company stock began trading in 1939, and during World War II, half of American's planes flew for the Air Transport Command. American pioneered nonstop transcontinental service in 1953 and 20 years later was the first major airline to hire a woman pilot, according to its website.
The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
--With assistance from Steve Rothwell and Christopher Scinta in London, Richard Bravo and Heather Perlberg in New York and Thomas Black in Dallas. Editors: Stephen Farr, John Pickering
With the filing, American became the last of the so-called U.S. legacy airlines to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air-mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed yesterday in U.S. Bankruptcy Court in Manhattan.
“It's painful but probably necessary,” John Strickland, an aviation analyst at JLS Consulting in London, said in a telephone interview. “They will have to go through the whole process that their peers have gone through.”
Job and flight reductions are likely in the future as AMR seeks to trim expenses and leave bankruptcy in less than 15 months, Chairman and Chief Executive Officer Tom Horton said yesterday. Normal flight schedules will continue on American and its American Eagle regional unit for now, along with the airline's frequent-flier program, the company said. A spinoff of American Eagle, which already had been delayed from this year into 2012, is on hold, Horton said.
Court Hearing
American's cost structure compared with other airlines had become “untenable,” said Harvey Miller, the company's bankruptcy lawyer, at a court hearing yesterday in Manhattan. The airline “fought ferociously” to avoid filing for bankruptcy, and now planned to use the court process to turn around its business to become a profitable global airline, Miller said.
At the hearing, U.S. Bankruptcy Judge Sean Lane approved American's requests to pay employees, continue its customer programs, and pay what the company said are vendors that are critical to maintaining its operations.
American said in court papers that it needed permission to pay $50 million in claims from critical vendors. Miller said the company will later request approval to pay an additional $35 million in claims.
“We are talking about an emergency and the survival of this company,” Miller said about the request. “We have to operate this airline and assure customers that when they book on American, that flight is going to be there and that flight is going to depart on time.”
Arpey Retires
Horton, 50, most recently AMR's president, replaced Gerard Arpey yesterday as chairman and CEO. Arpey, 53, opted to retire after the board asked him to stay, Horton said. Arpey will join Emerald Creek Group LLC, a private-equity firm founded by former Continental Airlines Inc. CEO Larry Kellner, on Dec. 1, the firm said in a statement.
Arpey supported the bankruptcy filing, Horton said. Arpey decided to leave after concluding that AMR would be better served with new leadership “because it was going in a different direction,” Tom Roberts, an attorney at Weil, Gotshal & Manges LLP who represents AMR, said in a telephone interview. “It was his decision because he had been the one that had been leading the charge for so many years to avoid bankruptcy.”
AMR doesn't plan to seek so-called debtor-in-possession financing to fund operations during bankruptcy, Horton said at a news conference at Dallas/Fort Worth International Airport.
AMR's board voted unanimously Monday night to file for bankruptcy after considering options for months, Horton said. AMR was determined to avoid Chapter 11 as air travel fell and losses mounted after the 2001 terrorist attacks, even as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. Rival carriers later combined, giving them larger route networks that were more attractive to lucrative corporate travel customers.
‘Untenable' Gap
“It became increasingly clear that the cost gap between us and our biggest competitors was untenable,” Horton said on a conference call. “The economic climate has been most uncertain, oil prices remain high and volatile, and all of that taken together led to the conclusion that now is the right time to take this step and put the company back on the path to long-term success.”
AMR plunged 84 percent to 26 cents in New York Stock Exchange composite trading yesterday. The shares earlier fell as much as 88 percent. Unlike secured creditors, shareholders typically get paid last in a bankruptcy and often receive nothing for their shares.
The stock had declined 79 percent this year on concern that a Chapter 11 filing was inevitable as AMR's losses drained cash reserves. AMR had $4.1 billion in unrestricted cash and short- term investments as of Nov. 25, Chief Financial Officer Isabella Goren said in an affidavit.
Union Talks
AMR's bankruptcy filing “resets” the process for union talks, Horton said. American had been engaged in negotiations with unions for all of its major work groups as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.
The company has the highest operating costs among the four surviving major U.S. network airlines, Goren said in court papers. AMR is set to post its fourth-straight annual loss this year and analysts had forecast a loss for next year as well.
“AMR cannot continue to progress toward a viable and stable future without further, significant remediation of its uncompetitive cost structure,” Goren said.
American fell from its perch as the biggest airline by traffic after Delta Air Lines Inc. bought Northwest Airlines Corp. in 2008, then slid to No. 3 last year when UAL Corp.'s United Airlines and Continental Airlines Inc. merged.
Hub-and-Spoke
All operate traditional hub-and-spoke systems, with their own regional units or partner airlines ferrying passengers to be collected at larger airports. US Airways Group Inc. is the other major carrier with that kind of route network. It ranks No. 5 in the U.S. by traffic, behind Southwest Airlines Co., the largest discounter.
In late 2005, Delta, Northwest and UAL were all under bankruptcy protection. US Airways left Chapter 11 in September of that year through a merger with America West Holdings Corp.
American and leaders of its pilots' union were scheduled to meet with federal mediators on Dec. 6 to provide an update on contract talks that stalled two weeks ago. The two sides hadn't set a date to resume negotiations since Allied Pilots Association leaders declined to send a Nov. 14 contract offer to union members for a vote, saying it “clearly” would be rejected.
‘Leaner, Stronger'
“You would expect a leaner, stronger company to emerge from bankruptcy,” said Chris Logan, an analyst at Echelon Research & Advisory LLP in London. “As they are in Chapter 11, it will be more easy to demand concessions from the labor force.”
American's pilots, flight attendants, mechanics and baggage handlers wanted to use the contract talks to regain some of the $1.6 billion in annual concessions they gave in 2003 to help the company avoid bankruptcy.
“We agreed to sacrifice based on the expectation that our airline would regain its leadership position,” David Bates, president of the Allied Pilots Association, told members in an e-mail. “What has transpired since has been nothing short of a ‘perfect storm.'”
The Transport Workers Union, which represents aircraft mechanics and baggage handlers, “will fight like hell to make sure that front-line workers don't pay an unfair price for management's failings,” James Little, the union's international president, said in a statement.
‘Loss of Jobs'
“It's a loss of jobs I worry most about,” Laura Glading, president of the Association of Professional Flight Attendants, said in an interview. “That's a horrible, horrible nightmare in this economy. We'll do what we can to mitigate that as much as possible.”
AMR had about 80,800 employees at the end of September, including 67,100 at American, with the rest at American Eagle, cargo operations and other units, according to the company's October earnings release. American has 8,700 active pilots, with another 950 on furlough, and 17,000 flight attendants.
Among the company's largest unsecured creditors listed in court papers was Wilmington Trust Corp., trustee for holders of $460 million in 6.25 percent convertible senior notes due in 2014. AMR on Sept. 27 sold $725.7 million of 10-year bonds backed by aircraft to refinance maturing debt. The company paid the highest interest rates since 2009 to raise the cash.
The 8.625 percent notes due in October 2021 fell 2.5 cents to 96 cents on the dollar as of 8:20 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Sept. 11
After the Sept. 11 terrorist attacks in 2001, carriers saw “a dramatic drop in air travel” for 18 months to two years, FareCompare.com CEO Rick Seaney said in an interview. Airlines in the U.S. lost about $9.7 billion in the year following the attacks that destroyed the World Trade Center's twin towers in New York and damaged the Pentagon. American, which operated two of the four hijacked planes used in the attacks, posted losses for four straight years afterward.
American responded by negotiating the union concessions that helped to restore profit in 2006 and 2007. The carrier had blamed losses since then partly on its labor costs and slower- than-expected gains from business ventures with partners across the Atlantic and Pacific.
The airline also has a fleet of older, less fuel-efficient planes that put it at a disadvantage when fuel prices rise. AMR spent $1.56 billion more on fuel through the first nine months of this year than a year earlier, according to the company's third-quarter earnings release.
Flights Shuffled
In September 2009, the carrier shuffled flight schedules to increase operations in Chicago, New York, Dallas-Fort Worth, Los Angeles and Miami to attract more high-fare business travelers.
“Airlines still face that fundamental issues of cost levels versus achievable revenues in the market place,” Strickland, the JLS analyst, said. “Higher fuel prices and the weaker U.S. economy would have given them the final push.”
AMR said in July it would buy 460 single-aisle jets -- 260 from Airbus SAS and 200 from Boeing Co. -- in the industry's biggest-ever order. The orders remain “rock solid,” Horton said yesterday.
“When we're completed with this process, our company will be competitive and poised to grow and prosper and go out and capitalize on these aircraft orders,” he said.
MD-80s Replaced
American's mainline jet fleet of 619 planes includes 247 twin-engine MD-80s made by McDonnell Douglas Corp., according to the airline's website. Boeing acquired McDonnell Douglas in 1997. Those planes, which are no longer in production, are being replaced by Boeing 737-800s that are about one-third more fuel efficient.
Placing an order for aircraft “creates a contract,” and in bankruptcy accepting or rejecting the contract will be up to AMR, said Scott Peltz, the national leader of RSM McGladrey's Financial Advisory Service in Chicago. Boeing and other suppliers will probably have representatives at AMR's bankruptcy hearings who “will be looking at what their options are,” he said.
Boeing said it has “no reason to doubt” that the jet order remains pivotal to AMR. Boeing and Airbus will provide $13 billion of financing on the first 230 jets, American said in July.
‘Key Part'
“We anticipate as part of American's reorganization that new, fuel-efficient airplanes will be a key part of their ongoing success,” Mark Hooper, a spokesman for Chicago-based Boeing, said in an e-mailed statement.
International Consolidated Airlines Group SA, a U.K.-based joint venture partner with AMR that owns British Airways and Spain's Iberia, said it has “every confidence in the future of American Airlines” and looks forward to working with Horton.
Weil Gotshal, based in New York, is AMR's lead bankruptcy counsel. The company's financial adviser is Rothschild Inc.
American Airlines was formed from companies including Robertson Aircraft Corp. of Missouri, which employed Charles A. Lindbergh as a mail pilot, according to the carrier's website. The companies began consolidating in 1929 and became American Airlines in 1934.
Company stock began trading in 1939, and during World War II, half of American's planes flew for the Air Transport Command. American pioneered nonstop transcontinental service in 1953 and 20 years later was the first major airline to hire a woman pilot, according to its website.
The case is In re AMR Corp., 11-15463, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
--With assistance from Steve Rothwell and Christopher Scinta in London, Richard Bravo and Heather Perlberg in New York and Thomas Black in Dallas. Editors: Stephen Farr, John Pickering
Tuesday, November 29, 2011
AA jettisons some excess baggage
IN BUSINESS, virtue is not always rewarded. Ford briefly gained some kudos among politicians and the public for being the only one of Detroit's big three carmakers not to file for bankruptcy in the wake of the financial crisis, but is now stuck with higher costs than its rivals. The same is true of AMR, the parent company of American Airlines, one of the few big American carriers which hitherto has resisted using the bankruptcy laws to rid itself of liabilities towards shareholders, creditors and its pension scheme. Continental has gone through bankruptcy twice (1983 and 1990), as has US Airways (2002 and 2004). However, when your reporter recently met a senior figure at American Airlines, he said that much as the company was keen to continue honouring its debts, "maybe the final chapter is not written yet".
Today, AMR reached Chapter 11, saying that bankruptcy proceedings had become necessary "to achieve a cost and debt structure that is industry competitive and thereby assure our long-term viability." Although the company has debts of around $30 billion, it said it has $4.1 billion of cash at hand, which it insists is more than enough to keep it flying during its restructuring. Passengers, staff and suppliers should notice no differences during the Chapter 11 process.
Network airlines are, in America and much of the rich world, licences to lose money or make miserly returns—and AMR is no exception. It has lost money in all but two of the past ten years, and was expected to run up more losses this year and next. The darkening outlook for the world economy means the chances of turning a profit any time soon are receding.
Recently, as fears of a bankruptcy filing have grown, the company's share price has fallen. There has also been a rush among its older pilots to retire to capture their pension benefits, which would be cut in a restructuring. The airline had been talking to its pilots for five years about new contracts that would allow it to reduce its costs, but neither these nor the company's talks with cabin crews and mechanics had got very far. The lack of progress in the talks with the pilots' union has also hindered AMR's plan to spin off its regional airline, American Eagle, another key part of the group's cost-cutting plan. Presumably the bankruptcy filing will now help to concentrate minds at the negotiating table.
Perhaps the most ambitious part of AMR's plan to break through the clouds into profitable blue skies is the huge orders it recently placed with Boeing and Airbus. The idea is to replace its fleet with planes that are significantly cheaper to run. The senior AMR executive I spoke to recently acknowledged that the two plane makers had made a leap of faith in allotting such a big chunk of their future production to the airline, but that this showed they regarded AMR as reliable. This will probably not change as a result of the bankruptcy filing: indeed, by allowing AMR to shake off some of its liabilities and cut its future costs, it will be in a better position to pay for those shiny new planes.
Today, AMR reached Chapter 11, saying that bankruptcy proceedings had become necessary "to achieve a cost and debt structure that is industry competitive and thereby assure our long-term viability." Although the company has debts of around $30 billion, it said it has $4.1 billion of cash at hand, which it insists is more than enough to keep it flying during its restructuring. Passengers, staff and suppliers should notice no differences during the Chapter 11 process.
Network airlines are, in America and much of the rich world, licences to lose money or make miserly returns—and AMR is no exception. It has lost money in all but two of the past ten years, and was expected to run up more losses this year and next. The darkening outlook for the world economy means the chances of turning a profit any time soon are receding.
Recently, as fears of a bankruptcy filing have grown, the company's share price has fallen. There has also been a rush among its older pilots to retire to capture their pension benefits, which would be cut in a restructuring. The airline had been talking to its pilots for five years about new contracts that would allow it to reduce its costs, but neither these nor the company's talks with cabin crews and mechanics had got very far. The lack of progress in the talks with the pilots' union has also hindered AMR's plan to spin off its regional airline, American Eagle, another key part of the group's cost-cutting plan. Presumably the bankruptcy filing will now help to concentrate minds at the negotiating table.
Perhaps the most ambitious part of AMR's plan to break through the clouds into profitable blue skies is the huge orders it recently placed with Boeing and Airbus. The idea is to replace its fleet with planes that are significantly cheaper to run. The senior AMR executive I spoke to recently acknowledged that the two plane makers had made a leap of faith in allotting such a big chunk of their future production to the airline, but that this showed they regarded AMR as reliable. This will probably not change as a result of the bankruptcy filing: indeed, by allowing AMR to shake off some of its liabilities and cut its future costs, it will be in a better position to pay for those shiny new planes.
In Chapter 11, a Bid to Cut Costs at American Airlines
After resisting for a decade, the parent company of American Airlines announced Tuesday that it would now follow a strategy that the rest of the industry chose long ago: filing for bankruptcy protection so it can shed debt, cut labor costs and find a way back to profitability.
American’s parent, the AMR Corporation, was the last major domestic airline that had never sought Chapter 11 protection. Its main rivals, including Delta Air Lines and United Airlines, used the bankruptcy courts to reorganize their businesses in recent years and emerged as stronger, more profitable rivals.
American, meanwhile, has lost more than $11 billion since 2001, while falling off its perch as the nation’s largest airline as mergers between first Delta and Northwest, and then United and Continental, created bigger competitors. The airline’s troubles were compounded by high labor costs, including pensions that are the richest in the industry, and surging fuel prices.
The decision to file for bankruptcy, which was endorsed by a unanimous vote of the company’s board on Monday evening, was a defeat for Gerard J. Arpey, who has run the airline since 2003 and had staunchly resisted such a move.
“It’s no secret that we have tried exceptionally hard over the last decade to avoid this outcome,” he wrote in an emotional message to employees.
Rather than guide the airline through bankruptcy, Mr. Arpey, 53, decided to retire as chairman and chief executive and take a job in private equity investing. He was succeeded by AMR’s president, Thomas W. Horton, 50, another longtime hand at the airline, who was AT&T’s chief financial officer for four years before returning to AMR in 2006.
Despite Mr. Arpey’s long tenure as AMR’s chief executive, he does not appear to be bailing out with a golden parachute. Under the terms of his contract, he will not receive any severance, according to the research firm Equilar. And with AMR closing at 26 cents a share on Tuesday, his stock holdings are essentially worthless.
As other airlines have done in similar cases, American said it would continue to operate its regular schedule throughout the bankruptcy process. It said flights, ticket sales, overseas alliances and frequent flier programs would not be affected. Employees will continue to be paid and receive health benefits.
Wall Street analysts said AMR, which has about $4.1 billion in cash and short-term investments, was seeking court protection before its financial position completely deteriorated.
“This is not a defensive move, but an offensive bankruptcy where they go after their labor groups to reduce costs,” said Bob McAdoo, an airline analyst at Avondale Partners. “They have a great franchise and a lot of cash. They are not being forced into bankruptcy here. They have a problem with their cost structure that they want to tackle.”
The decision might eventually lead to a smaller airline, with fewer employees, fewer planes and fewer destinations. Seth Kaplan, an aviation specialist with Airline Weekly, said hubs like Dallas and Miami, where American has a strong competitive position, would probably be spared, while Los Angeles and Chicago, where it is not a market leader, might be more vulnerable to cuts.
American has long argued that its labor costs were $800 million a year higher than its rivals’ because its pilots fly fewer hours and have less flexible work rules. Its cost per available seat mile, a common industry metric that includes labor and operating costs, is about 10 percent higher than Delta’s.
But labor is only part of the picture. American owns and operates a regional carrier, American Eagle, that flies 50-seat jets that are among the least efficient to operate. It is also the only major airline to perform most of its major maintenance internally. And more than a third of its 600 planes are McDonnell Douglas MD-80s, an aging design that burns more fuel than newer models.
“If oil was still at $50 a barrel, we wouldn’t be having this conversation,” said Mike Boyd, an airline consultant. “Their bet was to hold on to their older MD-80s until Boeing came up with a new airplane. As we know, that didn’t happen.”
The decision to file for bankruptcy was not entirely unexpected. Speculation about a bankruptcy sent the company’s shares down 79 percent this year even before the filing. However, its timing did take many analysts by surprise because they thought the company had enough cash to finance its operations for at least the next 12 months.
Mr. Horton said in an interview that AMR’s board did not want to wait. “This was the time to move from a position of relative strength,” he said. As of Sept. 30, AMR had $24.7 billion in assets and $29.6 billion in debt, according to a filing with the Federal Bankruptcy Court in Manhattan. Creditors include the holders of AMR bonds as well as companies like General Electric that leased aircraft to the airline.
The airline managed to avoid filing for bankruptcy in 2003 after it obtained major concessions from its labor groups, including lower pay for its pilots. But talks for a new contract had been dragging on since 2008 with no resolution. The latest round stalled in recent weeks when the pilots’ union refused to send a proposal to its members for a vote.
“It appears the board of directors ran out of patience after the last discouraging signals from the pilot unions,” said Philip Baggaley, a managing director at Standard & Poor’s Ratings Services.
Airlines have used federal bankruptcy rules in the past to force new contracts on their employees, and American may now take a tougher position with its own unions.
“We had been hopeful that bankruptcy could be averted, but we were aware of the possibility,” said Gregg Overman, a spokesman for the Allied Pilots Association, which represents American pilots.
James C. Little, the president of the Transport Workers Union of America, which represents 25,000 employees, including ground workers, struck a more defiant tone. The union reached a series of tentative agreements in recent weeks with the airline and American Eagle.
“This is likely to be a long and ugly process, and our union will fight like hell to make sure that front-line workers don’t pay an unfair price for management’s failings,” he said.
The mergers of Delta and Northwest, and United and Continental, helped those airlines cut capacity, increase fares and return to profitability last year. American, meanwhile, has had just two profitable years in the last decade, while losses from 2001 to 2010 were $11.4 billion. It recorded a $982 million loss through the first nine months of this year and is expected to post another loss in 2012.
In the long run, the airline is counting on a significant overhaul of its fleet to cut long-term costs. In July, it announced a $38 billion order for 460 new single-aisle planes from Airbus and Boeing. American’s fleet has an average vintage of 15 years, making it one of the oldest and least fuel-efficient among the six major United States carriers.
The company said it still intended to buy these planes, for which it has already secured $13 billion in financing from the plane makers themselves.
The impact of the bankruptcy is likely to be more immediate for some jet leasing companies. In a letter addressed to lessors, American’s treasurer, Beverly K. Goulet, said the airline could not afford to maintain all of its leased aircraft at their current rates and said it had no choice other than to begin canceling contracts on an unspecified number of planes. American leases roughly 29 percent of its fleet, according to data compiled by Ascend, an aviation consultancy based in London.
Although other airlines have improved their finances by taking a trip through bankruptcy court, some analysts were still skeptical about American’s long-term prospects.
“The industry is chronically oversupplied and AMR has no dominance or significant competitive edge in any particular market — we are not convinced that a reinvented, scaled-down iteration will change that,” said Vicki Bryan, an analyst at Gimme Credit.
American’s parent, the AMR Corporation, was the last major domestic airline that had never sought Chapter 11 protection. Its main rivals, including Delta Air Lines and United Airlines, used the bankruptcy courts to reorganize their businesses in recent years and emerged as stronger, more profitable rivals.
American, meanwhile, has lost more than $11 billion since 2001, while falling off its perch as the nation’s largest airline as mergers between first Delta and Northwest, and then United and Continental, created bigger competitors. The airline’s troubles were compounded by high labor costs, including pensions that are the richest in the industry, and surging fuel prices.
The decision to file for bankruptcy, which was endorsed by a unanimous vote of the company’s board on Monday evening, was a defeat for Gerard J. Arpey, who has run the airline since 2003 and had staunchly resisted such a move.
“It’s no secret that we have tried exceptionally hard over the last decade to avoid this outcome,” he wrote in an emotional message to employees.
Rather than guide the airline through bankruptcy, Mr. Arpey, 53, decided to retire as chairman and chief executive and take a job in private equity investing. He was succeeded by AMR’s president, Thomas W. Horton, 50, another longtime hand at the airline, who was AT&T’s chief financial officer for four years before returning to AMR in 2006.
Despite Mr. Arpey’s long tenure as AMR’s chief executive, he does not appear to be bailing out with a golden parachute. Under the terms of his contract, he will not receive any severance, according to the research firm Equilar. And with AMR closing at 26 cents a share on Tuesday, his stock holdings are essentially worthless.
As other airlines have done in similar cases, American said it would continue to operate its regular schedule throughout the bankruptcy process. It said flights, ticket sales, overseas alliances and frequent flier programs would not be affected. Employees will continue to be paid and receive health benefits.
Wall Street analysts said AMR, which has about $4.1 billion in cash and short-term investments, was seeking court protection before its financial position completely deteriorated.
“This is not a defensive move, but an offensive bankruptcy where they go after their labor groups to reduce costs,” said Bob McAdoo, an airline analyst at Avondale Partners. “They have a great franchise and a lot of cash. They are not being forced into bankruptcy here. They have a problem with their cost structure that they want to tackle.”
The decision might eventually lead to a smaller airline, with fewer employees, fewer planes and fewer destinations. Seth Kaplan, an aviation specialist with Airline Weekly, said hubs like Dallas and Miami, where American has a strong competitive position, would probably be spared, while Los Angeles and Chicago, where it is not a market leader, might be more vulnerable to cuts.
American has long argued that its labor costs were $800 million a year higher than its rivals’ because its pilots fly fewer hours and have less flexible work rules. Its cost per available seat mile, a common industry metric that includes labor and operating costs, is about 10 percent higher than Delta’s.
But labor is only part of the picture. American owns and operates a regional carrier, American Eagle, that flies 50-seat jets that are among the least efficient to operate. It is also the only major airline to perform most of its major maintenance internally. And more than a third of its 600 planes are McDonnell Douglas MD-80s, an aging design that burns more fuel than newer models.
“If oil was still at $50 a barrel, we wouldn’t be having this conversation,” said Mike Boyd, an airline consultant. “Their bet was to hold on to their older MD-80s until Boeing came up with a new airplane. As we know, that didn’t happen.”
The decision to file for bankruptcy was not entirely unexpected. Speculation about a bankruptcy sent the company’s shares down 79 percent this year even before the filing. However, its timing did take many analysts by surprise because they thought the company had enough cash to finance its operations for at least the next 12 months.
Mr. Horton said in an interview that AMR’s board did not want to wait. “This was the time to move from a position of relative strength,” he said. As of Sept. 30, AMR had $24.7 billion in assets and $29.6 billion in debt, according to a filing with the Federal Bankruptcy Court in Manhattan. Creditors include the holders of AMR bonds as well as companies like General Electric that leased aircraft to the airline.
The airline managed to avoid filing for bankruptcy in 2003 after it obtained major concessions from its labor groups, including lower pay for its pilots. But talks for a new contract had been dragging on since 2008 with no resolution. The latest round stalled in recent weeks when the pilots’ union refused to send a proposal to its members for a vote.
“It appears the board of directors ran out of patience after the last discouraging signals from the pilot unions,” said Philip Baggaley, a managing director at Standard & Poor’s Ratings Services.
Airlines have used federal bankruptcy rules in the past to force new contracts on their employees, and American may now take a tougher position with its own unions.
“We had been hopeful that bankruptcy could be averted, but we were aware of the possibility,” said Gregg Overman, a spokesman for the Allied Pilots Association, which represents American pilots.
James C. Little, the president of the Transport Workers Union of America, which represents 25,000 employees, including ground workers, struck a more defiant tone. The union reached a series of tentative agreements in recent weeks with the airline and American Eagle.
“This is likely to be a long and ugly process, and our union will fight like hell to make sure that front-line workers don’t pay an unfair price for management’s failings,” he said.
The mergers of Delta and Northwest, and United and Continental, helped those airlines cut capacity, increase fares and return to profitability last year. American, meanwhile, has had just two profitable years in the last decade, while losses from 2001 to 2010 were $11.4 billion. It recorded a $982 million loss through the first nine months of this year and is expected to post another loss in 2012.
In the long run, the airline is counting on a significant overhaul of its fleet to cut long-term costs. In July, it announced a $38 billion order for 460 new single-aisle planes from Airbus and Boeing. American’s fleet has an average vintage of 15 years, making it one of the oldest and least fuel-efficient among the six major United States carriers.
The company said it still intended to buy these planes, for which it has already secured $13 billion in financing from the plane makers themselves.
The impact of the bankruptcy is likely to be more immediate for some jet leasing companies. In a letter addressed to lessors, American’s treasurer, Beverly K. Goulet, said the airline could not afford to maintain all of its leased aircraft at their current rates and said it had no choice other than to begin canceling contracts on an unspecified number of planes. American leases roughly 29 percent of its fleet, according to data compiled by Ascend, an aviation consultancy based in London.
Although other airlines have improved their finances by taking a trip through bankruptcy court, some analysts were still skeptical about American’s long-term prospects.
“The industry is chronically oversupplied and AMR has no dominance or significant competitive edge in any particular market — we are not convinced that a reinvented, scaled-down iteration will change that,” said Vicki Bryan, an analyst at Gimme Credit.
American Airlines' Bankruptcy: Who Loses?
Forbes
November 29, 2011
11:38 am
Now that AMR Corporation, parent company of American Airlines and American Eagle, has filed for Chapter 11 bankruptcy protection, should you cash in your tickets and use up those frequent flier points?
No, according to Bijan Vasigh, Professor of Airline Finance at Embry-Riddle Aeronautical University in Daytona Beach, Florida. But there is other potential fallout.
“Bankruptcy is a bit of a misnomer,” he says. “This is Chapter 11, which means restructuring. During the restructuring period, the airline will have protection from the court and can reduce its cost structure in order to move out of bankruptcy.”
So travelers shouldn’t notice a difference, at least for the time being. “American Airlines and American Eagle are operating normal flight schedules today,” said the airline in a statement. Reservations, customer service and “all other operations are conducting business as usual.” The airline says it expects that to continue.
Your miles should be safe too, says Vasigh, based on the Chapter 11 experiences of other airlines. “Since airlines are competing on passenger loyalty, I don’t see much change happening.”
So who is likely to be hurt? “The whole objective of the Chapter 11 is to look at cost structures and negotiate with creditors and labor,” says Vasigh. “Some airports that are not profitable will lose services or at least frequency of services.”
American’s employees aren’t likely to be happy either. Under Chapter 11, other airlines have been able to negotiate significant concessions with labor unions.
American was unique among “legacy” airlines in the US (major carriers around since the industry was deregulated in 1978) in not having declared bankruptcy. Delta, United and US Airways all filed for Chapter 11 in the last decade. In fact, US Airways, Delta and Continental have all been through it twice. Vasigh calls Chapter 11 “very regular in the airline industry.”
“The announcement of the bankruptcy wasn’t really surprising,” concurs Jun Li, who studies the airline industry as a doctoral candidate in the Department of Operations and Information Management at the Wharton School of the University of Pennsylvania. “Mergers of other airlines [particularly Delta with Northwest and United with Continental] put American Airlines in a much worse situation than before.” AMR filed for Chapter 11 this morning in New York.
Vasigh says that this leaves Southwest Airlines as the only pre-deregulation carrier not to have declared bankruptcy, but he puts Southwest in a different category since it has always focused on low-cost operations.
November 29, 2011
11:38 am
Now that AMR Corporation, parent company of American Airlines and American Eagle, has filed for Chapter 11 bankruptcy protection, should you cash in your tickets and use up those frequent flier points?
No, according to Bijan Vasigh, Professor of Airline Finance at Embry-Riddle Aeronautical University in Daytona Beach, Florida. But there is other potential fallout.
“Bankruptcy is a bit of a misnomer,” he says. “This is Chapter 11, which means restructuring. During the restructuring period, the airline will have protection from the court and can reduce its cost structure in order to move out of bankruptcy.”
So travelers shouldn’t notice a difference, at least for the time being. “American Airlines and American Eagle are operating normal flight schedules today,” said the airline in a statement. Reservations, customer service and “all other operations are conducting business as usual.” The airline says it expects that to continue.
Your miles should be safe too, says Vasigh, based on the Chapter 11 experiences of other airlines. “Since airlines are competing on passenger loyalty, I don’t see much change happening.”
So who is likely to be hurt? “The whole objective of the Chapter 11 is to look at cost structures and negotiate with creditors and labor,” says Vasigh. “Some airports that are not profitable will lose services or at least frequency of services.”
American’s employees aren’t likely to be happy either. Under Chapter 11, other airlines have been able to negotiate significant concessions with labor unions.
American was unique among “legacy” airlines in the US (major carriers around since the industry was deregulated in 1978) in not having declared bankruptcy. Delta, United and US Airways all filed for Chapter 11 in the last decade. In fact, US Airways, Delta and Continental have all been through it twice. Vasigh calls Chapter 11 “very regular in the airline industry.”
“The announcement of the bankruptcy wasn’t really surprising,” concurs Jun Li, who studies the airline industry as a doctoral candidate in the Department of Operations and Information Management at the Wharton School of the University of Pennsylvania. “Mergers of other airlines [particularly Delta with Northwest and United with Continental] put American Airlines in a much worse situation than before.” AMR filed for Chapter 11 this morning in New York.
Vasigh says that this leaves Southwest Airlines as the only pre-deregulation carrier not to have declared bankruptcy, but he puts Southwest in a different category since it has always focused on low-cost operations.
What’s Next For American Airlines
What Bankruptcy Means for Travelers and American Airlines
Bankruptcy reorganization can be painful and disruptive for airline creditors, employees, retirees, suppliers, shareholders and even competitors, but the impact on passengers is far less: planes keep flying, frequent-flier miles are still good, reservations are still honored. The Chapter 11 bankruptcy protection filing by American Airlines and its parent, AMR Corp., will likely not have much direct impact on travelers. American will no doubt get smaller, and so reducing flight schedules will have long-term impact. In the short term, there might even be a “bankruptcy sale’’ to entice flyers to keep buying tickets on American. WSJ Airline writer Scott McCartney has more. Download MP3
Cain Mulls Campaign’s Future
Herman Cain said Tuesday he is assessing whether to continue his presidential quest after a Georgia woman’s allegations that they had a lengthy extramarital affair fed doubts about the viability of his campaign. In a conference call with campaign aides, the Republican candidate said he would decide over the next several days how to proceed after weighing whether the woman’s statement created “too much of a cloud” among his supporters. WSJ’s Neil King discusses what the future may hold for Mr. Cain
Bankruptcy reorganization can be painful and disruptive for airline creditors, employees, retirees, suppliers, shareholders and even competitors, but the impact on passengers is far less: planes keep flying, frequent-flier miles are still good, reservations are still honored. The Chapter 11 bankruptcy protection filing by American Airlines and its parent, AMR Corp., will likely not have much direct impact on travelers. American will no doubt get smaller, and so reducing flight schedules will have long-term impact. In the short term, there might even be a “bankruptcy sale’’ to entice flyers to keep buying tickets on American. WSJ Airline writer Scott McCartney has more. Download MP3
Cain Mulls Campaign’s Future
Herman Cain said Tuesday he is assessing whether to continue his presidential quest after a Georgia woman’s allegations that they had a lengthy extramarital affair fed doubts about the viability of his campaign. In a conference call with campaign aides, the Republican candidate said he would decide over the next several days how to proceed after weighing whether the woman’s statement created “too much of a cloud” among his supporters. WSJ’s Neil King discusses what the future may hold for Mr. Cain
What Europe And State Governments Should Learn From American Airlines
American Airlines is a sad example of the type of over-regulation that is strangling the U.S. economy.
On Monday, the airline’s parent company, AMR Corp (AMR), voluntarily filed for Chapter 11 bankruptcy protection. AA had fallen from its perch as the world’s largest airline to number three in the U.S. after the cost gap between it and its competitors (who had already gone through bankruptcy) became too great to overcome.
U.S. states and European countries need to learn from this example, and get ahead of the game to avoid ending up like American Airlines.
The reason American Airlines’ cost structure became unsustainable was because it tried to fight the inevitable. Air travel fell dramatically following the 9/11 terrorist attacks, and all major airlines, except AA, used bankruptcy protection to restructure pension plans and debt. The weight of massive retirement plans cut into profits, so naturally there was only one solution.
American Airlines, long resistant to the idea of bankruptcy, is the last of the “U.S. legacy airlines” to go through the Chapter 11 bankruptcy process to bust unions and renegotiate labor deals. AMR has been in negotiations with unions since 2006 as it sought to trim the estimated $800 million cost difference between itself and competitors. Workers refused to make concessions, now they will have to make large ones.
“It became increasingly clear that the cost gap between us and our biggest competitors was untenable,” new CEO Tom Horton said on a conference call. “The economic climate has been most uncertain, oil prices remain high and volatile, and all of that taken together led to the conclusion that now is the right time to take this step and put the company back on the path to long-term success.”
Isn’t that refreshing to hear?
It became clear to the rest of the airline industry that bankruptcy was a painful, but necessary step as the system became unsustainable. While they experienced some short term-pain, hitting the reset button allowed them to restructure the system and protect their future. Why can’t the rest of the world understand that concept?
The world economy continues to kick the can down the road. The excessively low interest rates, unsustainable growth and massive leveraging over the last 30 years created a ticking time bomb that was set off in 2008 by the bundling and 30-1 leveraging of subprime mortgages. Newton’s third law of physics stated that for every action there is an equal and opposite reaction, and policy makers are trying to engineer voo-doo science to prevent that snap-back.
On Monday, the airline’s parent company, AMR Corp (AMR), voluntarily filed for Chapter 11 bankruptcy protection. AA had fallen from its perch as the world’s largest airline to number three in the U.S. after the cost gap between it and its competitors (who had already gone through bankruptcy) became too great to overcome.
U.S. states and European countries need to learn from this example, and get ahead of the game to avoid ending up like American Airlines.
The reason American Airlines’ cost structure became unsustainable was because it tried to fight the inevitable. Air travel fell dramatically following the 9/11 terrorist attacks, and all major airlines, except AA, used bankruptcy protection to restructure pension plans and debt. The weight of massive retirement plans cut into profits, so naturally there was only one solution.
American Airlines, long resistant to the idea of bankruptcy, is the last of the “U.S. legacy airlines” to go through the Chapter 11 bankruptcy process to bust unions and renegotiate labor deals. AMR has been in negotiations with unions since 2006 as it sought to trim the estimated $800 million cost difference between itself and competitors. Workers refused to make concessions, now they will have to make large ones.
“It became increasingly clear that the cost gap between us and our biggest competitors was untenable,” new CEO Tom Horton said on a conference call. “The economic climate has been most uncertain, oil prices remain high and volatile, and all of that taken together led to the conclusion that now is the right time to take this step and put the company back on the path to long-term success.”
Isn’t that refreshing to hear?
It became clear to the rest of the airline industry that bankruptcy was a painful, but necessary step as the system became unsustainable. While they experienced some short term-pain, hitting the reset button allowed them to restructure the system and protect their future. Why can’t the rest of the world understand that concept?
The world economy continues to kick the can down the road. The excessively low interest rates, unsustainable growth and massive leveraging over the last 30 years created a ticking time bomb that was set off in 2008 by the bundling and 30-1 leveraging of subprime mortgages. Newton’s third law of physics stated that for every action there is an equal and opposite reaction, and policy makers are trying to engineer voo-doo science to prevent that snap-back.
Wait, How Can American Airlines Go Bankrupt When ‘Corporate Balance Sheets
American Airlines went bust this morning, which should have come as a surprise to no one who has followed the company and airline industry over the years.
(The company recently denied bankruptcy rumors by stating that bankruptcy was "certainly not our goal or preference," which is about as close as a corporation will ever come to saying "Of course we're going to declare bankruptcy, you idiots, why are you even bothering to ask?")
But the bankruptcy WILL come as a surprise to the millions of Americans who have repeatedly been exposed to one of the consensual hallucinations that bullish investors and pundits have been mouthing in recent months:
To wit: Corporate balance sheets are the strongest in history and companies are awash in cash.
It is true that companies have plenty of liquidity, which they didn't a few years ago.
But corporate balance sheets are in fact no "stronger" than the balance sheet of someone who borrows a million dollars and then spends only little of it.
In other words, yes, corporations have lots of cash, but this is only because they have borrowed lots of cash. And as anyone who owes more money than they have will tell you, that's not exactly the definition of "strength."
For more, visit Business Insider to see charts from fund manager John Hussman, which make this clear.
(The company recently denied bankruptcy rumors by stating that bankruptcy was "certainly not our goal or preference," which is about as close as a corporation will ever come to saying "Of course we're going to declare bankruptcy, you idiots, why are you even bothering to ask?")
But the bankruptcy WILL come as a surprise to the millions of Americans who have repeatedly been exposed to one of the consensual hallucinations that bullish investors and pundits have been mouthing in recent months:
To wit: Corporate balance sheets are the strongest in history and companies are awash in cash.
It is true that companies have plenty of liquidity, which they didn't a few years ago.
But corporate balance sheets are in fact no "stronger" than the balance sheet of someone who borrows a million dollars and then spends only little of it.
In other words, yes, corporations have lots of cash, but this is only because they have borrowed lots of cash. And as anyone who owes more money than they have will tell you, that's not exactly the definition of "strength."
For more, visit Business Insider to see charts from fund manager John Hussman, which make this clear.
Parent of American Airlines files for bankruptcy
The parent company of American Airlines, facing its fourth straight year of operating at a loss, filed for Chapter 11 bankruptcy protection on Tuesday, a move designed to reduce debts and cut labor and other costs.
AMR Corp., which also announced a new chief executive, said it was running normal flight schedules and that reservations, frequent-flier programs and all other operations were conducting business as usual.
AMR said in a release that all of its major rival airlines had restructured their costs and debts through bankruptcy reorganization, giving the company a "very substantial cost disadvantage compared to our larger competitors."
AMR also cited global economic uncertainty, rising fuel costs and increasing competition as factors compounding its troubles. “Our board decided that it was necessary to take this step now to restore the company's profitability, operating flexibility and financial strength," said Thomas W. Horton, AMR's newly appointed chairman and chief executive.
The company said Tuesday that Horton was named chairman and chief executive of both AMR and American Airlines. He replaces AMR Chief Executive Gerard Arpey, who has decided to retire.
In its filing with the U.S. Bankruptcy Court in New York, AMR said it had $24.7 billion in assets and $29.6 billion in debt as of Sept. 30. The company said it has about $4.1 billion in cash and short-term investments to pay its vendors and suppliers.
For the nine months ended Sept. 30, AMR posted a net loss of $884 million, more than double the loss of the prior year's nine-month period.
AMR Corp., which also announced a new chief executive, said it was running normal flight schedules and that reservations, frequent-flier programs and all other operations were conducting business as usual.
AMR said in a release that all of its major rival airlines had restructured their costs and debts through bankruptcy reorganization, giving the company a "very substantial cost disadvantage compared to our larger competitors."
AMR also cited global economic uncertainty, rising fuel costs and increasing competition as factors compounding its troubles. “Our board decided that it was necessary to take this step now to restore the company's profitability, operating flexibility and financial strength," said Thomas W. Horton, AMR's newly appointed chairman and chief executive.
The company said Tuesday that Horton was named chairman and chief executive of both AMR and American Airlines. He replaces AMR Chief Executive Gerard Arpey, who has decided to retire.
In its filing with the U.S. Bankruptcy Court in New York, AMR said it had $24.7 billion in assets and $29.6 billion in debt as of Sept. 30. The company said it has about $4.1 billion in cash and short-term investments to pay its vendors and suppliers.
For the nine months ended Sept. 30, AMR posted a net loss of $884 million, more than double the loss of the prior year's nine-month period.
How American Airlines’s Bankruptcy Stacks Up
American Airlines’s parent had been the only U.S. legacy airline that hadn’t filed for bankruptcy protection. Now that it has filed, it will slot in as the second -largest airline bankruptcy.
American listed in its filing assets of $24.72 billion. That was not enough to knock UAL, the parent of United Airlines, from its top spot. But it was enough to top bankruptcies of both Delta and Northwest, according to BankruptcyData.com.
American’s bankruptcy will also rank among the largest non-financial on record. According to BankruptcyData.com, American will now rank 11th.
American listed in its filing assets of $24.72 billion. That was not enough to knock UAL, the parent of United Airlines, from its top spot. But it was enough to top bankruptcies of both Delta and Northwest, according to BankruptcyData.com.
American’s bankruptcy will also rank among the largest non-financial on record. According to BankruptcyData.com, American will now rank 11th.
AMR Bankruptcy Deals ‘Blow’ to Region Airline Put on the Map
Nov. 29 (Bloomberg) -- The bankruptcy of American Airlines parent AMR Corp. deals a blow to the Dallas-Fort Worth region of Texas, a community whose identity and fortunes have been tied to the company and aviation for more than 80 years.
American Airlines is the second-biggest employer in the region, with more than 20,000 of its 80,000 workers based there, and has had a presence in Dallas-Fort Worth since 1929. About one in six jobs in the region is related to transportation, trade or airlines, including American and Dallas-based Southwest Airlines Co., according to the North Texas Commission.
“American has been so much a part of who we are,” Allan Saxe, a professor of political science at the University of Texas at Arlington, said in an interview. The bankruptcy is “more of a psychological blow, I think, than anything else.”
AMR, once the world’s largest airline, filed for Chapter 11 protection from creditors today, listing $24.7 billion in assets and $29.6 billion in debt. While American and American Eagle airlines continue to fly regular schedules, Fort Worth-based AMR said it may eliminate jobs and trim service to some cities. AMR has said it wants to renegotiate contracts with labor unions.
“We’ll probably see some cuts in wages and benefits for local workers and that’ll ripple through the economy,” said Bernard Weinstein, an economist at Southern Methodist University’s Cox School of Business in Dallas.
‘Block By Block’
Dallas Mayor Mike Rawlings said the bankruptcy will be felt “block by block.”
“I live next door to a pilot and a flight attendant,” he said in an interview. The bankruptcy “impacts their lives, I care about that, so it’s more a personal thing as opposed to a macro-economic level.”
American was created in 1929 by combining smaller airlines, including Dallas-based Texas Air Transport. American’s southern division was later based in Fort Worth, and the company’s 1933 Art Moderne hangar at Meacham Field is on the National Register of Historic Places.
AMR moved its headquarters to Fort Worth from New York in 1979, according to its website. Other corporate relocations, including Exxon Mobil Corp. and J.C. Penney Co. helped make Dallas-Fort Worth the fourth-biggest U.S. metropolitan area.
“That was a real coup for the area, it helped put D-FW on the map,” Weinstein said.
“In a sense that was American coming home.”
Emerging Stronger
American fell from its perch as the biggest airline by traffic after Delta Air Lines Inc. bought Northwest Airlines Corp. in 2008, then slid to No. 3 last year when UAL Corp.’s United Airlines and Continental Airlines Inc. merged.
American may be stronger after the bankruptcy, if it can lower its fuel and labor costs, said Mabrie Jackson, president of the North Texas Commission, which coordinates the efforts of local governments for common municipal projects.
Fort Worth Mayor Betsy Price said she is confident that AMR will be competitive again.
“It makes everybody nervous,” Price said in an interview of the bankruptcy filing. “The other airlines that have been through bankruptcy have all emerged stronger and more efficient we feel certain American will also.”
--With assistance from Mary Schlangenstein in Dallas, David McLaughlin in New York and Phil Milford in Wilmington, Delaware. Editors: Romaine Bostick, John Lear
American Airlines is the second-biggest employer in the region, with more than 20,000 of its 80,000 workers based there, and has had a presence in Dallas-Fort Worth since 1929. About one in six jobs in the region is related to transportation, trade or airlines, including American and Dallas-based Southwest Airlines Co., according to the North Texas Commission.
“American has been so much a part of who we are,” Allan Saxe, a professor of political science at the University of Texas at Arlington, said in an interview. The bankruptcy is “more of a psychological blow, I think, than anything else.”
AMR, once the world’s largest airline, filed for Chapter 11 protection from creditors today, listing $24.7 billion in assets and $29.6 billion in debt. While American and American Eagle airlines continue to fly regular schedules, Fort Worth-based AMR said it may eliminate jobs and trim service to some cities. AMR has said it wants to renegotiate contracts with labor unions.
“We’ll probably see some cuts in wages and benefits for local workers and that’ll ripple through the economy,” said Bernard Weinstein, an economist at Southern Methodist University’s Cox School of Business in Dallas.
‘Block By Block’
Dallas Mayor Mike Rawlings said the bankruptcy will be felt “block by block.”
“I live next door to a pilot and a flight attendant,” he said in an interview. The bankruptcy “impacts their lives, I care about that, so it’s more a personal thing as opposed to a macro-economic level.”
American was created in 1929 by combining smaller airlines, including Dallas-based Texas Air Transport. American’s southern division was later based in Fort Worth, and the company’s 1933 Art Moderne hangar at Meacham Field is on the National Register of Historic Places.
AMR moved its headquarters to Fort Worth from New York in 1979, according to its website. Other corporate relocations, including Exxon Mobil Corp. and J.C. Penney Co. helped make Dallas-Fort Worth the fourth-biggest U.S. metropolitan area.
“That was a real coup for the area, it helped put D-FW on the map,” Weinstein said.
“In a sense that was American coming home.”
Emerging Stronger
American fell from its perch as the biggest airline by traffic after Delta Air Lines Inc. bought Northwest Airlines Corp. in 2008, then slid to No. 3 last year when UAL Corp.’s United Airlines and Continental Airlines Inc. merged.
American may be stronger after the bankruptcy, if it can lower its fuel and labor costs, said Mabrie Jackson, president of the North Texas Commission, which coordinates the efforts of local governments for common municipal projects.
Fort Worth Mayor Betsy Price said she is confident that AMR will be competitive again.
“It makes everybody nervous,” Price said in an interview of the bankruptcy filing. “The other airlines that have been through bankruptcy have all emerged stronger and more efficient we feel certain American will also.”
--With assistance from Mary Schlangenstein in Dallas, David McLaughlin in New York and Phil Milford in Wilmington, Delaware. Editors: Romaine Bostick, John Lear
American Won’t Be the Last Airline Bankruptcy
On Tuesday morning, I found myself flying back from Los Angeles after the unexpected death of my father-in-law, a longtime public defender who had a million times more “real” courtroom experience than a former “big law” type like myself could ever have (five years, two uncontested motions). He will be missed.
And, of course, I was flying back on American Airlines.
Upon landing, my in-box was filled with requests for comments on the bankruptcy case. So here goes.
First, the case is obviously about reducing cost. Labor cost is the point that the airline led with, and the media mostly picked up on, but American also has a pretty old fleet of planes. And the fleet might be too big. Chapter 11 can help with all of this.
Arguably some of this restructuring could be done outside of bankruptcy – and American tried just that – but the advantage of Chapter 11 is speed. Every contract is opened for renegotiation, today.
More broadly, one should expect that this will be one more step down the road of commodification of domestic airline travel. Especially in the back 99 percent of the plane. Lower paid employees on fuller flights rarely makes for a good time.
With this case, every major full-service airline in the United states will have gone through Chapter 11 at least once. That means that all have the same basic low-cost structure and revamped asset package. And they all seem to be bent on offering the same service to the bulk of their customers.
Just as the nation learned in the 1970s that there really was no need for multiple railroads to offer the same basic passenger service to the same basic points across the country, I suspect we are headed for a similar day of reckoning in domestic air travel.
And, of course, I was flying back on American Airlines.
Upon landing, my in-box was filled with requests for comments on the bankruptcy case. So here goes.
First, the case is obviously about reducing cost. Labor cost is the point that the airline led with, and the media mostly picked up on, but American also has a pretty old fleet of planes. And the fleet might be too big. Chapter 11 can help with all of this.
Arguably some of this restructuring could be done outside of bankruptcy – and American tried just that – but the advantage of Chapter 11 is speed. Every contract is opened for renegotiation, today.
More broadly, one should expect that this will be one more step down the road of commodification of domestic airline travel. Especially in the back 99 percent of the plane. Lower paid employees on fuller flights rarely makes for a good time.
With this case, every major full-service airline in the United states will have gone through Chapter 11 at least once. That means that all have the same basic low-cost structure and revamped asset package. And they all seem to be bent on offering the same service to the bulk of their customers.
Just as the nation learned in the 1970s that there really was no need for multiple railroads to offer the same basic passenger service to the same basic points across the country, I suspect we are headed for a similar day of reckoning in domestic air travel.
American Airlines waited too long to bail out
A hallmark of air travel is the cool voice of calm from the cockpit, capable of heralding a view of the Grand Canyon out the left side of the aircraft one minute and then the next, in the same unhurried, Chuck Yeageresque tone, an emergency landing because of a little ol' blinking red light.
Passengers find that confidence reassuring. Panic is bad. But failure to act in time is worse.
The parent of American Airlines, the only legacy U.S. carrier to never file for bankruptcy, at last acknowledged Tuesday just how precarious its trajectory is in the choppy wake of rivals made stronger and more agile by greatly improved cost structures.
AMR Corp. filed for Chapter 11 protection in hopes of gaining the same savings American competitors such as Delta Air Lines and United Airlines enjoy from restructuring and renegotiated labor deals.
"Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices and intensifying competitive challenges," newly named AMR Chairman and Chief Executive Thomas Horton said in a statement.
His predecessor, Gerard Arpey, became CEO eight years ago with a mandate to win labor concessions that forestalled threatened bankruptcy. But AMR, which has been saddled by an older, less fuel-efficient fleet, ran up debt and failed to stanch losses even as peers grew — Delta teamed with Northwest and United with Continental — and reversed losses.
Deutsche Bank's Michael Linenberg wrote in a research note that AMR's filing comes at a time when "the U.S. airline industry is on track to generate a net profit in the seasonally-weak December quarter, something that we have observed only twice during the past decade."
AMR lost $471 million last year and had dropped another $982 million this year heading into the fourth quarter. Shares worth more than $8 in January were worth $1.62 Monday, and they fell by more than a buck after the bankruptcy filing.
Since deregulation of the industry in 1978, there have been 189 bankruptcies among domestic carriers, according to the Air Transport Association. Most ultimately were unable to survive, although some filed multiple times. Among the grounded: Pan Am World Airways, Eastern Air Lines and Trans World Airlines, which went through the process in 1992, 1995 and 2001, eventually being swallowed by American.
Part of the reason for all the bankruptcies is that the hyper-competitive airline industry historically is very difficult. Reflecting on an investment in airline stock gone sour, Warren Buffett famously said in 2001, "If capitalists had been present at Kitty Hawk when the Wright brothers' plane first took off, they should have shot it down."
But bankruptcy also affords airlines muscle in dealing with unions unavailable in other sectors, thanks to special government regulation of the transportation industry.
"Airline bankruptcies are fundamentally different, with respect to labor negotiations, that they just have their own unique dynamics," said Douglas Baird, a University of Chicago professor of law. "In an ordinary bankruptcy … I could file for bankruptcy and get rid of the collective bargaining agreement, but I still don't have any way to make the workers come to work. They can still go on strike.
"What makes airline bankruptcies really, really weird and really, really special is you can go in and change the agreement. You can go in and change the terms, and the workers don't have the ability to go out on strike," Baird explained, citing "a weird and wacky and, I think, incorrect" court ruling.
Not that the unions plan to roll over. "This is likely to be a long and ugly process, and our union will fight like hell to make sure that front-line workers don't pay an unfair price for management's failings," Transport Workers Union President James Little said in a statement, adding "this bankruptcy could have and should have been avoided" but was not unexpected.
If AMR waited too long to file, it would hardly be the first to do so.
"If you're managers running your company, even if you are hitting heavy seas, you want to remain in control," Baird said. "You give up so much control when you file for bankruptcy that people running companies don't like to do it, and they do it too late rather than too soon."
But one would think airline executives know all too well the price to be paid for carrying too much baggage.
Passengers find that confidence reassuring. Panic is bad. But failure to act in time is worse.
The parent of American Airlines, the only legacy U.S. carrier to never file for bankruptcy, at last acknowledged Tuesday just how precarious its trajectory is in the choppy wake of rivals made stronger and more agile by greatly improved cost structures.
AMR Corp. filed for Chapter 11 protection in hopes of gaining the same savings American competitors such as Delta Air Lines and United Airlines enjoy from restructuring and renegotiated labor deals.
"Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices and intensifying competitive challenges," newly named AMR Chairman and Chief Executive Thomas Horton said in a statement.
His predecessor, Gerard Arpey, became CEO eight years ago with a mandate to win labor concessions that forestalled threatened bankruptcy. But AMR, which has been saddled by an older, less fuel-efficient fleet, ran up debt and failed to stanch losses even as peers grew — Delta teamed with Northwest and United with Continental — and reversed losses.
Deutsche Bank's Michael Linenberg wrote in a research note that AMR's filing comes at a time when "the U.S. airline industry is on track to generate a net profit in the seasonally-weak December quarter, something that we have observed only twice during the past decade."
AMR lost $471 million last year and had dropped another $982 million this year heading into the fourth quarter. Shares worth more than $8 in January were worth $1.62 Monday, and they fell by more than a buck after the bankruptcy filing.
Since deregulation of the industry in 1978, there have been 189 bankruptcies among domestic carriers, according to the Air Transport Association. Most ultimately were unable to survive, although some filed multiple times. Among the grounded: Pan Am World Airways, Eastern Air Lines and Trans World Airlines, which went through the process in 1992, 1995 and 2001, eventually being swallowed by American.
Part of the reason for all the bankruptcies is that the hyper-competitive airline industry historically is very difficult. Reflecting on an investment in airline stock gone sour, Warren Buffett famously said in 2001, "If capitalists had been present at Kitty Hawk when the Wright brothers' plane first took off, they should have shot it down."
But bankruptcy also affords airlines muscle in dealing with unions unavailable in other sectors, thanks to special government regulation of the transportation industry.
"Airline bankruptcies are fundamentally different, with respect to labor negotiations, that they just have their own unique dynamics," said Douglas Baird, a University of Chicago professor of law. "In an ordinary bankruptcy … I could file for bankruptcy and get rid of the collective bargaining agreement, but I still don't have any way to make the workers come to work. They can still go on strike.
"What makes airline bankruptcies really, really weird and really, really special is you can go in and change the agreement. You can go in and change the terms, and the workers don't have the ability to go out on strike," Baird explained, citing "a weird and wacky and, I think, incorrect" court ruling.
Not that the unions plan to roll over. "This is likely to be a long and ugly process, and our union will fight like hell to make sure that front-line workers don't pay an unfair price for management's failings," Transport Workers Union President James Little said in a statement, adding "this bankruptcy could have and should have been avoided" but was not unexpected.
If AMR waited too long to file, it would hardly be the first to do so.
"If you're managers running your company, even if you are hitting heavy seas, you want to remain in control," Baird said. "You give up so much control when you file for bankruptcy that people running companies don't like to do it, and they do it too late rather than too soon."
But one would think airline executives know all too well the price to be paid for carrying too much baggage.
American Airlines succumbs to the industry's head-winds
WHAT does it mean for air travel in 2012 that American Airlines (AA), the world’s fourth biggest carrier by passenger miles, has today sought refuge in America’s Chapter 11 bankruptcy code? My colleague on the Gulliver blog has neatly summed up the financial numbers that have crunched AA, the last of the America’s largest “legacy” carriers to file for Chapter 11. And critics of airline deregulation will say AA’s troubles are the inevitable consequence of a “flight to the bottom” sparked by the 1978 federal act that unleashed market forces on the hitherto closely regulated industry.
Cassandra has always been a supporter of deregulation, but I have to admit that flying in America is a bit like being on Greyhound bus—though often with less service. The question is whether low fares must always equal low-quality service with grumpy, underpaid cabin staff. Looking at Europe’s budget airlines, notably Ryanair and EasyJet, I suspect the answer is yes.
On the other hand, Cassandra lives in hope. Almost all airlines in the Middle and Far East boast wonderful service (think of Emirates, Cathay Pacific and Singapore Airlines) of a kind that their American competitors abandoned years ago. Could they transfer that service culture to low-cost carriers? We shall soon find out: in 2012 Singapore Airlines, Thai and Japan’s ANA will all launch budget-airline subsidiaries. As long as the cabin attendants smile and are as efficient as on their parent airlines, Cassandra will be happy to pay for his wine.
Cassandra has always been a supporter of deregulation, but I have to admit that flying in America is a bit like being on Greyhound bus—though often with less service. The question is whether low fares must always equal low-quality service with grumpy, underpaid cabin staff. Looking at Europe’s budget airlines, notably Ryanair and EasyJet, I suspect the answer is yes.
On the other hand, Cassandra lives in hope. Almost all airlines in the Middle and Far East boast wonderful service (think of Emirates, Cathay Pacific and Singapore Airlines) of a kind that their American competitors abandoned years ago. Could they transfer that service culture to low-cost carriers? We shall soon find out: in 2012 Singapore Airlines, Thai and Japan’s ANA will all launch budget-airline subsidiaries. As long as the cabin attendants smile and are as efficient as on their parent airlines, Cassandra will be happy to pay for his wine.
American Airlines Plunges Into Bankruptcy
Faced with high labor costs and rising prices for jet fuel, American Airlines parent company AMR filed today for Chapter 11 bankruptcy.
Once the world’s largest airline, American is deeply in the red, and in recent months its cash reserves have been falling. The company says labor contract rules force it to spend many millions of dollars more on operations than other airlines.
In a statement the carrier’s parent company announced plans to continue normal business operations as it seeks court protection to reduce costs and debt. American says flight schedules will be unchanged and its frequent flier program is not affected.
“The consumers, themselves, are probably not going to be affected that much; it’s going to be the employees that are really affected,” says airline analyst Denny Kelly in Fort Worth, Texas. He expects American to emerge from bankruptcy financially stronger than it is today
The nation’s third largest airline also says CEO Gerard Arpey will step down. He’s being replaced by Thomas Horton, currently the company’s president.
Flight operations may be reduced in the future. “Some of the destinations that are not very popular will be probably cut back or maybe eliminated,” says Kelly. Employee pay may be cut. “When they go in and file bankruptcy, then American can set the employee contracts anyway they want.”
American was the only major U.S. airline that didn’t seek bankruptcy protection after the 2001 terrorist attacks. Unlike most other carriers, American did not merge with a competitor, and it was the only major airline to lose money last year.
“American’s customers are always our top priority and they can continue to depend on us for the safe, reliable travel and high quality service they know and expect from us,” said Horton in a statement. “American serves 260 airports in more than 50 countries and territories, and we are committed to maintaining a strong presence in worldwide markets.”
The Fort Worth,Texas-based company listed $24.7 billion in assets and $29.6 billion in debt in court papers filed today in New York.
AMR had losses of $162 million in the third quarter and $2.7 billion in the past year while the other major airlines posted profits. United Continental, the parent of United Airlines, the world’s largest carrier, had third-quarter profits of $653 million and US Airways made $76 million.
The airline had been in contract talks with unions representing its pilots, flight attendants and ground crews for more than four years.
Once the world’s largest airline, American is deeply in the red, and in recent months its cash reserves have been falling. The company says labor contract rules force it to spend many millions of dollars more on operations than other airlines.
In a statement the carrier’s parent company announced plans to continue normal business operations as it seeks court protection to reduce costs and debt. American says flight schedules will be unchanged and its frequent flier program is not affected.
“The consumers, themselves, are probably not going to be affected that much; it’s going to be the employees that are really affected,” says airline analyst Denny Kelly in Fort Worth, Texas. He expects American to emerge from bankruptcy financially stronger than it is today
The nation’s third largest airline also says CEO Gerard Arpey will step down. He’s being replaced by Thomas Horton, currently the company’s president.
Flight operations may be reduced in the future. “Some of the destinations that are not very popular will be probably cut back or maybe eliminated,” says Kelly. Employee pay may be cut. “When they go in and file bankruptcy, then American can set the employee contracts anyway they want.”
American was the only major U.S. airline that didn’t seek bankruptcy protection after the 2001 terrorist attacks. Unlike most other carriers, American did not merge with a competitor, and it was the only major airline to lose money last year.
“American’s customers are always our top priority and they can continue to depend on us for the safe, reliable travel and high quality service they know and expect from us,” said Horton in a statement. “American serves 260 airports in more than 50 countries and territories, and we are committed to maintaining a strong presence in worldwide markets.”
The Fort Worth,Texas-based company listed $24.7 billion in assets and $29.6 billion in debt in court papers filed today in New York.
AMR had losses of $162 million in the third quarter and $2.7 billion in the past year while the other major airlines posted profits. United Continental, the parent of United Airlines, the world’s largest carrier, had third-quarter profits of $653 million and US Airways made $76 million.
The airline had been in contract talks with unions representing its pilots, flight attendants and ground crews for more than four years.
American Airlines parent firm files for bankruptcy
Facing staggering labor costs, rising fuel prices and an uncertain economy, the parent company of American Airlines filed for bankruptcy protection and moved to reorganize the struggling operation.
Even as Fort Worth-based AMR Corp.'s bankruptcy filing Tuesday left its 88,000 employees worried about their salaries and pensions, American sought to reassure passengers that it would not affect regular operations.
American, the largest carrier at Los Angeles International Airport, said all tickets, reservations and frequent-flier reward points would be honored.
"American Airlines remains open for business," said Craig Kreeger, the airline's vice president for customer experience. "It's business as usual."
Until it filed for Chapter 11 protection in New York, AMR represented the last major network carrier in the U.S. to avoid bankruptcy in the tumultuous decade since the Sept. 11, 2001, terrorist attacks that included two American jets — one flown into the World Trade Center and another into the Pentagon.
The AMR board of directors also announced that it had promoted Thomas W. Horton, 50, to be chairman and chief executive officer of the company, to replace Gerard Arpey, who informed the board of his plans to retire. Arpey, 53, had been chief executive officer since 2003 and chairman since 2004.
Arpey chose to resign because "he believes it's in the best interest of the company for a change of leadership," Kreeger said.
As of Sept. 30, AMR reported assets of $24.9 billion and liabilities of $29.5 billion, according to its bankruptcy filing. Still, the company said it had about $4.1 billion in cash and short-term investments that could be used to pay vendors and suppliers.
AMR shares plunged more than 80% in trading Tuesday to close at 26 cents a share, down from $1.26 on Monday.
At LAX, passengers said they weren't worried because other airlines had filed for bankruptcy in the past, and flights, reservations and frequent-flier miles weren't affected. American's AAdvantage is the oldest and one of the nation's largest airline frequent-flier loyalty programs. But there were concerns.
Waiting for his luggage, Lupe Delacruz, an American frequent flier from Dallas who had flown nearly 1 million miles on the airline, said the company assured him that he would not lose his loyalty points.
But he added: "I'm worried that the quality of service might change. … I made a concerted effort to fly with one airline, this airline."
Several American flight attendants and a pilot, all of whom asked not to be identified for fear of losing their jobs, said they were worried that the bankruptcy filing could lead to staff cuts, but most were not surprised by the news.
"I've been expecting this for 10 years," said the pilot based in Los Angeles, who has flown for American for 26 years. "It doesn't surprise me at all."
The employees said they were bracing for pay cuts, layoffs and possible changes in their pensions.
"We have no way of knowing what the future holds, but I am nervous," the pilot said.
Although AMR has reported steep loses over the last year, many of its competitors that renegotiated labor contracts and debts in the bankruptcy process over the last decade have enjoyed strong profit margins more recently.
AMR reported a loss of $162 million in the three months ended Sept. 30, while its top competitor, the parent company for United and Continental airlines, reported a profit of $773 million in the same period.
"American's competitors are pretty healthy now, and they are not," said Seth Kaplan, a managing partner at Airline Weekly, a trade publication. "The airlines' cost structure is the worst of their problems."
Even as Fort Worth-based AMR Corp.'s bankruptcy filing Tuesday left its 88,000 employees worried about their salaries and pensions, American sought to reassure passengers that it would not affect regular operations.
American, the largest carrier at Los Angeles International Airport, said all tickets, reservations and frequent-flier reward points would be honored.
"American Airlines remains open for business," said Craig Kreeger, the airline's vice president for customer experience. "It's business as usual."
Until it filed for Chapter 11 protection in New York, AMR represented the last major network carrier in the U.S. to avoid bankruptcy in the tumultuous decade since the Sept. 11, 2001, terrorist attacks that included two American jets — one flown into the World Trade Center and another into the Pentagon.
The AMR board of directors also announced that it had promoted Thomas W. Horton, 50, to be chairman and chief executive officer of the company, to replace Gerard Arpey, who informed the board of his plans to retire. Arpey, 53, had been chief executive officer since 2003 and chairman since 2004.
Arpey chose to resign because "he believes it's in the best interest of the company for a change of leadership," Kreeger said.
As of Sept. 30, AMR reported assets of $24.9 billion and liabilities of $29.5 billion, according to its bankruptcy filing. Still, the company said it had about $4.1 billion in cash and short-term investments that could be used to pay vendors and suppliers.
AMR shares plunged more than 80% in trading Tuesday to close at 26 cents a share, down from $1.26 on Monday.
At LAX, passengers said they weren't worried because other airlines had filed for bankruptcy in the past, and flights, reservations and frequent-flier miles weren't affected. American's AAdvantage is the oldest and one of the nation's largest airline frequent-flier loyalty programs. But there were concerns.
Waiting for his luggage, Lupe Delacruz, an American frequent flier from Dallas who had flown nearly 1 million miles on the airline, said the company assured him that he would not lose his loyalty points.
But he added: "I'm worried that the quality of service might change. … I made a concerted effort to fly with one airline, this airline."
Several American flight attendants and a pilot, all of whom asked not to be identified for fear of losing their jobs, said they were worried that the bankruptcy filing could lead to staff cuts, but most were not surprised by the news.
"I've been expecting this for 10 years," said the pilot based in Los Angeles, who has flown for American for 26 years. "It doesn't surprise me at all."
The employees said they were bracing for pay cuts, layoffs and possible changes in their pensions.
"We have no way of knowing what the future holds, but I am nervous," the pilot said.
Although AMR has reported steep loses over the last year, many of its competitors that renegotiated labor contracts and debts in the bankruptcy process over the last decade have enjoyed strong profit margins more recently.
AMR reported a loss of $162 million in the three months ended Sept. 30, while its top competitor, the parent company for United and Continental airlines, reported a profit of $773 million in the same period.
"American's competitors are pretty healthy now, and they are not," said Seth Kaplan, a managing partner at Airline Weekly, a trade publication. "The airlines' cost structure is the worst of their problems."
American Airlines parent files for Chapter 11 bankruptcy
AMR Corp., parent of American Airlines and American Eagle, has filed for Chapter 11 bankruptcy protection. Beset with high labor and fuel costs as well as crushing debt, AMR Corp. filed for Chapter 11 bankruptcy protection Tuesday in New York City and
What Bankruptcy Means for Travelers and American Airlines: The Chapter 11 bankruptcy protection filing by American Airlines and its parent, AMR Corp., will likely not have much direct impact on travelers. American will no doubt get smaller,
American Airlines, the world's fourth largest airline, has filed for Chapter 11 bankruptcy protection. The decision comes as the airline tries to “achieve a cost and debt structure that is industry competitive and thereby assure its
Company says it will continue normal flight operations during the reorganization.
What Bankruptcy Means for Travelers and American Airlines: The Chapter 11 bankruptcy protection filing by American Airlines and its parent, AMR Corp., will likely not have much direct impact on travelers. American will no doubt get smaller,
American Airlines, the world's fourth largest airline, has filed for Chapter 11 bankruptcy protection. The decision comes as the airline tries to “achieve a cost and debt structure that is industry competitive and thereby assure its
Company says it will continue normal flight operations during the reorganization.
American Airlines parent files for bankruptcy protection after labor agreements fail
Nov. 29 (Bloomberg) -- American Airlines parent AMR Corp. filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S.
With the filing, American became the final large U.S. full- fare airline to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air- mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan.
“They will have to go through the whole process that their peers have gone through,” John Strickland, an aviation analyst at JLS Consulting in London, said today in a telephone interview. “It’s painful but probably necessary. They have fallen behind what others have done.”
Chairman and Chief Executive Officer Gerard Arpey, 53, will retire and be replaced by Thomas Horton, AMR said. Normal flight schedules will continue on American and its American Eagle regional unit, along with the airline’s frequent-flier program, the company said.
AMR was determined to avoid Chapter 11 in the years after the 2001 terrorist attacks, as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. American later watched as rival carriers combined, giving them larger route networks that were more attractive to lucrative corporate travel customers.
Stalled Talks
American was embroiled in negotiations with unions for all of its major work groups as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.
The airline and leaders of its pilots’ union were scheduled to meet with federal mediators on Dec. 6 to provide an update on contract talks that stalled two weeks ago. The two sides hadn’t set a date to resume negotiations since Allied Pilots Association leaders declined to send a Nov. 14 contract offer to union members for a vote, saying it “clearly” would be rejected.
American’s pilots, flight attendants, mechanics and baggage handlers wanted to use the contract talks to regain some of the $1.6 billion in annual concessions they gave in 2003 to help the company avoid bankruptcy.
AMR shares have plunged 79 percent this year and analysts including Philip Baggaley of Standard & Poor’s have warned the company could face a cash crisis during the next 12 months without new labor agreements.
Unsecured Creditors
Among the company’s largest unsecured creditors listed in court papers was Wilmington Trust Corp., trustee for holders of $460 million in 6.25 percent convertible senior notes due in 2014. The bankruptcy filing included AMR American Eagle Holding Corp., AMR’s regional airline that ferries passengers from smaller cities to hub airports.
AMR on Sept. 27 sold $725.7 million of 10-year bonds backed by aircraft to refinance maturing debt. The company paid the highest interest rates since 2009 to raise the cash.
American had blamed higher labor costs, as well as benefits that have increased more slowly than expected from business ventures with partners across the Atlantic and Pacific, in part for its failure to return to profit. The airline also has a fleet of older, less fuel-efficient planes that put it at a disadvantage when fuel prices rise.
“Airlines still face that fundamental issues of cost levels versus achievable revenues in the market place,” Strickland, the JLS analyst, said. “Higher fuel prices and the weaker U.S. economy would have given them the final push.”
Lindbergh’s Employer
American Airlines was formed from companies including Robertson Aircraft Corp. of Missouri, which employed Charles A. Lindbergh as a mail pilot, according to the carrier’s website. The companies began consolidating in 1929 and became American Airlines in 1934.
Company stock began trading in 1939, and during World War II, half of American’s planes flew for the Air Transport Command. American pioneered nonstop transcontinental service in 1953 and 20 years later was the first major airline to hire a woman pilot, according to its website.
With the filing, American became the final large U.S. full- fare airline to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air- mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan.
“They will have to go through the whole process that their peers have gone through,” John Strickland, an aviation analyst at JLS Consulting in London, said today in a telephone interview. “It’s painful but probably necessary. They have fallen behind what others have done.”
Chairman and Chief Executive Officer Gerard Arpey, 53, will retire and be replaced by Thomas Horton, AMR said. Normal flight schedules will continue on American and its American Eagle regional unit, along with the airline’s frequent-flier program, the company said.
AMR was determined to avoid Chapter 11 in the years after the 2001 terrorist attacks, as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. American later watched as rival carriers combined, giving them larger route networks that were more attractive to lucrative corporate travel customers.
Stalled Talks
American was embroiled in negotiations with unions for all of its major work groups as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.
The airline and leaders of its pilots’ union were scheduled to meet with federal mediators on Dec. 6 to provide an update on contract talks that stalled two weeks ago. The two sides hadn’t set a date to resume negotiations since Allied Pilots Association leaders declined to send a Nov. 14 contract offer to union members for a vote, saying it “clearly” would be rejected.
American’s pilots, flight attendants, mechanics and baggage handlers wanted to use the contract talks to regain some of the $1.6 billion in annual concessions they gave in 2003 to help the company avoid bankruptcy.
AMR shares have plunged 79 percent this year and analysts including Philip Baggaley of Standard & Poor’s have warned the company could face a cash crisis during the next 12 months without new labor agreements.
Unsecured Creditors
Among the company’s largest unsecured creditors listed in court papers was Wilmington Trust Corp., trustee for holders of $460 million in 6.25 percent convertible senior notes due in 2014. The bankruptcy filing included AMR American Eagle Holding Corp., AMR’s regional airline that ferries passengers from smaller cities to hub airports.
AMR on Sept. 27 sold $725.7 million of 10-year bonds backed by aircraft to refinance maturing debt. The company paid the highest interest rates since 2009 to raise the cash.
American had blamed higher labor costs, as well as benefits that have increased more slowly than expected from business ventures with partners across the Atlantic and Pacific, in part for its failure to return to profit. The airline also has a fleet of older, less fuel-efficient planes that put it at a disadvantage when fuel prices rise.
“Airlines still face that fundamental issues of cost levels versus achievable revenues in the market place,” Strickland, the JLS analyst, said. “Higher fuel prices and the weaker U.S. economy would have given them the final push.”
Lindbergh’s Employer
American Airlines was formed from companies including Robertson Aircraft Corp. of Missouri, which employed Charles A. Lindbergh as a mail pilot, according to the carrier’s website. The companies began consolidating in 1929 and became American Airlines in 1934.
Company stock began trading in 1939, and during World War II, half of American’s planes flew for the Air Transport Command. American pioneered nonstop transcontinental service in 1953 and 20 years later was the first major airline to hire a woman pilot, according to its website.
American Airlines Parent Files for Bankruptcy
The AMR Corporation, the parent company of American Airlines, said on Tuesday that it had filed for bankruptcy protection in an effort to reduce labor costs and shed a heavy debt burden.
AMR was the last of the major legacy airline companies in the United States to file for Chapter 11. Analysts said that its reluctance to do so earlier had left it less nimble than many of its competitors.
The company says it intends to operate normally throughout the bankruptcy process, as previous airlines have done, and does not expect the restructuring to affect American’s flight schedule or frequent flier programs.
“Our board decided that it was necessary to take this step now to restore the company’s profitability, operating flexibility and financial strength,” Thomas W. Horton, who was named the company’s chairman and chief executive on Tuesday, said in a statement. Mr. Horton, formerly the company’s president, is succeeding Gerald Arpey, who is retiring.
One of AMR’s chief goals in bankruptcy will be to lower its labor costs.
The company had been in contract talks with its unions until the negotiations stalled earlier this month when the pilots’ union refused to send a proposal to its members for a vote. Because federal bankruptcy rules allow companies to reject contracts, AMR may take a harder negotiating stance with its unions.
“Achieving the competitive cost structure we need remains a key imperative in this process,” Mr. Horton said, “and as one part of that, we plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels.”
Once the nation’s biggest airline, AMR began to lose ground in recent years as low-cost carriers like Southwest Airlines grew in prominence. Major airlines responded by cutting fares.
As competition intensified, AMR drastically increased its borrowing, eventually pledging nearly all of its assets and leaving it heavily indebted. It also sought to reduce expenses, managing to cut $4.1 billion by the end of 2004.
But its principal competitors, including Delta Air Lines and the UAL Corporation’s United Airlines, filed for bankruptcy, shedding billions of dollars in costs while renegotiating labor contracts.
Both also sought mergers to gain scale. Delta paired off with Northwest, and United teamed up with Continental, allowing those airlines to return to profitability.
“Since their restructurings in Chapter 11, AMR’s major network competitors all have lower costs than AMR,” Isabella D. Goren, the company’s chief financial officer, wrote in a court filing.
As part of an effort to cut long-term costs, American earlier this year announced a $38 billion order for 460 new single-aisle planes from Airbus and Boeing, part of a major overhaul of its aging fleet of more than 600 planes that — with an average vintage of 15 years — remains one of the oldest and least fuel-efficient among the six major United States carriers.
American expects eventually to shave 15 to 35 percent from its fuel bill with the introduction of the new planes — Airbus A320s and Boeing 737s — which will replace older McDonnell Douglas MD-80s and Boeing 757s and 767s. Andrea Huguely, an American spokeswoman, said in an e-mail, “it is our intent” to take delivery of the new planes as currently scheduled.
The impact of the bankruptcy was likely to be more immediate for some jet leasing companies, however. In a letter addressed to lessors, American’s treasurer, Beverly K. Goulet, said the carrier could not afford to maintain all of its leased aircraft at their current rates and said it had “no choice” but to begin canceling contracts on an unspecified number of planes, particularly in light of the new orders announced in July. American leases roughly 29 percent of its fleet, according to data compiled by Ascend, a London-based aviation consultancy.
AMR’s financial health has been eroding for years. The company has posted annual losses three years in a row, including a $471 million loss last year. It has recorded a $982 million loss through the first nine months of this year.
Given the airline’s shaky financial picture, speculation about an AMR bankruptcy filing had started to increase this year, spooking investors. The company’s stock price has dropped 79 percent in 2011.
As of Sept. 30, AMR reported $24.7 billion in assets and $29.6 billion in debt, according to a filing with the federal bankruptcy court in Manhattan. The company added that it had about $4.1 billion in cash and short-term investments that could be used to pay vendors and suppliers.
The company’s largest unsecured creditors include the Wilmington Trust and the Manufacturers and Traders Trust Company, which represent several classes of bonds.
AMR is being advised by the investment bank Rothschild and the law firms Weil, Gotshal & Manges; Paul Hastings; Debevoise & Plimpton; and the Groom Law Group.
AMR was the last of the major legacy airline companies in the United States to file for Chapter 11. Analysts said that its reluctance to do so earlier had left it less nimble than many of its competitors.
The company says it intends to operate normally throughout the bankruptcy process, as previous airlines have done, and does not expect the restructuring to affect American’s flight schedule or frequent flier programs.
“Our board decided that it was necessary to take this step now to restore the company’s profitability, operating flexibility and financial strength,” Thomas W. Horton, who was named the company’s chairman and chief executive on Tuesday, said in a statement. Mr. Horton, formerly the company’s president, is succeeding Gerald Arpey, who is retiring.
One of AMR’s chief goals in bankruptcy will be to lower its labor costs.
The company had been in contract talks with its unions until the negotiations stalled earlier this month when the pilots’ union refused to send a proposal to its members for a vote. Because federal bankruptcy rules allow companies to reject contracts, AMR may take a harder negotiating stance with its unions.
“Achieving the competitive cost structure we need remains a key imperative in this process,” Mr. Horton said, “and as one part of that, we plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels.”
Once the nation’s biggest airline, AMR began to lose ground in recent years as low-cost carriers like Southwest Airlines grew in prominence. Major airlines responded by cutting fares.
As competition intensified, AMR drastically increased its borrowing, eventually pledging nearly all of its assets and leaving it heavily indebted. It also sought to reduce expenses, managing to cut $4.1 billion by the end of 2004.
But its principal competitors, including Delta Air Lines and the UAL Corporation’s United Airlines, filed for bankruptcy, shedding billions of dollars in costs while renegotiating labor contracts.
Both also sought mergers to gain scale. Delta paired off with Northwest, and United teamed up with Continental, allowing those airlines to return to profitability.
“Since their restructurings in Chapter 11, AMR’s major network competitors all have lower costs than AMR,” Isabella D. Goren, the company’s chief financial officer, wrote in a court filing.
As part of an effort to cut long-term costs, American earlier this year announced a $38 billion order for 460 new single-aisle planes from Airbus and Boeing, part of a major overhaul of its aging fleet of more than 600 planes that — with an average vintage of 15 years — remains one of the oldest and least fuel-efficient among the six major United States carriers.
American expects eventually to shave 15 to 35 percent from its fuel bill with the introduction of the new planes — Airbus A320s and Boeing 737s — which will replace older McDonnell Douglas MD-80s and Boeing 757s and 767s. Andrea Huguely, an American spokeswoman, said in an e-mail, “it is our intent” to take delivery of the new planes as currently scheduled.
The impact of the bankruptcy was likely to be more immediate for some jet leasing companies, however. In a letter addressed to lessors, American’s treasurer, Beverly K. Goulet, said the carrier could not afford to maintain all of its leased aircraft at their current rates and said it had “no choice” but to begin canceling contracts on an unspecified number of planes, particularly in light of the new orders announced in July. American leases roughly 29 percent of its fleet, according to data compiled by Ascend, a London-based aviation consultancy.
AMR’s financial health has been eroding for years. The company has posted annual losses three years in a row, including a $471 million loss last year. It has recorded a $982 million loss through the first nine months of this year.
Given the airline’s shaky financial picture, speculation about an AMR bankruptcy filing had started to increase this year, spooking investors. The company’s stock price has dropped 79 percent in 2011.
As of Sept. 30, AMR reported $24.7 billion in assets and $29.6 billion in debt, according to a filing with the federal bankruptcy court in Manhattan. The company added that it had about $4.1 billion in cash and short-term investments that could be used to pay vendors and suppliers.
The company’s largest unsecured creditors include the Wilmington Trust and the Manufacturers and Traders Trust Company, which represent several classes of bonds.
AMR is being advised by the investment bank Rothschild and the law firms Weil, Gotshal & Manges; Paul Hastings; Debevoise & Plimpton; and the Groom Law Group.
American Airlines Parent AMR Files for Bankruptcy Protection (4)
Nov. 29 (Bloomberg) -- American Airlines parent AMR Corp. filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S.
With the filing, American became the last of the so-called U.S. legacy airlines to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air-mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan.
“It’s painful but probably necessary,” John Strickland, an aviation analyst at JLS Consulting in London, said today in a telephone interview. “They will have to go through the whole process that their peers have gone through.”
Job and flight reductions are likely in the future as AMR seeks to trim expenses, Chairman and Chief Executive Officer Tom Horton said today on a conference call. Normal flight schedules will continue on American and its American Eagle regional unit for now, along with the airline’s frequent-flier program, the company said. A spinoff of American Eagle, which already had been delayed from this year into 2012, is on hold, Horton said.
Horton, 50, most recently AMR’s president, replaced Gerard Arpey today as chairman and CEO. Arpey, 53, opted to retire after the board asked him to stay, Horton said. Arpey will join Emerald Creek Group LLC, a private-equity firm founded by former Continental Airlines Inc. CEO Larry Kellner, on Dec. 1, the firm said in a statement.
Unanimous Vote
The board voted unanimously last night to file for bankruptcy, Horton said. AMR was determined to avoid Chapter 11 as air travel fell and losses mounted after the 2001 terrorist attacks, even as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. Rival carriers later combined, giving them larger route networks that were more attractive to lucrative corporate travel customers.
“It became increasingly clear that the cost gap between us and our biggest competitors was untenable,” Horton said. “The economic climate has been most uncertain, oil prices remain high and volatile, and all of that taken together led to the conclusion that now is the right time to take this step and put the company back on the path to long-term success.”
AMR plunged $1.29, or 80 percent, to 33 cents in New York Stock Exchange composite trading at 11:13 a.m. The shares earlier fell as much as 88 percent. Unlike secured creditors, shareholders typically get paid last in a bankruptcy and often receive nothing for their shares.
Cash Crisis
The stock had declined 79 percent this year before today as analysts including Philip Baggaley of Standard & Poor’s warned the company could face a cash crisis during the next 12 months without new labor agreements. AMR had $4.1 billion in unrestricted cash and short-term investments as of Nov. 25, Chief Financial Officer Isabella Goren said in an affidavit.
American was engaged in negotiations with unions for all of its major work groups as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.
AMR has the highest operating costs among the four surviving major U.S. network air carriers, Goren said in court papers. The company is set to post its fourth-straight annual loss this year and analysts had forecast a loss for next year as well.
“AMR cannot continue to progress towards a viable and stable future without further, significant remediation of its uncompetitive cost structure,” Goren said.
Talks Stall
American fell from its perch as the biggest airline by traffic after Delta Air Lines Inc. bought Northwest Airlines Corp. in 2008, then slid to No. 3 last year when UAL Corp.’s United Airlines and Continental Airlines Inc. merged.
All operate traditional hub-and-spoke systems, with their own regional units or partner airlines ferrying passengers to be collected at larger airports. US Airways Group Inc. is the other major carrier with that kind of route network. It ranks No. 5 in the U.S. by traffic, behind Southwest Airlines Co., the largest discounter.
American and leaders of its pilots’ union were scheduled to meet with federal mediators on Dec. 6 to provide an update on contract talks that stalled two weeks ago. The two sides hadn’t set a date to resume negotiations since Allied Pilots Association leaders declined to send a Nov. 14 contract offer to union members for a vote, saying it “clearly” would be rejected.
‘Perfect Storm’
“You would expect a leaner, stronger company to emerge from bankruptcy,” Chris Logan, an analyst at Echelon Research & Advisory LLP in London, said today by telephone. “As they are in Chapter 11, it will be more easy to demand concessions from the labor force.”
American’s pilots, flight attendants, mechanics and baggage handlers wanted to use the contract talks to regain some of the $1.6 billion in annual concessions they gave in 2003 to help the company avoid bankruptcy.
“We agreed to sacrifice based on the expectation that our airline would regain its leadership position,” David Bates, president of the Allied Pilots Association, told members in an e-mail. “What has transpired since has been nothing short of a ‘perfect storm.’”
Laura Glading, president of the Association of Professional Flight Attendants, said the filing “wasn’t a great surprise.”
“It’s a loss of jobs I worry most about,” she said in an interview. “That’s a horrible, horrible nightmare in this economy. We’ll do what we can to mitigate that as much as possible.”
AMR Employees
AMR had about 80,800 employees at the end of September, including 67,100 at American, with the rest at American Eagle, cargo operations and other units. American Airlines has 8,700 active pilots, with another 950 on furlough, and 17,000 flight attendants.
Among the company’s largest unsecured creditors listed in court papers was Wilmington Trust Corp., trustee for holders of $460 million in 6.25 percent convertible senior notes due in 2014. AMR on Sept. 27 sold $725.7 million of 10-year bonds backed by aircraft to refinance maturing debt. The company paid the highest interest rates since 2009 to raise the cash.
The 8.625 percent notes due in October 2021 fell 2.5 cents to 96 cents on the dollar as of 8:20 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Jet Order
American had blamed higher labor costs, as well as benefits that have increased more slowly than expected from business ventures with partners across the Atlantic and Pacific, partly for its failure to return to profit. The airline also has a fleet of older, less fuel-efficient planes that put it at a disadvantage when fuel prices rise.
“Airlines still face that fundamental issues of cost levels versus achievable revenues in the market place,” Strickland, the JLS analyst, said. “Higher fuel prices and the weaker U.S. economy would have given them the final push.”
American shuffled flight schedules in September 2009 to increase operations in Chicago, New York, Dallas-Fort Worth, Los Angeles and Miami to attract more high-fare business travelers.
AMR said in July it would buy 460 single-aisle jets -- 260 from Airbus SAS and 200 from Boeing Co. -- in the industry’s biggest-ever order. The orders remain “rock solid,” Horton said today.
“When we’re completed with this process, our company will be competitive and poised to grow and prosper and go out and capitalize on these aircraft orders,” he said.
‘Key Part’
Placing an order for aircraft “creates a contract,” and in bankruptcy accepting or rejecting the contract will be up to AMR, said Scott Peltz, the national leader of RSM McGladrey’s Financial Advisory Service in Chicago. Boeing and other suppliers will probably have representatives at the bankruptcy hearings who “will be looking at what their options are,” he said.
Boeing said it has “no reason to doubt” that the order for its 737s and Airbus A320s remains pivotal to AMR. The planemakers will provide $13 billion of financing on the first 230 jets, American said in July.
“We anticipate as part of American’s reorganization that new, fuel-efficient airplanes will be a key part of their ongoing success,” Mark Hooper, a spokesman for Chicago-based Boeing, said in an e-mailed statement.
International Consolidated Airlines Group SA, a U.K.-based joint venture partner with AMR that owns British Airways and Spain’s Iberia, said it has “every confidence in the future of American Airlines” and looks forward to working with Horton.
AMR’s lead bankruptcy counsel is Weil, Gotshal & Manges LLP and its financial adviser is Rothschild Inc.
Mail Pilot
American Airlines was formed from companies including Robertson Aircraft Corp. of Missouri, which employed Charles A. Lindbergh as a mail pilot, according to the carrier’s website. The companies began consolidating in 1929 and became American Airlines in 1934.
Company stock began trading in 1939, and during World War II, half of American’s planes flew for the Air Transport Command. American pioneered nonstop transcontinental service in 1953 and 20 years later was the first major airline to hire a woman pilot, according to its website.
The case is In re AMR Corp., 11-15463 U.S. Bankruptcy Court, Southern District of New York (Manhattan).
--With assistance from Steve Rothwell and Christopher Scinta in London and Richard Bravo in New York. Editors: Stephen Farr, John Pickering
With the filing, American became the last of the so-called U.S. legacy airlines to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air-mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan.
“It’s painful but probably necessary,” John Strickland, an aviation analyst at JLS Consulting in London, said today in a telephone interview. “They will have to go through the whole process that their peers have gone through.”
Job and flight reductions are likely in the future as AMR seeks to trim expenses, Chairman and Chief Executive Officer Tom Horton said today on a conference call. Normal flight schedules will continue on American and its American Eagle regional unit for now, along with the airline’s frequent-flier program, the company said. A spinoff of American Eagle, which already had been delayed from this year into 2012, is on hold, Horton said.
Horton, 50, most recently AMR’s president, replaced Gerard Arpey today as chairman and CEO. Arpey, 53, opted to retire after the board asked him to stay, Horton said. Arpey will join Emerald Creek Group LLC, a private-equity firm founded by former Continental Airlines Inc. CEO Larry Kellner, on Dec. 1, the firm said in a statement.
Unanimous Vote
The board voted unanimously last night to file for bankruptcy, Horton said. AMR was determined to avoid Chapter 11 as air travel fell and losses mounted after the 2001 terrorist attacks, even as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. Rival carriers later combined, giving them larger route networks that were more attractive to lucrative corporate travel customers.
“It became increasingly clear that the cost gap between us and our biggest competitors was untenable,” Horton said. “The economic climate has been most uncertain, oil prices remain high and volatile, and all of that taken together led to the conclusion that now is the right time to take this step and put the company back on the path to long-term success.”
AMR plunged $1.29, or 80 percent, to 33 cents in New York Stock Exchange composite trading at 11:13 a.m. The shares earlier fell as much as 88 percent. Unlike secured creditors, shareholders typically get paid last in a bankruptcy and often receive nothing for their shares.
Cash Crisis
The stock had declined 79 percent this year before today as analysts including Philip Baggaley of Standard & Poor’s warned the company could face a cash crisis during the next 12 months without new labor agreements. AMR had $4.1 billion in unrestricted cash and short-term investments as of Nov. 25, Chief Financial Officer Isabella Goren said in an affidavit.
American was engaged in negotiations with unions for all of its major work groups as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.
AMR has the highest operating costs among the four surviving major U.S. network air carriers, Goren said in court papers. The company is set to post its fourth-straight annual loss this year and analysts had forecast a loss for next year as well.
“AMR cannot continue to progress towards a viable and stable future without further, significant remediation of its uncompetitive cost structure,” Goren said.
Talks Stall
American fell from its perch as the biggest airline by traffic after Delta Air Lines Inc. bought Northwest Airlines Corp. in 2008, then slid to No. 3 last year when UAL Corp.’s United Airlines and Continental Airlines Inc. merged.
All operate traditional hub-and-spoke systems, with their own regional units or partner airlines ferrying passengers to be collected at larger airports. US Airways Group Inc. is the other major carrier with that kind of route network. It ranks No. 5 in the U.S. by traffic, behind Southwest Airlines Co., the largest discounter.
American and leaders of its pilots’ union were scheduled to meet with federal mediators on Dec. 6 to provide an update on contract talks that stalled two weeks ago. The two sides hadn’t set a date to resume negotiations since Allied Pilots Association leaders declined to send a Nov. 14 contract offer to union members for a vote, saying it “clearly” would be rejected.
‘Perfect Storm’
“You would expect a leaner, stronger company to emerge from bankruptcy,” Chris Logan, an analyst at Echelon Research & Advisory LLP in London, said today by telephone. “As they are in Chapter 11, it will be more easy to demand concessions from the labor force.”
American’s pilots, flight attendants, mechanics and baggage handlers wanted to use the contract talks to regain some of the $1.6 billion in annual concessions they gave in 2003 to help the company avoid bankruptcy.
“We agreed to sacrifice based on the expectation that our airline would regain its leadership position,” David Bates, president of the Allied Pilots Association, told members in an e-mail. “What has transpired since has been nothing short of a ‘perfect storm.’”
Laura Glading, president of the Association of Professional Flight Attendants, said the filing “wasn’t a great surprise.”
“It’s a loss of jobs I worry most about,” she said in an interview. “That’s a horrible, horrible nightmare in this economy. We’ll do what we can to mitigate that as much as possible.”
AMR Employees
AMR had about 80,800 employees at the end of September, including 67,100 at American, with the rest at American Eagle, cargo operations and other units. American Airlines has 8,700 active pilots, with another 950 on furlough, and 17,000 flight attendants.
Among the company’s largest unsecured creditors listed in court papers was Wilmington Trust Corp., trustee for holders of $460 million in 6.25 percent convertible senior notes due in 2014. AMR on Sept. 27 sold $725.7 million of 10-year bonds backed by aircraft to refinance maturing debt. The company paid the highest interest rates since 2009 to raise the cash.
The 8.625 percent notes due in October 2021 fell 2.5 cents to 96 cents on the dollar as of 8:20 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Jet Order
American had blamed higher labor costs, as well as benefits that have increased more slowly than expected from business ventures with partners across the Atlantic and Pacific, partly for its failure to return to profit. The airline also has a fleet of older, less fuel-efficient planes that put it at a disadvantage when fuel prices rise.
“Airlines still face that fundamental issues of cost levels versus achievable revenues in the market place,” Strickland, the JLS analyst, said. “Higher fuel prices and the weaker U.S. economy would have given them the final push.”
American shuffled flight schedules in September 2009 to increase operations in Chicago, New York, Dallas-Fort Worth, Los Angeles and Miami to attract more high-fare business travelers.
AMR said in July it would buy 460 single-aisle jets -- 260 from Airbus SAS and 200 from Boeing Co. -- in the industry’s biggest-ever order. The orders remain “rock solid,” Horton said today.
“When we’re completed with this process, our company will be competitive and poised to grow and prosper and go out and capitalize on these aircraft orders,” he said.
‘Key Part’
Placing an order for aircraft “creates a contract,” and in bankruptcy accepting or rejecting the contract will be up to AMR, said Scott Peltz, the national leader of RSM McGladrey’s Financial Advisory Service in Chicago. Boeing and other suppliers will probably have representatives at the bankruptcy hearings who “will be looking at what their options are,” he said.
Boeing said it has “no reason to doubt” that the order for its 737s and Airbus A320s remains pivotal to AMR. The planemakers will provide $13 billion of financing on the first 230 jets, American said in July.
“We anticipate as part of American’s reorganization that new, fuel-efficient airplanes will be a key part of their ongoing success,” Mark Hooper, a spokesman for Chicago-based Boeing, said in an e-mailed statement.
International Consolidated Airlines Group SA, a U.K.-based joint venture partner with AMR that owns British Airways and Spain’s Iberia, said it has “every confidence in the future of American Airlines” and looks forward to working with Horton.
AMR’s lead bankruptcy counsel is Weil, Gotshal & Manges LLP and its financial adviser is Rothschild Inc.
Mail Pilot
American Airlines was formed from companies including Robertson Aircraft Corp. of Missouri, which employed Charles A. Lindbergh as a mail pilot, according to the carrier’s website. The companies began consolidating in 1929 and became American Airlines in 1934.
Company stock began trading in 1939, and during World War II, half of American’s planes flew for the Air Transport Command. American pioneered nonstop transcontinental service in 1953 and 20 years later was the first major airline to hire a woman pilot, according to its website.
The case is In re AMR Corp., 11-15463 U.S. Bankruptcy Court, Southern District of New York (Manhattan).
--With assistance from Steve Rothwell and Christopher Scinta in London and Richard Bravo in New York. Editors: Stephen Farr, John Pickering
American Airlines: New CEO of parent AMR says situation was 'untenable'
Here's an edited transcript of remarks Tuesday by AMR Corp.'s new chief executive, Tom Horton:
Q: Why file for bankruptcy now?
A: It was a difficult decision, of course, for the board. I would say it was really the thinking that now is the time to get on with restructuring the company to make it competitive and successful for the long term. As for the timing, we've been talking for some time about our cost gaps in the industry, which have widened in the view of us and the board. (It) has become untenable, and that was just a fact.
Obviously, we have been working very hard to address that in a consensual fashion, and, at the same time, we're facing a very uncertain economic climate in the U.S. and abroad, combined with high and volatile oil prices. So when you take all of that into account, the board decided it was time to get on with the full restructuring of the company.
Q: What are you telling customers who have booked tickets on your carrier for the holidays?
A: Business as usual. We have 80,000 employees of American Airlines, and they are going to do the very best to do the best customer service. All of our flights will go as scheduled.
Q: How long do you expect to be under bankruptcy protection?
A: It's too early to tell what the timetable will be. The duration has been a wide range over the past several airline restructurings. The last couple were, I think, Delta and Northwest. … (Both) were under 15 months. We would certainly look to do better than that.
Q: What about the 460-plane order that American made in July?
A: Rock solid. That is very much a foundation of our restructuring and very much a foundation of the company going forward. We have already had conversations with Boeing and Airbus and GE, and our intent is full steam ahead on that airplane order. It's all about the future of the company and having the youngest fleet in the airline industry. That deal has enormous flexibility for growth in it. We have 460 firm airplanes, but we also have another 465 options on top of that.
Q: Are you going to ask the bankruptcy court to restructure or jettison your company's pension obligations to the Pension Benefit Guaranty Corp.?
A: Obviously, pensions are part of our cost disadvantage. We're not prepared to comment on how all of that will go or whether we will necessarily seek to have the pension plans taken over or terminated. But the pension plans and the retiree medical plans are very expensive, and our company spends a lot more on them than our competitors spend on their retirement plans. I do think it is worth pointing out that once in Chapter 11, there are a variety of factors that come into play, including, notably, the creditors' interest and the creditors' committee.
Q: What about the American Eagle divestiture?
A: Obviously, that is on hold right now as we get on to restructuring American Airlines and the AMR Corp. (American Eagle CEO) Dan (Garton) and his team will be very much focused on being part of the reorganization of the broader company.
Q: Are you planning on parking any aircraft?
A: We're looking at all of that. What you have to do is look at the fleet tail by tail and look at the cost of operating the airplane, not just the ownership cost. (We'll look at) the maintenance-cost profile and the operating-cost profile, and by doing that we'll decide which airplanes we want to keep and which might be candidates for leaving behind in the process.
Q: Does this make AMR a possible target for a takeover or merger with another carrier?
A: I'm not going to comment on that. We are laser-focused on completing a successful restructuring of this company. When you look at the assets this company has, I have no doubt, nor do many observers in the industry, we will be very successful. We have hubs in the right places in North America. We have hubs in the best markets around the world, and we have an enviable aircraft order book.
Q: What are you telling employees at this time?
A: We're saying it's time to turn the page and move forward, and a successful American Airlines is in everybody's interest, and that's what we have to go to. We have to put the past behind us and get focused on the future.
Q: What does this mean to you to be named CEO of AMR at a time when the company is entering bankruptcy?
A: It's bittersweet, of course. We have worked so hard to find a different path, and, as you know, (former CEO) Gerard (Arpey) was fully committed to that. He poured his life into that, and I was right there alongside him, so in that regard it is bittersweet. Of course, I'm saddened to see Gerard leave the company. Nobody cares about the company more than Gerard Arpey, and that saddens me.
On the flip side, it is a huge honor and privilege. It is a company that has only had a handful of CEOs. I feel a great sense of honor and history and a great sense of obligation to make it a success.
Q: Why file for bankruptcy now?
A: It was a difficult decision, of course, for the board. I would say it was really the thinking that now is the time to get on with restructuring the company to make it competitive and successful for the long term. As for the timing, we've been talking for some time about our cost gaps in the industry, which have widened in the view of us and the board. (It) has become untenable, and that was just a fact.
Obviously, we have been working very hard to address that in a consensual fashion, and, at the same time, we're facing a very uncertain economic climate in the U.S. and abroad, combined with high and volatile oil prices. So when you take all of that into account, the board decided it was time to get on with the full restructuring of the company.
Q: What are you telling customers who have booked tickets on your carrier for the holidays?
A: Business as usual. We have 80,000 employees of American Airlines, and they are going to do the very best to do the best customer service. All of our flights will go as scheduled.
Q: How long do you expect to be under bankruptcy protection?
A: It's too early to tell what the timetable will be. The duration has been a wide range over the past several airline restructurings. The last couple were, I think, Delta and Northwest. … (Both) were under 15 months. We would certainly look to do better than that.
Q: What about the 460-plane order that American made in July?
A: Rock solid. That is very much a foundation of our restructuring and very much a foundation of the company going forward. We have already had conversations with Boeing and Airbus and GE, and our intent is full steam ahead on that airplane order. It's all about the future of the company and having the youngest fleet in the airline industry. That deal has enormous flexibility for growth in it. We have 460 firm airplanes, but we also have another 465 options on top of that.
Q: Are you going to ask the bankruptcy court to restructure or jettison your company's pension obligations to the Pension Benefit Guaranty Corp.?
A: Obviously, pensions are part of our cost disadvantage. We're not prepared to comment on how all of that will go or whether we will necessarily seek to have the pension plans taken over or terminated. But the pension plans and the retiree medical plans are very expensive, and our company spends a lot more on them than our competitors spend on their retirement plans. I do think it is worth pointing out that once in Chapter 11, there are a variety of factors that come into play, including, notably, the creditors' interest and the creditors' committee.
Q: What about the American Eagle divestiture?
A: Obviously, that is on hold right now as we get on to restructuring American Airlines and the AMR Corp. (American Eagle CEO) Dan (Garton) and his team will be very much focused on being part of the reorganization of the broader company.
Q: Are you planning on parking any aircraft?
A: We're looking at all of that. What you have to do is look at the fleet tail by tail and look at the cost of operating the airplane, not just the ownership cost. (We'll look at) the maintenance-cost profile and the operating-cost profile, and by doing that we'll decide which airplanes we want to keep and which might be candidates for leaving behind in the process.
Q: Does this make AMR a possible target for a takeover or merger with another carrier?
A: I'm not going to comment on that. We are laser-focused on completing a successful restructuring of this company. When you look at the assets this company has, I have no doubt, nor do many observers in the industry, we will be very successful. We have hubs in the right places in North America. We have hubs in the best markets around the world, and we have an enviable aircraft order book.
Q: What are you telling employees at this time?
A: We're saying it's time to turn the page and move forward, and a successful American Airlines is in everybody's interest, and that's what we have to go to. We have to put the past behind us and get focused on the future.
Q: What does this mean to you to be named CEO of AMR at a time when the company is entering bankruptcy?
A: It's bittersweet, of course. We have worked so hard to find a different path, and, as you know, (former CEO) Gerard (Arpey) was fully committed to that. He poured his life into that, and I was right there alongside him, so in that regard it is bittersweet. Of course, I'm saddened to see Gerard leave the company. Nobody cares about the company more than Gerard Arpey, and that saddens me.
On the flip side, it is a huge honor and privilege. It is a company that has only had a handful of CEOs. I feel a great sense of honor and history and a great sense of obligation to make it a success.
American Airlines Lands In Bankruptcy Court To Rein In Costs
Over the last decade, when many of its rivals filed for bankruptcy and paired off in cost-saving mergers, American Airlines parent AMR steadfastly opted to go it alone. That decision proved to be ill-fated, as the carrier filed for Chapter 11 bankruptcy protection Tuesday.
The filing, which the carrier stressed will not interrupt its business operations, comes as a bid to “achieve a cost and debt structure that is industry competitive and thereby assure [AMR’s] long-term viability.”
Thomas Horton, elevated to Chairman and CEO from his president role to replace departing chief Gerard Arpey, said AMR “must address our cost structure, including labor costs,” in order to be more competitive with rivals like United Continental Holdings and Delta Air Lines, both of which were able to rework costs after Chapter 11 filings and subsequent mergers. (See “With More Airline Mergers On The Runway, American Could Be Next.”)
“Achieving the competitive cost structure we need remains a key imperative in this process and, as one part of that, we plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels,” Horton said.
AMR, long a subject of bankruptcy speculation, made headlines in July for an order of 460 new aircraft from Boeing and Airbus. The company has $4.1 billion in cash and short-term investments. Along with cash generated by operations, AMR says that should be sufficient to conduct business, without the need for debtor-in-possession financing.
Shares of AMR, down 79.2% in 2011, closed at $1.62 apiece Monday. After being halted Tuesday morning, the stock opened 87.7% lower at just 20 cents.
The filing, which the carrier stressed will not interrupt its business operations, comes as a bid to “achieve a cost and debt structure that is industry competitive and thereby assure [AMR’s] long-term viability.”
Thomas Horton, elevated to Chairman and CEO from his president role to replace departing chief Gerard Arpey, said AMR “must address our cost structure, including labor costs,” in order to be more competitive with rivals like United Continental Holdings and Delta Air Lines, both of which were able to rework costs after Chapter 11 filings and subsequent mergers. (See “With More Airline Mergers On The Runway, American Could Be Next.”)
“Achieving the competitive cost structure we need remains a key imperative in this process and, as one part of that, we plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels,” Horton said.
AMR, long a subject of bankruptcy speculation, made headlines in July for an order of 460 new aircraft from Boeing and Airbus. The company has $4.1 billion in cash and short-term investments. Along with cash generated by operations, AMR says that should be sufficient to conduct business, without the need for debtor-in-possession financing.
Shares of AMR, down 79.2% in 2011, closed at $1.62 apiece Monday. After being halted Tuesday morning, the stock opened 87.7% lower at just 20 cents.
American Airlines Keeps Bets On New Jets Despite Bankruptcy
Furthering its ambition to build the youngest and most fuel-efficient fleet of aircraft in the U.S. over the next 5 years, American Airlines announced its plans earlier this year to make the largest aircraft order in history despite filing for bankruptcy.
American Airlines will take order of 460 narrowbody jets comprising a mix of Boeing 737s and Airbus A320s. [1] Tom Horton, president of American Airlines and its parent, AMR Corp., said, “The A319 and A321 aircraft will strengthen our fleet, helping us dramatically improve our fuel and operating costs, while at the same time offering our customers the chance to fly in aircraft that are designed to greatly enhance their travel experience.” [1] Competing airlines, including United Continental Holdings, Delta Airlines and, to a lesser extent, US Airways, continue to suffer from high fuel costs, which are further burdened by inefficient, outdated aircraft.
American Airlines will take order of 460 narrowbody jets comprising a mix of Boeing 737s and Airbus A320s. [1] Tom Horton, president of American Airlines and its parent, AMR Corp., said, “The A319 and A321 aircraft will strengthen our fleet, helping us dramatically improve our fuel and operating costs, while at the same time offering our customers the chance to fly in aircraft that are designed to greatly enhance their travel experience.” [1] Competing airlines, including United Continental Holdings, Delta Airlines and, to a lesser extent, US Airways, continue to suffer from high fuel costs, which are further burdened by inefficient, outdated aircraft.
American Airlines files for Ch. 11 protection
FORT WORTH, Texas (AP) — American Airlines' parent company is seeking Chapter 11 bankruptcy protection as it seeks to unload massive debt built up by years of accelerating jet fuel prices and labor struggles.
The nation's third largest airline also said its CEO Gerard Arpey will step down. He's being replaced by Thomas Horton, currently the company's president.
Fort Worth, Texas-based AMR Corp., along with its regional affiliate AMR Eagle Holding Corp. said Tuesday that they filed voluntary petitions to reorganize.
American says it sought protection to reduce its costs and debt to remain competitive.
The airline says it will continue normal flight operations during the reorganization.
American was the only major U.S. airline that didn't file for bankruptcy protection after the 2001 terrorist attacks. The last major airline to file for bankruptcy protection was Delta in 2005.
American says labor-contract rules force it to spend at least $600 million more than other airlines.
Besides higher labor costs, American also struggled with rising jet fuel costs. Jet fuel cost an average of $3 per gallon so far this year — a record according to government data that goes back to 1990. Jet fuel is more expensive now than the average of $2.96 per gallon in 2008, when oil rose above $147 per barrel for the first time. It's risen 56.4 percent in the past five years. The average price of jet fuel was $1.92 per gallon in 2006.
American lost $162 million in the third quarter and has lost money in 14 of the last 16 quarters.
The nation's third largest airline also said its CEO Gerard Arpey will step down. He's being replaced by Thomas Horton, currently the company's president.
Fort Worth, Texas-based AMR Corp., along with its regional affiliate AMR Eagle Holding Corp. said Tuesday that they filed voluntary petitions to reorganize.
American says it sought protection to reduce its costs and debt to remain competitive.
The airline says it will continue normal flight operations during the reorganization.
American was the only major U.S. airline that didn't file for bankruptcy protection after the 2001 terrorist attacks. The last major airline to file for bankruptcy protection was Delta in 2005.
American says labor-contract rules force it to spend at least $600 million more than other airlines.
Besides higher labor costs, American also struggled with rising jet fuel costs. Jet fuel cost an average of $3 per gallon so far this year — a record according to government data that goes back to 1990. Jet fuel is more expensive now than the average of $2.96 per gallon in 2008, when oil rose above $147 per barrel for the first time. It's risen 56.4 percent in the past five years. The average price of jet fuel was $1.92 per gallon in 2006.
American lost $162 million in the third quarter and has lost money in 14 of the last 16 quarters.
American Airlines files for bankruptcy protection; most travelers won’t be affected
DALLAS — The parent company of American Airlines filed for bankruptcy protection Tuesday, seeking relief from crushing debt caused by high fuel prices and expensive labor contracts that its competitors shed years ago.
The company also replaced its CEO, and the incoming leader said American would probably cut its flight schedule “modestly” while it reorganizes. The new CEO, Thomas W. Horton, did not give specifics.
For most travelers, though, flights will operate normally and the airline will honor tickets and take reservations. American said its frequent-flier program would be unaffected.
AMR Corp., which owns American, was one of the last major U.S. airline companies that had avoided bankruptcy. Rivals United and Delta used bankruptcy to shed costly labor contracts, reduce debt, and start making money again. They also grew through mergers.
American — the nation’s third-largest airline and proud of an 80-year history that reaches back to the dawn of passenger travel — was stuck with higher costs that meant it lost money when matching competitors’ lower fares.
In announcing the bankruptcy filing, AMR said that Gerard Arpey, 53, a veteran of the company for almost three decades and CEO since 2003, had retired and was replaced by Horton, 50, the company president.
Horton said the board of directors unanimously decided on Monday night to file for bankruptcy. In a filing with federal bankruptcy court in New York, AMR said it had $29.6 billion in debt and $24.7 billion in assets.
In hearing in a packed bankruptcy courtroom on Tuesday in New York, a judge granted the airline permission to pay for fuel, labor, and other critical expenses to keep it flying. The hearing was an indication of how American will now need to run all of its financial decisions past a bankruptcy judge and, ultimately, creditors.
With reductions to the flight schedule, Horton said there would probably be corresponding job cuts. American has about 78,000 employees and serves 240,000 passengers per day.
AMR’s move could also trigger more consolidation in the airline industry. Some analysts believe American is likely to merge with US Airways to move closer to United Continental Holdings Inc. and Delta Air Lines Inc. in size. Such a merger would leave five large U.S. airlines compared with nine in 2008.
US Airways declined to comment.
American will delay the spinoff of its regional airline, American Eagle, which was expected early next year.
AMR, however, wants to push ahead with plans to order 460 new jets from Boeing and Airbus and take delivery of more than 50 others already ordered. New planes would save American money on fuel and maintenance, but the orders will be subject to approval by the bankruptcy court.
Analysts said all airlines will benefit if American reduces flights — especially if the cutbacks are more severe than American’s new CEO is letting on. They said the chief winners were likely to be United and Delta, which compete for the same business travelers and have global networks like American’s.
The company also replaced its CEO, and the incoming leader said American would probably cut its flight schedule “modestly” while it reorganizes. The new CEO, Thomas W. Horton, did not give specifics.
For most travelers, though, flights will operate normally and the airline will honor tickets and take reservations. American said its frequent-flier program would be unaffected.
AMR Corp., which owns American, was one of the last major U.S. airline companies that had avoided bankruptcy. Rivals United and Delta used bankruptcy to shed costly labor contracts, reduce debt, and start making money again. They also grew through mergers.
American — the nation’s third-largest airline and proud of an 80-year history that reaches back to the dawn of passenger travel — was stuck with higher costs that meant it lost money when matching competitors’ lower fares.
In announcing the bankruptcy filing, AMR said that Gerard Arpey, 53, a veteran of the company for almost three decades and CEO since 2003, had retired and was replaced by Horton, 50, the company president.
Horton said the board of directors unanimously decided on Monday night to file for bankruptcy. In a filing with federal bankruptcy court in New York, AMR said it had $29.6 billion in debt and $24.7 billion in assets.
In hearing in a packed bankruptcy courtroom on Tuesday in New York, a judge granted the airline permission to pay for fuel, labor, and other critical expenses to keep it flying. The hearing was an indication of how American will now need to run all of its financial decisions past a bankruptcy judge and, ultimately, creditors.
With reductions to the flight schedule, Horton said there would probably be corresponding job cuts. American has about 78,000 employees and serves 240,000 passengers per day.
AMR’s move could also trigger more consolidation in the airline industry. Some analysts believe American is likely to merge with US Airways to move closer to United Continental Holdings Inc. and Delta Air Lines Inc. in size. Such a merger would leave five large U.S. airlines compared with nine in 2008.
US Airways declined to comment.
American will delay the spinoff of its regional airline, American Eagle, which was expected early next year.
AMR, however, wants to push ahead with plans to order 460 new jets from Boeing and Airbus and take delivery of more than 50 others already ordered. New planes would save American money on fuel and maintenance, but the orders will be subject to approval by the bankruptcy court.
Analysts said all airlines will benefit if American reduces flights — especially if the cutbacks are more severe than American’s new CEO is letting on. They said the chief winners were likely to be United and Delta, which compete for the same business travelers and have global networks like American’s.
American Airlines files for bankruptcy protection
DALLAS (AP) — The parent company of American Airlines filed for bankruptcy protection Tuesday, seeking relief from crushing debt caused by high fuel prices and expensive labor contracts that its competitors shed years ago.
The company also replaced its CEO, and the incoming leader said American would probably cut its flight schedule "modestly" while it reorganizes. The new CEO, Thomas W. Horton, did not give specifics.
For most travelers, though, flights will operate normally and the airline will honor tickets and take reservations. American said its frequent-flier program would be unaffected.
AMR Corp., which owns American, was one of the last major U.S. airline companies that had avoided bankruptcy. Rivals United and Delta used bankruptcy to shed costly labor contracts, reduce debt, and start making money again. They also grew through mergers.
American — the nation's third-largest airline and proud of an 80-year history that reaches back to the dawn of passenger travel — was stuck with higher costs that meant it lost money when matching competitors' lower fares.
In announcing the bankruptcy filing, AMR said that Gerard Arpey, 53, a veteran of the company for almost three decades and CEO since 2003, had retired and was replaced by Horton, 50, the company president.
Horton said the board of directors unanimously decided on Monday night to file for bankruptcy. In a filing with federal bankruptcy court in New York, AMR said it had $29.6 billion in debt and $24.7 billion in assets.
In hearing in a packed bankruptcy courtroom on Tuesday in New York, a judge granted the airline permission to pay for fuel, labor, and other critical expenses to keep it flying. The hearing was an indication of how American will now need to run all of its financial decisions past a bankruptcy judge and, ultimately, creditors.
With reductions to the flight schedule, Horton said there would probably be corresponding job cuts. American has about 78,000 employees and serves 240,000 passengers per day.
AMR's move could also trigger more consolidation in the airline industry. Some analysts believe American is likely to merge with US Airways to move closer to United Continental Holdings Inc. and Delta Air Lines Inc. in size. Such a merger would leave five large U.S. airlines compared with nine in 2008.
US Airways declined to comment.
American will delay the spinoff of its regional airline, American Eagle, which was expected early next year.
AMR, however, wants to push ahead with plans to order 460 new jets from Boeing and Airbus and take delivery of more than 50 others already ordered. New planes would save American money on fuel and maintenance, but the orders will be subject to approval by the bankruptcy court.
Analysts said all airlines will benefit if American reduces flights — especially if the cutbacks are more severe than American's new CEO is letting on. They said the chief winners were likely to be United and Delta, which compete for the same business travelers and have global networks like American's.
The losers will be American Airlines employees and AMR stockholders.
Shareholders almost certainly will be wiped out. The stock had already lost 79 percent of its value this year on fears of bankruptcy. The stock fell to 26 cents Tuesday, down $1.36 from the day before. In January 2007, after a 4-year rally, the shares peaked at $41.
AMR has lost more than $12 billion since 2001, and analysts expect it will post more losses through 2012. Speculation about an AMR bankruptcy grew in recent weeks as the company was unable to win union approval for contracts that would reduce labor costs. The company said it was spending $600 million more a year than other airlines because of labor-contract rules — $800 million more including pension obligations.
On Tuesday, Horton said no single factor led to the bankruptcy filing. He said the company needed to cut costs because of the weak global economy, a credit downgrade that raised borrowing costs, and high, volatile fuel prices. The price of jet fuel has risen more than 60 percent in the past five years.
Expectation of a bankruptcy filing increased in November as contract talks with the pilots' union stalled and union leaders rejected a company offer without sending it to members for a vote.
Ray Neidl, an analyst with Maxim Group LLC, an investment banking company, said AMR was wise to file for bankruptcy while it still had about $4 billion in cash. That way, the company will have a cushion to keep operating without worrying immediately about lining up new financing, he said.
Fitch Ratings analyst Bill Warlick said American will focus on shuttering pension plans and getting wage concessions from workers. Both Neidl and Warlick said American might be pushed into a merger with US Airways because size and global networks are more important than ever in the airline business.
Darryl Jenkins, a consultant who has worked for the major airlines, said, "American will still be with us in one form or another 10 years from now." But, he said, its workers will "take a major hit. Their pensions are in danger."
Union leaders expressed unease.
James C. Little, president of the Transport Workers Union, which represents mechanics, baggage handlers and other ground workers at American, was harsh in his assessment of the impact on labor.
"This (bankruptcy) is likely to be a long and ugly process and our union will fight like hell to make sure that front line workers don't pay an unfair price for management's failings," Little said.
AMR, which has headquarters in Fort Worth, Texas, lost $162 million in the third quarter and has lost money in 14 of the past 16 quarters.
The company barely escaped bankruptcy in 2003, when it was still reeling from the drop in air travel caused by a recession and the September 2001 terror attacks. That downturn helped drive United, Delta and US Airways into bankruptcy while American used the threat of a filing to wring wage and benefit concessions from workers.
American was founded in 1930 from the combination of many smaller airlines. Its hubs are in New York, Los Angeles, Dallas-Fort Worth, Chicago and Miami. Major international partners include British Airways and Japan Airlines.
News of the bankruptcy swept through AMR's hometown.
"American Airlines is an institution in Dallas-Fort Worth, and when institutions start to crumble, you look at everything around you," said Elaine Vale, a jewelry store owner who flew back from a Thanksgiving holiday on American. "After American, then who?"
The company also replaced its CEO, and the incoming leader said American would probably cut its flight schedule "modestly" while it reorganizes. The new CEO, Thomas W. Horton, did not give specifics.
For most travelers, though, flights will operate normally and the airline will honor tickets and take reservations. American said its frequent-flier program would be unaffected.
AMR Corp., which owns American, was one of the last major U.S. airline companies that had avoided bankruptcy. Rivals United and Delta used bankruptcy to shed costly labor contracts, reduce debt, and start making money again. They also grew through mergers.
American — the nation's third-largest airline and proud of an 80-year history that reaches back to the dawn of passenger travel — was stuck with higher costs that meant it lost money when matching competitors' lower fares.
In announcing the bankruptcy filing, AMR said that Gerard Arpey, 53, a veteran of the company for almost three decades and CEO since 2003, had retired and was replaced by Horton, 50, the company president.
Horton said the board of directors unanimously decided on Monday night to file for bankruptcy. In a filing with federal bankruptcy court in New York, AMR said it had $29.6 billion in debt and $24.7 billion in assets.
In hearing in a packed bankruptcy courtroom on Tuesday in New York, a judge granted the airline permission to pay for fuel, labor, and other critical expenses to keep it flying. The hearing was an indication of how American will now need to run all of its financial decisions past a bankruptcy judge and, ultimately, creditors.
With reductions to the flight schedule, Horton said there would probably be corresponding job cuts. American has about 78,000 employees and serves 240,000 passengers per day.
AMR's move could also trigger more consolidation in the airline industry. Some analysts believe American is likely to merge with US Airways to move closer to United Continental Holdings Inc. and Delta Air Lines Inc. in size. Such a merger would leave five large U.S. airlines compared with nine in 2008.
US Airways declined to comment.
American will delay the spinoff of its regional airline, American Eagle, which was expected early next year.
AMR, however, wants to push ahead with plans to order 460 new jets from Boeing and Airbus and take delivery of more than 50 others already ordered. New planes would save American money on fuel and maintenance, but the orders will be subject to approval by the bankruptcy court.
Analysts said all airlines will benefit if American reduces flights — especially if the cutbacks are more severe than American's new CEO is letting on. They said the chief winners were likely to be United and Delta, which compete for the same business travelers and have global networks like American's.
The losers will be American Airlines employees and AMR stockholders.
Shareholders almost certainly will be wiped out. The stock had already lost 79 percent of its value this year on fears of bankruptcy. The stock fell to 26 cents Tuesday, down $1.36 from the day before. In January 2007, after a 4-year rally, the shares peaked at $41.
AMR has lost more than $12 billion since 2001, and analysts expect it will post more losses through 2012. Speculation about an AMR bankruptcy grew in recent weeks as the company was unable to win union approval for contracts that would reduce labor costs. The company said it was spending $600 million more a year than other airlines because of labor-contract rules — $800 million more including pension obligations.
On Tuesday, Horton said no single factor led to the bankruptcy filing. He said the company needed to cut costs because of the weak global economy, a credit downgrade that raised borrowing costs, and high, volatile fuel prices. The price of jet fuel has risen more than 60 percent in the past five years.
Expectation of a bankruptcy filing increased in November as contract talks with the pilots' union stalled and union leaders rejected a company offer without sending it to members for a vote.
Ray Neidl, an analyst with Maxim Group LLC, an investment banking company, said AMR was wise to file for bankruptcy while it still had about $4 billion in cash. That way, the company will have a cushion to keep operating without worrying immediately about lining up new financing, he said.
Fitch Ratings analyst Bill Warlick said American will focus on shuttering pension plans and getting wage concessions from workers. Both Neidl and Warlick said American might be pushed into a merger with US Airways because size and global networks are more important than ever in the airline business.
Darryl Jenkins, a consultant who has worked for the major airlines, said, "American will still be with us in one form or another 10 years from now." But, he said, its workers will "take a major hit. Their pensions are in danger."
Union leaders expressed unease.
James C. Little, president of the Transport Workers Union, which represents mechanics, baggage handlers and other ground workers at American, was harsh in his assessment of the impact on labor.
"This (bankruptcy) is likely to be a long and ugly process and our union will fight like hell to make sure that front line workers don't pay an unfair price for management's failings," Little said.
AMR, which has headquarters in Fort Worth, Texas, lost $162 million in the third quarter and has lost money in 14 of the past 16 quarters.
The company barely escaped bankruptcy in 2003, when it was still reeling from the drop in air travel caused by a recession and the September 2001 terror attacks. That downturn helped drive United, Delta and US Airways into bankruptcy while American used the threat of a filing to wring wage and benefit concessions from workers.
American was founded in 1930 from the combination of many smaller airlines. Its hubs are in New York, Los Angeles, Dallas-Fort Worth, Chicago and Miami. Major international partners include British Airways and Japan Airlines.
News of the bankruptcy swept through AMR's hometown.
"American Airlines is an institution in Dallas-Fort Worth, and when institutions start to crumble, you look at everything around you," said Elaine Vale, a jewelry store owner who flew back from a Thanksgiving holiday on American. "After American, then who?"
American Airlines files for bankruptcy protection
American Airlines' parent company AMR filed for bankruptcy protection Tuesday, as the troubled firm tried to put its finances in order while keeping planes in the sky and passengers in seats.
"Chapter 11 reorganization is in the best interest of the company and its stakeholders," the firm said in an early-morning statement, which also announced the departure of chairman and chief executive Gerard Arpey.
The filing will allow the Texas-based carrier to slash its debt burden and restructure operations with more legal room-for-maneuver to renegotiate or cancel service and wage contracts.
"This was a difficult decision, but it is the necessary and right path for us to take -- and take now -- to become a more efficient, financially stronger, and competitive airline," said Thomas Horton, who was named as Arpey's replacement.
The airline, which serves 260 cities through a network that reaches 50 countries and territories, insisted it would continue "normal business operations."
But that claim was slapped down by some industry analysts.
"Cuts will come: They've said everything is normal for now, but the cutting will surely start soon. They'll reduce aircraft, employees and routes," said Seth Kaplan of Airline Weekly.
AA said passengers will see tickets and air mileage plans honored.
Passengers at AA's bustling Dallas-Fort Worth hub expressed confidence that the airline would pull through just like all the other US carriers which have restructured under bankruptcy protection in the past decade.
"It's a tough economy, I guess, but I just got off of a full flight -- I haven't noticed any lack of people on planes," said Evan Chenowith, who had just flown in from Tulsa, Oklahoma.
Airline workers lamented the move and vowed to fight to retain benefits.
"While we think this bankruptcy could have and should have been avoided, it does not come as a surprise," the Transport Workers Union said in a statement.
"This is likely to be a long and ugly process and our union will fight like hell to make sure that front line workers don't pay an unfair price for management's failings."
The filing could have broad repercussions for the airline sector.
Rumors had swirled for months that AMR would file for bankruptcy protection, after an unusual spike in pilot retirements, with the pilots trying to sell off their own stocks in the company.
Shares in AMR have now plunged 95 percent in the last year, selling at 32 cents a share, giving the company a market value of around $105 million.
The move will fuel speculation that American Airlines is looking for a merger in an industry that has seen a swathe of consolidation in recent years and regularly suffers from oil or other shocks.
American's long-rumored suitor and Oneworld partner International Airlines Group -- the holding company that runs British Airways and Iberia -- was quick to offer its support.
"We have a successful joint business together and believe that this will provide us with an opportunity to get stronger," IAG said in a statement.
"We have every confidence in the future of American Airlines."
Most of the best-known US airlines have filed for bankruptcy at some point since 1978, according to data from the Air Transport Association. Most have emerged from bankruptcy with the notable exception of PanAm, which collapsed in 1991.
Since the attacks of September 11, 2001, Hawaiian Airlines, United Airlines, US Airways (twice), Northwest Airlines and Delta Air Lines have all filed for Chapter 11 protection, which permits reorganization while under protection from creditors.
Jim Corridore, a noted airline analyst with S&P Capital IQ, said the move would provide a minor benefit from the sector.
"Industry capacity is likely to shrink somewhat, contributing to what we see as an already lean capacity environment," he said.
"We think the industry is likely to benefit from pent-up travel demand, higher fares and improving corporate travel."
But the filing could still have a knock-on effect across the economy.
In July, American Airlines, which with sister American Eagle has a fleet of 900 planes, said it would buy 200 Boeing 737s and 260 Airbus A320 jets, both more fuel-efficient than the aircraft it currently operates.
Airbus expressed confidence the order would not be hit.
"Like other companies that have sought Chapter 11, American Airlines has set down a plan to get back on its feet. So this should not call orders into question, especially as the company needs to renew its fleet," said one Airbus source.
"Chapter 11 reorganization is in the best interest of the company and its stakeholders," the firm said in an early-morning statement, which also announced the departure of chairman and chief executive Gerard Arpey.
The filing will allow the Texas-based carrier to slash its debt burden and restructure operations with more legal room-for-maneuver to renegotiate or cancel service and wage contracts.
"This was a difficult decision, but it is the necessary and right path for us to take -- and take now -- to become a more efficient, financially stronger, and competitive airline," said Thomas Horton, who was named as Arpey's replacement.
The airline, which serves 260 cities through a network that reaches 50 countries and territories, insisted it would continue "normal business operations."
But that claim was slapped down by some industry analysts.
"Cuts will come: They've said everything is normal for now, but the cutting will surely start soon. They'll reduce aircraft, employees and routes," said Seth Kaplan of Airline Weekly.
AA said passengers will see tickets and air mileage plans honored.
Passengers at AA's bustling Dallas-Fort Worth hub expressed confidence that the airline would pull through just like all the other US carriers which have restructured under bankruptcy protection in the past decade.
"It's a tough economy, I guess, but I just got off of a full flight -- I haven't noticed any lack of people on planes," said Evan Chenowith, who had just flown in from Tulsa, Oklahoma.
Airline workers lamented the move and vowed to fight to retain benefits.
"While we think this bankruptcy could have and should have been avoided, it does not come as a surprise," the Transport Workers Union said in a statement.
"This is likely to be a long and ugly process and our union will fight like hell to make sure that front line workers don't pay an unfair price for management's failings."
The filing could have broad repercussions for the airline sector.
Rumors had swirled for months that AMR would file for bankruptcy protection, after an unusual spike in pilot retirements, with the pilots trying to sell off their own stocks in the company.
Shares in AMR have now plunged 95 percent in the last year, selling at 32 cents a share, giving the company a market value of around $105 million.
The move will fuel speculation that American Airlines is looking for a merger in an industry that has seen a swathe of consolidation in recent years and regularly suffers from oil or other shocks.
American's long-rumored suitor and Oneworld partner International Airlines Group -- the holding company that runs British Airways and Iberia -- was quick to offer its support.
"We have a successful joint business together and believe that this will provide us with an opportunity to get stronger," IAG said in a statement.
"We have every confidence in the future of American Airlines."
Most of the best-known US airlines have filed for bankruptcy at some point since 1978, according to data from the Air Transport Association. Most have emerged from bankruptcy with the notable exception of PanAm, which collapsed in 1991.
Since the attacks of September 11, 2001, Hawaiian Airlines, United Airlines, US Airways (twice), Northwest Airlines and Delta Air Lines have all filed for Chapter 11 protection, which permits reorganization while under protection from creditors.
Jim Corridore, a noted airline analyst with S&P Capital IQ, said the move would provide a minor benefit from the sector.
"Industry capacity is likely to shrink somewhat, contributing to what we see as an already lean capacity environment," he said.
"We think the industry is likely to benefit from pent-up travel demand, higher fares and improving corporate travel."
But the filing could still have a knock-on effect across the economy.
In July, American Airlines, which with sister American Eagle has a fleet of 900 planes, said it would buy 200 Boeing 737s and 260 Airbus A320 jets, both more fuel-efficient than the aircraft it currently operates.
Airbus expressed confidence the order would not be hit.
"Like other companies that have sought Chapter 11, American Airlines has set down a plan to get back on its feet. So this should not call orders into question, especially as the company needs to renew its fleet," said one Airbus source.
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