American Airlines CH11 Bankruptcy Filing was Inevitable

Commentary | American Airlines (AA) Ch11 bankruptcy filing had to come, sooner than later. Rather than wait for the inevitable, over 400 American pilots alone chose early retirement between June and October this year and preserving retirement pay over one that will likely be imposed by the Pension Guarantee Corporation in bankruptcy court.

The one item an airline has control over are costs, and at American, they spiraled out of control. For the January through September 2011, American's CASM's (costs per available seat mile excluding fuel) climbed to 9.05 cents - highest among all US legacy airlines. (at United CASM's without fuel were 8.15 cents, and at Southwest 7.68 cents in the same period) When flying hundreds of billion miles every month, one cent in cost reduction per mile is the difference of losing or making hundreds of million dollars.

A new American Airlines pilot contract proposal was rejected by union officials of American's Allied Pilot association (APA) "as unacceptable" stating "the APA remains firm in their commitment negotiating an industry leading contract". (that would mean even higher costs than the one in place).

At American a 9 year B777 Captain earns $200/hr with a contract guarantee of 64 hours, and many pilots never fly 64 hours/month, due to planning and scheduling shortcomings. Here is where a total revamp of effective scheduling must take root, and for American to continue operating in America's competitive market place.

American mechanics, represented by the Transport Workers Union (TWU) have been in more amicable negotiations since 2007 and both sides reached a tentative agreement in May of 2010, however, when presented for ratification by union members, the mechanics voted to reject the proposed new contract.

This sounds all too familiar to the path Eastern Airlines went through twenty years ago. Spiraling costs and lack of reasonable new contract negotiations in a time of economic downturn, forced Eastern out of business. Unless finding middle ground, American may be headed the same way.