American Airlines files for bankruptcy

The Chapter 11 bankruptcy filing by American Airlines never seemed to be a question of if, but when.

Loaded down with costs that other airlines cast off in their own bankruptcies after 9/11, American simply couldn't compete. The move Tuesday by Texas-based AMR Corp., the parent company of American Airlines and American Eagle, will give the company a window of opportunity in which to cut employee pay and benefits and retiree pensions and ditch other costs, such as plane leases it doesn't want.

For the longest time, some say too long, American Airlines executives tried to take the high road, avoiding bankruptcy to protect employees, investors, suppliers and others who lose out in a Chapter 11 filing. But in the end, rising fuel costs and a sour world economy extinguished whatever glimmer of hope the airline had to honor its obligations. Meanwhile, the money-losing company fell from its perch as the country's largest airline to No. 3 as competitors merged and grew.

"Looking back, they were at such a disadvantage, they probably should have done it post-9/11," said Morningstar airline analyst Basili Alukos, who predicted last month that the airline would enter bankruptcy but expected it to continue struggling into the new year. "They had the attitude that they could get through it."

As AMR Corp. finally succumbed Tuesday, it also replaced its chief executive. Out is Gerard Arpey, who steadfastly wanted to avoid bankruptcy. The airline said the board wanted him to continue, but he opted to retire. In is Thomas Horton, president of AMR and American.

"The world changed around us," Horton said on a conference call. "It became increasingly clear that the cost gap between us and our competitors was untenable." He said he hoped the company could emerge from Chapter 11 within 15 months.

American was struggling through labor negotiations even though it won massive cost concessions from unionized workers in 2003 to avoid Chapter 11.

For Chicagoans and travelers who pass through Chicago O'Hare International Airport, the immediate changes will be minimal. After so many airline bankruptcies, travelers know they can continue flying and booking on an airline that is restructuring.

However, a topic of debate is American's large presence at O'Hare, where it's the No. 2 airline to United Airlines and accounts for about 37 percent of passenger service.

"I would say Chicago is vulnerable to cuts, but that's going to be one of the most interesting strategic decisions: Can they win in Chicago?" said Seth Kaplan, managing partner of Airline Weekly.

The airline says it is committed to Chicago but won't rule out some changes.

"O'Hare remains a key piece of our business strategy," said Craig Kreeger, senior vice president of customer experience at American. "For example, O'Hare is one of our two primary gateways to Europe. I don't see any change to that."

Chicago is among five key hubs operated by American. Others are Dallas-Fort Worth, New York, Miami and Los Angeles. O'Hare could see some "trimming around the edges" and schedules could be "tweaked," Kreeger said.

"A reorganization inevitably leads to changes and questions we don't know the answers to," he said.

Kaplan said that Dallas, Miami and New York are likely to see the least cuts, while Los Angeles might see the most because it's a very competitive market and not core to the airline's network.

"Chicago is probably the most interesting question out there," he said.

The top Chicago airport official expressed support for American's decision.

"The city anticipates minimal immediate or long-term negative impacts as a result," Chicago Department of Aviation Commissioner Rosemarie Andolino said in a statement. "The city anticipates that American Airlines will continue to serve O'Hare in substantially the same manner and has been reassured that O'Hare is a critical airport in the airline's current operation and is a key hub in their future plans."

Andolino noted that when United Airlines was in bankruptcy from 2002 to 2006, the airport did just fine, having a record year in 2004 for number of flights. An Aviation Department spokeswoman said American's bankruptcy will have no effect on plans to reconfigure runways at the airport, known as the O'Hare Modernization Program.

As for passengers, American emphasized Tuesday that the bankruptcy will not affect them in the near term. They will still be able to use previously purchased tickets, book flights and use and accumulate frequent-flier miles, Kreeger said.