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.
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