American Airlines Files for Chapter 11 Bankruptcy Protection

Tuesday, 29 Nov 2011 07:15 AM

 

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American Airlines and its parent company AMR Corp. filed for bankruptcy on Tuesday after failing to win a labor deal with pilots and suffering from mounting fuel costs.

AMR had been the only major U.S. carrier to avoid bankruptcy in the past decade. Its rivals used bankruptcy to restructure their labor agreements and cut costs.

That left AMR, the third-largest U.S. airline behind United Continental Holdings Inc. and Delta Air Lines Inc., with the highest labor costs in the industry and the only major airline still funding worker pensions.

"It completes the cycle," said Helane Becker, an analyst with Dahlman Rose & Co. "Every major airline in the united States has filed for Chapter 11."

AMR's move comes as U.S. airlines brace for an economic downturn that could see travel demand sag this year. Some top airlines, including AMR, have announced service reductions to offset weak demand.

In its bankruptcy filing, AMR said its cost-cutting in recent years had been insufficient and that it could not continue without changing its "uncompetitive cost structure."

"Without addressing the realities of the marketplace, AMR cannot be competitive with its peers," it said.

Shares of AMR, whose passenger planes average 3,000 daily U.S. departures, have tumbled 45 percent since the end of September.

Last week the shares hit their lowest level since 2003, when AMR skirted bankruptcy by winning wage concessions from its unions.

The airline said last month it was also suffering from soaring fuel prices that sent its costs up 40 percent in the third quarter compared with a year earlier.

AMR on Tuesday named Thomas Horton as chairman and chief executive, replacing Gerard Arpey, who retired.

Under its Chapter 11 bankruptcy filing in a New York court, the company listed assets of $24.72 billion and liabilities of $29.55 billion. The company said it has $4.1 billion in cash.

AMR said both American Airlines and its regional carrier American Eagle were expected to fly normal schedules throughout the Chapter 11 process.

"We plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels," Horton said.

The union representing AMR's pilots called the bankruptcy filing a "solemn occasion."

"While today's news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way," David Bates, president of the Allied Pilots Association, said in a statement.

"The 18-month timeline allotted for restructuring will almost certainly involve significant changes to the airline's business plan and to our contract," he said.

Dahlman's Becker said the bankruptcy proceedings would not solve AMR's problems and that the airline needed to rework its operations and boost revenue.

"Bankruptcy is not necessarily the be-all, end-all," she said. "They've got more problems to address in addition to the cost problem."

AMR's top rivals, UAL Corp. and Delta Air Lines, used bankruptcy protection to slash costs and have since found merger partners: Delta bought Northwest Airlines and UAL bought Continental Airlines to form United Continental Holdings.

US Airways and United Airlines sought relief under Chapter 11 bankruptcy in 2002. Delta and Northwest filed in September 2005.

AMR has been in labor talks with its pilots for five years, and a wave of pilot retirements in October prompted speculation the airline was nearing a bankruptcy filing.

Some industry watchers believed the pilots chose to retire to lock in pension values that may now be in jeopardy as the company moves through bankruptcy court.

AMR said the bankruptcy has no direct legal impact on operations outside the United States. It also said it was not considering debtor-in-possession financing.

In addition to its passenger service, AMR carriers provide over 90 million pounds of weekly cargo lift around the globe.

AMR said Weil, Gotshal & Manges LLP is lead counsel on the bankruptcy case.

The case is in Re: AMR Corp., Southern District Of New York; No:11-15463.

© 2014 Thomson/Reuters. All rights reserved.

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