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American Airlines to retool in bankruptcy

by Jamie Mason | Published November 30, 2011 at 4:36 PM

The last holdout among major U.S. airlines has finally had to roll into the Chapter 11 hangar.

AMR Corp., the Fort Worth parent of American Airlines Inc., filed for bankruptcy protection on Tuesday, hoping to leave in its wake losses, debt troubles, spiraling fuel costs and increasing competition. AMR will attempt to reorganize in the U.S. Bankruptcy Court for the Southern District of New York in Manhattan with the help of $4.1 billion in unrestricted cash and short-term investments, which obviates the need to use cash collateral.

AMR blamed its filing on its financial performance since 2009, which lags that of its major rivals, which restructured and emerged from bankruptcy before 2009. The filings allowed the carriers to reduce their costs, especially labor.

United Airlines parent UAL Corp. exited from bankruptcy protection in 2006. (Its merger partner in 2010, Continental Airlines Inc., exited a second restructuring in 1993.) US Airways Group Inc. emerged from its second Chapter 11 filing in 2005, and both Delta Air Lines Inc. and merger partner Northwest Airlines Corp. emerged from Chapter 11 in 2007.

According to court filings, the Airline Deregulation Act of 1978 transformed the U.S. airline industry from "an era of economic regulation to an era of intense competition," and competition has increased due to Internet-based marketing and reservation systems. AMR said it has been hurt further by the uncertain economic outlook and volatile fuel prices.

"As we have made clear with increasing urgency in recent weeks, we must address our cost structure, including labor costs, to enable us to capitalize on [our] foundational strengths and secure our future," AMR chairman, chief executive and president Thomas W. Horton said in a company statement. "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."

The company had a $162 million net loss in the third quarter of 2011, compared with net income of $143 million a year earlier.

American Airlines was founded in 1934. As of Nov. 1, the airline had a fleet of more than 600 jet aircraft and provided 1,800 daily departures to 160 destinations in the Americas, Europe and Asia. American Eagle, a regional airline operated by debtor affiliate AMR Eagle Holding Corp., has a fleet of 300 aircraft.

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American Airlines to retool in bankruptcy

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