It’s done: American finally files Chapter 11
The long-awaited and long-predicted move by AMR Corporation to file for American Airlines Chapter 11 bankruptcy protection became a reality on Tuesday.
If it at all follows the last such case when a major airline filed for similar protection — Delta Airlines in 2005 — the bankruptcy will last for two years before a reorganization is completed.
Bankruptcy is hardly new in the airline business.
Most other US airlines — with the ironic exception of American Airlines — filed in the wake of the 9-11 terrorist attacks in 2001.
Continental went through bankruptcy twice — in 1983 and in 1990. US Airways has a similar record, in 2002 and 2004.
No surprise also that American cited higher fuel costs and restrictive labor rules as the main causes for its financial woes. American has lost money in 14 of the last 16 quarters, including a $162 million hit in the third quarter of this year, according to the AP.
Parent company AMR Corporation said that bankruptcy proceedings had become necessary "to achieve a cost and debt structure that is industry competitive and thereby assure our long-term viability."
In a statement issued Tuesday, the airline said it needed time to address its cost structure, including its labor costs which are higher than its competitors. Chapter 11 allows a company to continue operating, giving it time to restructure
“The darkening outlook for the world economy means the chances of turning a profit any time soon are receding,” wrote The Economist.
The lack of progress in the talks with the pilots' union has also hindered AMR's plan to spin off its regional airline, American Eagle, another key part of the group's cost-cutting plan, says The Economist.
American was once the nation’s largest airline. But it began to lose ground recently to low-cost carriers such as Southeast.
“As competition intensified, AMR drastically increased its borrowing, eventually pledging nearly all of its assets and leaving it heavily indebted,” said The New York Times. American also sought to reduce expenses, managing to cut US$4.1 billion by the end of 2004.
What does this mean for the future of American?
The simplest answer is that it is expected to continue its normal flight schedule. It said it would also honor all tickets and reservations, refunds and exchanges. It added that its frequent flyer program AAdvantage would also not be impacted.
American serves 260 airports in more than 50 countries and territories.
Some analysts said the move was a positive one and that the airline’s reluctance to do it earlier had left it less competitive in the industry.
By David Wilkening
David
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