American Airlines parent AMR Corp. (AMR) filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S.
With the filing, American became the final large U.S. full-fare airline to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s airmail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan.
“They will have to go through the whole process that their peers have gone through,” John Strickland, an aviation analyst at JLS Consulting in London, said today in a telephone interview. “It’s painful but probably necessary. They have fallen behind what others have done.”
Chairman and Chief Executive Officer Gerard Arpey, 53, will retire and be replaced by Thomas Horton, AMR said. Normal flight schedules will continue on American and its American Eagle regional unit, along with the airline’s frequent-flier program, the company said.
AMR was determined to avoid Chapter 11 in the years after the 2001 terrorist attacks, as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. American later watched as rival carriers combined, giving them larger route networks that were more attractive to lucrative corporate travel customers.
American was embroiled in negotiations with unions for all of its major work groups as far back as 2006, seeking to boost employee productivity and erase part of what it said was an $800 million labor-cost disadvantage to other carriers.
The airline and leaders of its pilots’ union were scheduled to meet with federal mediators on Dec. 6 to provide an update on contract talks that stalled two weeks ago. The two sides hadn’t set a date to resume negotiations since Allied Pilots Association leaders declined to send a Nov. 14 contract offer to union members for a vote, saying it “clearly” would be rejected.
American’s pilots, flight attendants, mechanics and baggage handlers wanted to use the contract talks to regain some of the $1.6 billion in annual concessions they gave in 2003 to help the company avoid bankruptcy.
AMR shares have plunged 79 percent this year and analysts including Philip Baggaley of Standard & Poor’s have warned the company could face a cash crisis during the next 12 months without new labor agreements.
Among the company’s largest unsecured creditors listed in court papers was Wilmington Trust Corp., trustee for holders of $460 million in 6.25 percent convertible senior notes due in 2014. The bankruptcy filing included AMR American Eagle Holding Corp., AMR’s regional airline that ferries passengers from smaller cities to hub airports.
AMR on Sept. 27 sold $725.7 million of 10-year bonds backed by aircraft to refinance maturing debt. The company paid the highest interest rates since 2009 to raise the cash.
American had blamed higher labor costs, as well as benefits that have increased more slowly than expected from business ventures with partners across the Atlantic and Pacific, in part for its failure to return to profit. The airline also has a fleet of older, less fuel-efficient planes that put it at a disadvantage when fuel prices rise.
“Airlines still face that fundamental issues of cost levels versus achievable revenues in the market place,” Strickland, the JLS analyst, said. “Higher fuel prices and the weaker U.S. economy would have given them the final push.”
American Airlines was formed from companies including Robertson Aircraft Corp. of Missouri, which employed Charles A. Lindbergh as a mail pilot, according to the carrier’s website. The companies began consolidating in 1929 and became American Airlines in 1934.
Company stock began trading in 1939, and during World War II, half of American’s planes flew for the Air Transport Command. American pioneered nonstop transcontinental service in 1953 and 20 years later was the first major airline to hire a woman pilot, according to its website.
The case is In re AMR Corp., 11-15463 U.S. Bankruptcy Court, Southern District of New York (Manhattan).
PBS Newshour 11/29/2011