American Airlines Files For Bankruptcy Protection; Incoming CEO Says Flights May Be Cut

American Airlines files for bankruptcy protection; incoming CEO says flights may be cut (Washington Post, Nov. 29 2011):

DALLAS — The parent company of American Airlines filed for bankruptcy protection Tuesday, seeking relief from crushing debt caused by high fuel prices and expensive labor contracts that its competitors shed years ago.

The company also replaced its CEO, and the incoming leader said American would probably cut its flight schedule “modestly” while it reorganizes. He did not give specifics. American said its frequent-flier program would be unaffected.

AMR Corp., which owns American, was one of the last major U.S. airline companies that had avoided bankruptcy. Competitors used bankruptcy to shed costly labor contracts, unburden themselves of debt, and start making money again. Delta was the last major airline to file for bankruptcy protection, in 2005.

American — the nation’s third-largest airline and proud of an 80-year history that reaches back to the dawn of passenger travel — was stuck with higher costs and had to match its competitors’ lower fares or lose passengers.

Other airlines also grew by pursuing acquisitions and expanding overseas. American was the biggest airline in the world in 2008, but has been surpassed by United, which combined with Continental, and Delta, which bought Northwest.

In announcing the bankruptcy filing, AMR said that Gerard Arpey, a veteran of the company for almost three decades and CEO since 2003, had stepped down and was replaced by Thomas W. Horton, the company president.

Horton said the board of directors unanimously decided to file for bankruptcy after meeting Monday in New York and again by conference call on Monday night.

In a filing with federal bankruptcy court in New York, AMR said it had $29.6 billion in debt and $24.7 billion in assets.

With reductions to the flight schedule, Horton said there would probably be corresponding job cuts. American has about 78,000 employees and serves 240,000 passengers per day.

For travelers, American said it would continue to operate flights, honor tickets and take reservations.

AMR’s move could also trigger more consolidation in the airline industry. Some analysts believe American is likely to merge with US Airways, which would leave five large airlines where there were nine in 2008.

The company will delay the spinoff of its regional airline, American Eagle, which was expected early next year.

AMR, however, wants to push ahead with plans to order 460 new jets from Boeing and Airbus, plus more than 50 previous jet orders. New planes would save American money on fuel and maintenance, but the orders will be subject to approval by the bankruptcy court.

Analysts said the chief winners from AMR’s bankruptcy are United and Delta, which compete for the same business travelers and have global networks like American’s.

All airlines will benefit from crowded planes and higher prices if American reduces flights, said Helane Becker, an analyst with Dahlman Rose & Co.

The losers: AMR stockholders almost certainly will be wiped out. The stock had already lost 79 percent of its value this year on fears of bankruptcy. The stock fell to 31.5 cents Tuesday, down almost $1.32 from the day before. In January 2007, after a 4-year rally, shares were worth more than $40.

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