Here comes bAAnkruptcy for AMR/American Airlines; operations to be unaffected


American Airlines parent AMR has filed for Chapter 11 bankruptcy protection today, ending the long waiting game of wondering just when that would happen. In addition, CEO Gerard Arpey is CEO no more; Thomas Horton has taken over the roles of Chairman, CEO and President of the company. The move is not much of a surprise, with the company’s stock price having decreased significantly in recent months (down ~75% in the past 6) and the topic of bankruptcy having been swirling for nearly as long. So what’s next?

Operations are expected to continue as normal, at least on paper. And that makes sense given the Chapter 11 filing. Flights will operate and the AAdvantage loyalty program is safe. At the same time, however, the company has made it clear that the main thrust of their efforts for the reorganization period will be to "address our cost structure, including labor costs, to enable us to capitalize on these foundational strengths and secure our future," according to Horton.

In other words, look for some upset flight crews in the coming weeks and months as their union contracts are tossed out and they are forced to negotiate new ones. "Work to rule" campaigns and other similar efforts would not be at all surprising. It could get ugly out there.

The company does have $4.1 billion in cash available which means they aren’t using debtor-in-possession financing, a good thing in general for the operation. Combined with the statements indicating that the company will honor all existing fuel and interline agreements, however, that only furthers the idea that this move is nearly entirely a union contract negotiations tactic.

Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.

This should be interesting to watch.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .

7 Comments

  1. Look out for massive fare sales and other promotional activities. Great, except that you will be dicing with strike activity….

  2. Once the chp 11 is in place the unions will have a tough time striking, the courts will be able to order them back to work or they forfeit thier jobs without recourse.

    1. I’m betting against massive sales and such, at least right now. The company is not doing debtor-in-possession financing and there is no real race to grab cash to stay operational. That’s usually what causes those fire sales.

      As for the union bit, I’m not betting on a strike, but a “work to rule” action that ends up similar to the summer from hell United had back a decade ago would be brutal to the company right now and would certainly be an interesting challenge to the company.

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