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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