American Airlines’ parent company AMR Corporation has filed for Chapter 11 bankruptcy protection.
Chapter 11 is a section of the US Bankruptcy Code which is used to protect a company from its creditors, giving it time to re-organize its debts or sell parts of its business.
New chief executive and president of AMR and American Airlines Thomas W. Horton said the AMR board had unanimously decided to file for bankruptcy on Monday, November 29, 2011. Stephen Karotkin of Weil, Gotshal & Manges LLP is lead counsel on the bankruptcy case.
American Airlines was founded in 1930, it flies 240,000 passengers per day, has 78,000 employees, operates out of five major US hubs: New York, Los Angeles, Dallas, Chicago and Miami and has partnership with British Airways and Japan Airlines.
Three years ago American Airlines was the world’s biggest airline but has since become a third, behind United Continental Holdings Inc’s United Airlines and Delta Air Lines Inc.
American Airlines was the last of the major US airlines to file for bankruptcy after the September 11th terrorist attacks. Its major competitors, Delta and United, have successfully used bankruptcy to restructure their labour contracts and cut costs. Delta filed for bankruptcy in 2005 and United in 2002.
AMR and its American Airlines was determined to avoid Chapter 11 in the years after the 2001 terrorist attacks, as rival carriers used bankruptcy to reduce costly pension and retiree benefit plans and restructure debt. American later watched as rival carriers after bankruptcy found merger partners, gained larger route networks, and bought other airlines.
At the same time American Airlines was stuck in negotiations with labour unions trying to increase employee productivity and reduce labor-cost disadvantage to other carriers. AMR said agreements with its workforce forced it to spend $600m more than other airlines on staff costs.
After failure on November 14, 2011 of major negotiations with American Airlines pilot’s union (Allied Pilots Association) carried on for last five years over wages, benefits and work rules, and after failure of negotiations with unionized flight attendants, the company had no choice other than file for bankruptcy.
AMR and American Airlines president Mr Harton comments, “We have met our challenges head on, taking all possible action to secure our long-term position. In recent years, even as the airline industry faced unprecedented challenges, American strengthened our domestic and global network; fortified our alliances with the best partners around the world; launched a transformational fleet deal that will give American the youngest and most efficient fleet in the industry; and invested in our product, service and technology to build a world class customer experience. But as we have made clear with increasing urgency in recent weeks, we must address our cost structure, including labor costs, to enable us to capitalize on these foundational strengths and secure our future. 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.”…“It became increasingly clear that the cost gap between us and our competitors was untenable”…“We plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels”, he said.
Mr Horton added, “I am confident American will emerge even stronger as a global leader known for excellence and innovation.”
The case is in Re: AMR Corp, Southern District Of New York; No:11-15463.