American Airlines files for bankruptcy

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American Airlines’ AMR Corp. Files Bankruptcy

By Phil Milford, Mary Schlangenstein and David McLaughlin
Nov 29, 2011 8:21 AM PT

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 last of the so-called U.S. legacy airlines to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air-mail 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.

“It’s painful but probably necessary,” John Strickland, an aviation analyst at JLS Consulting in London, said today in a telephone interview. “They will have to go through the whole process that their peers have gone through.”

Job and flight reductions are likely in the future as AMR seeks to trim expenses, Chairman and Chief Executive Officer Tom Horton said today on a conference call. Normal flight schedules will continue on American and its American Eagle regional unit for now, along with the airline’s frequent-flier program, the company said. A spinoff of American Eagle, which already had been delayed from this year into 2012, is on hold, Horton said.

Horton, 50, most recently AMR’s president, replaced Gerard Arpey today as chairman and CEO. Arpey, 53, opted to retire after the board asked him to stay, Horton said. Arpey will join Emerald Creek Group LLC, a private-equity firm founded by former Continental Airlines (UAL) Inc. CEO Larry Kellner, on Dec. 1, the firm said in a statement.
Unanimous Vote

The board voted unanimously last night to file for bankruptcy, Horton said. AMR was determined to avoid Chapter 11 as air travel fell and losses mounted after the 2001 terrorist attacks, even as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. Rival carriers later combined, giving them larger route networks that were more attractive to lucrative corporate travel customers.

“It became increasingly clear that the cost gap between us and our biggest competitors was untenable,” Horton said. “The economic climate has been most uncertain, oil prices remain high and volatile, and all of that taken together led to the conclusion that now is the right time to take this step and put the company back on the path to long-term success.”

AMR plunged $1.29, or 80 percent, to 33 cents in New York Stock Exchange composite trading at 11:13 a.m. The shares earlier fell as much as 88 percent. Unlike secured creditors, shareholders typically get paid last in a bankruptcy and often receive nothing for their shares.
Cash Crisis

The stock had declined 79 percent this year before today as analysts including Philip Baggaley of Standard & Poor’s warned the company could face a cash crisis during the next 12 months without new labor agreements. AMR had $4.1 billion in unrestricted cash and short-term investments as of Nov. 25, Chief Financial Officer Isabella Goren said in an affidavit.

American was engaged 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.

AMR has the highest operating costs among the four surviving major U.S. network air carriers, Goren said in court papers. The company is set to post its fourth-straight annual loss this year and analysts had forecast a loss for next year as well.

“AMR cannot continue to progress towards a viable and stable future without further, significant remediation of its uncompetitive cost structure,” Goren said.
Talks Stall

American fell from its perch as the biggest airline by traffic after Delta Air Lines Inc. (DAL) bought Northwest Airlines Corp. in 2008, then slid to No. 3 last year when UAL Corp.’s United Airlines and Continental Airlines Inc. merged.

All operate traditional hub-and-spoke systems, with their own regional units or partner airlines ferrying passengers to be collected at larger airports. US Airways Group Inc. (LCC) is the other major carrier with that kind of route network. It ranks No. 5 in the U.S. by traffic, behind Southwest Airlines Co. (LUV), the largest discounter.

American 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.
‘Perfect Storm’

“You would expect a leaner, stronger company to emerge from bankruptcy,” Chris Logan, an analyst at Echelon Research & Advisory LLP in London, said today by telephone. “As they are in Chapter 11, it will be more easy to demand concessions from the labor force.”

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.

“We agreed to sacrifice based on the expectation that our airline would regain its leadership position,” David Bates, president of the Allied Pilots Association, told members in an e-mail. “What has transpired since has been nothing short of a ‘perfect storm.’”

Laura Glading, president of the Association of Professional Flight Attendants, said the filing “wasn’t a great surprise.”

“It’s a loss of jobs I worry most about,” she said in an interview. “That’s a horrible, horrible nightmare in this economy. We’ll do what we can to mitigate that as much as possible.”
AMR Employees

AMR had about 80,800 employees at the end of September, including 67,100 at American, with the rest at American Eagle, cargo operations and other units. American Airlines has 8,700 active pilots, with another 950 on furlough, and 17,000 flight attendants.

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. 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.

The 8.625 percent notes due in October 2021 fell 2.5 cents to 96 cents on the dollar as of 8:20 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Jet Order

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, partly 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 shuffled flight schedules in September 2009 to increase operations in Chicago, New York, Dallas-Fort Worth, Los Angeles and Miami to attract more high-fare business travelers.

AMR said in July it would buy 460 single-aisle jets -- 260 from Airbus SAS and 200 from Boeing Co. (BA) -- in the industry’s biggest-ever order. The orders remain “rock solid,” Horton said today.

“When we’re completed with this process, our company will be competitive and poised to grow and prosper and go out and capitalize on these aircraft orders,” he said.
‘Key Part’

Placing an order for aircraft “creates a contract,” and in bankruptcy accepting or rejecting the contract will be up to AMR, said Scott Peltz, the national leader of RSM McGladrey’s Financial Advisory Service in Chicago. Boeing and other suppliers will probably have representatives at the bankruptcy hearings who “will be looking at what their options are,” he said.

Boeing said it has “no reason to doubt” that the order for its 737s and Airbus A320s remains pivotal to AMR. The planemakers will provide $13 billion of financing on the first 230 jets, American said in July.

“We anticipate as part of American’s reorganization that new, fuel-efficient airplanes will be a key part of their ongoing success,” Mark Hooper, a spokesman for Chicago-based Boeing, said in an e-mailed statement.

International Consolidated Airlines Group SA, a U.K.-based joint venture partner with AMR that owns British Airways and Spain’s Iberia, said it has “every confidence in the future of American Airlines” and looks forward to working with Horton.

AMR’s lead bankruptcy counsel is Weil, Gotshal & Manges LLP and its financial adviser is Rothschild Inc.
Mail Pilot

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).

http://www.bloomberg.com/news/2011-...ion-in-new-york-as-talks-with-pilots-end.html
filed for bankruptcy after failing to secure cost-cutting labor agreements
Nice going unions. So now a helluva lot more people are going to lose their jobs because you couldn't work out a compromise.
 
Jun 2, 2005
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So I guess the Wright Amendment doesn't help all that much after all, huh shitdicks?

(That might be too local... Look it up, it'll make your blood boil)
 

Party Rooster

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So I guess the Wright Amendment doesn't help all that much after all, huh shitdicks?

(That might be too local... Look it up, it'll make your blood boil)
LOL. Never heard of that.

American Airlines tried several times to force Legend to abandon this concept (even offering the same service to LAX), and Legend eventually folded in 2001. Many people who supported repealing the Wright Amendment blamed Legend's demise on American Airlines, DFW International Airport, and the city of Fort Worth.
 
Jun 2, 2005
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It's a huge battle with Southwest now too. (Also based here).

Basically, every time Southwest tries to expand, American sues them through the Wright Amendment. Southwest can only fly out of Love Field and now DFW, they can only do regional flights (something like no more than a state or two away), etc. It's a pretty shitty piece of pandering legislation.
 

Motor Head

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I thought the airlines were making record profits. They were the only airline that didn't have to file bankruptcy after 9/11. This looks more like a debt dump. Whoever they owe money to are about to have a very large dildo embedded in their ass.
 

The Godfather

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I thought the airlines were making record profits. They were the only airline that didn't have to file bankruptcy after 9/11. This looks more like a debt dump. Whoever they owe money to are about to have a very large dildo embedded in their ass.
No, the greedy jew CEO's are making all the record profits. They are starving the working man in order to get even more wealthy.
 

SOS

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Hey LIAR, you are on the air right now!
 

Party Rooster

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I thought the airlines were making record profits. They were the only airline that didn't have to file bankruptcy after 9/11. This looks more like a debt dump. Whoever they owe money to are about to have a very large dildo embedded in their ass.
Sounds like a giant fuck you to the unions too.
 

Ballbuster1

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Sounds like a giant fuck you to the unions too.
Yeah, but some of them need it too. They've gotten greedy over the years

and refuse to bend to help keep a company healthy in a shitty economy.

I was a shop steward for years and my union reps were lazy assholes.

All they cared about was themselves.
 

lajikal

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Some douche talking on cnbc said it's no biggie someone will eventually turn it around and the market has adapted to this horseshit. He's probably right who the fuck knows.
 

Norm Stansfield

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Nice going unions. So now a helluva lot more people are going to lose their jobs because you couldn't work out a compromise.
Blaming the unions is silly. The unions' scope should be narrowly focused on getting as much as they can for their members, not to run the company. Sounds like it's what they did in this case.

The problems started when, as a society, we decided companies should be subject to a democracy, where every stakeholder should gain power over a business. We expect shareholders to consider the interests of workers ahead of their own, politicians representing "the community" to be total altruists, and unions to consider the interests of the business ahead of their workers. It's a retarded expectation, and when you legislate to try and enforce it bad things will happen.

Without that power, given to them based on that unrealistic expectation, unions could've done the job of defending their members' interests without hurting the company. They would've been even more selfish and narrowly focused on one little goal than they are now, but with a much better outcome, because the company executives would've also been more focused on their own interests and area of expertise.
 

Party Rooster

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Blaming the unions is silly. The unions' scope should be narrowly focused on getting as much as they can for their members, not to run the company. Sounds like it's what they did in this case.
If it results in a net loss of jobs/benefits, then it sounds like they failed getting the most they can for their members. You think they're going to get as much as they were just offered after the bankruptcy?
 

Norm Stansfield

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All they cared about was themselves.
Thanks for making my point, BB. Exactly the unrealistic expectation I was talking about. Of course a labor leader will only care about labor's interests. And even if he didn't, he's a fucking labor leader. It makes no difference how much he cares about the running of a business: he doesn't know about running the business. His attempts to help run it better would not actually help.

The reason why markets where participants pursue their own interests works is because people tend to know more about what their own interests are and how to achieve them than anyone else. In any other system, people's minds are wasted on unchosen tasks they are less qualified to handle. Like expecting a union leader to figure out what's best for an airline, and act accordingly.
 

Norm Stansfield

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#15
If it results in a net loss of jobs, then it sounds like they failed getting the most they can for their members.
Unions are not in the business of employing people, because they don't know how to build a productive enterprise. Expecting them to understand how one works, and act accordingly, is unreasonable. Expecting the unions to "create jobs" is almost as stupid as expecting a community organizer who never held a productive job in his life to create them. Almost (because the union guys probably worked at some point, or at least it rubbed off on them a little, while watching people work).

The only positive effect a union can have is to organize a competent workforce, standardize and control their abilities and work ethic, and then sell their services to companies, saving everyone of the hassle of dealing with individual employers/employees when looking for a job/hiring new labor. Anything else, and they're just in the way.
 

Party Rooster

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Unions are not in the business of employing people, because they don't know how to build a productive enterprise. Expecting them to understand how one works, and act accordingly, is unreasonable. Expecting the unions to "create jobs" is almost as stupid as expecting a community organizer who never held a productive job in his life to create them. Almost (because the union guys probably worked at some point, or at least it rubbed off on them a little, while watching people work).

The only positive effect a union can have is to organize a competent workforce, standardize and control their abilities and work ethic, and then sell their services to companies, saving everyone of the hassle of dealing with individual employers/employees when looking for a job/hiring new labor. Anything else, and they're just in the way.
You're arguing against your own point now? Might be time to clear your cache and reboot.