Tuesday, November 29, 2011

AMR in Chapter 11

At last, years after fellow U.S. carriers went into Chapter 11 bankruptcy reorganization to cut costs, AMR Corp., the parent company of American Airlines, filed Chapter 11. It could - and arguably should - have been done long ago. (www.aa.com).

For travelers, the impact won't be felt strongly, at least not at first. AMR's new chief executive officer, Thomas Horton, says that American - the world's third-largest airline - will over time trim its route structure and reduce the number of flights. The airline is operating normally and AA flights are landing and taking off at hub airports at Los Angeles LAX, New York JFK, Dallas-Ft. Worth, Miami and Chicago. Tickets are being honored as per usual. The airline's frequent flier program has not been affected, nor have its code-shares and other forms of cooperation with oneworld alliance partners Japan Airlines and British Airways.

The big losers in this filing are AA employees, who number 78,000, and now face layoffs and deep cuts to their defined-benefit pensions. AMR shareholders are simply sunk. The company's stock, which soared north of $40 USD per share in 2007, fell to 33 cents today. The Chapter 11 filing makes the stock worthless.

AA lost $162 million USD in the third quarter of this year; it was the 14th time in the last 16 quarters that the company has lost money. According to a report in today's Washington Post (www.washingtonpost.com), AMR has lost $20 billion USD since 2001. That number sounds high but if true, that is about half the combined worldwide losses of all airlines in that time-frame. It's an enormous amount of money, brought about by a combination of low-cost competition, volatile fuel prices and the high cost of servicing pensions.

Under Horton, who replaces longtime CEO Gerard Arpey, American has a chance to straighten up and fly right. The changes will be painful for workers and shareholders but, long-term, travelers will probably benefit from a streamlined, modernized airline. This is especially true as AA starts to take possession of the 460 new planes it has ordered - an order the company says will not dwindle as it makes its way through bankruptcy.

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