[UPDATED] Citing an "untenable" cost disadvantage compared to its primary competitors, American Airlines (AA) parent AMR Corp. filed for Chapter 11 bankruptcy protection in a New York court Tuesday and announced the resignation of chairman and CEO Gerard Arpey
American Airlines 737-800. Courtesy, AA
[UPDATED] Citing an "untenable" cost disadvantage compared to its primary competitors, American Airlines (AA) parent AMR Corp. filed for Chapter 11 bankruptcy protection in a New York court Tuesday and announced the resignation of chairman and CEO Gerard Arpey. President Tom Horton assumed the roles of chairman and CEO and began making the case that better times are ahead for the Dallas-based carrier.
"The last decade has been extraordinarily hard for the US airline industry," Horton said at a Tuesday news conference. He explained that AA had done all it could to restructure outside of bankruptcy but couldn't get its cost base, particularly labor expenses, low enough. "All of our competitors have taken this path, some more than once," he said. "It's a well worn path."
Horton said AA fundamentally has "great assets" that will enable profitability if it can lower its cost structure. Among these, he said, are hubs in key US markets and a range of international partnerships, most prominently its membership in the oneworld alliance and antitrust-immunized joint ventures with British Airways and Iberia on transatlantic flights and with Japan Airlines on transpacific flying.
"Most importantly," he emphasized, is the massive order announced over the summer for 130 Airbus A320 family aircraft (to be split between A319s and A321s), 130 re-engined A320neos, 100 Boeing 737NGs and 100 re-engined 737 Max aircraft (ATW Daily News, Oct. 5). "That deal gives us enormous flexibility to grow the company as we get our costs and capital in line," Horton said.
Since Boeing and Airbus have agreed to help finance the aircraft, the split order is not believed to be in jeopardy. In a recent report, Bernstein Research said the order is a "valuable asset" for a restructuring company, representing "a huge number of delivery slots from both Airbus and Boeing at a time when both manufacturers [are] sold out of narrowbody airplanes into 2016."
AMR's board of directors said in a statement that filing for Chapter 11 was necessary "to achieve a cost and debt structure that is industry competitive and thereby assure [AA's] long-term viability." The company vowed that AA and regional affiliate American Eagle would "continue conducting normal business operations."
AA was the sole US major international airline to avoid filing for bankruptcy in the turbulent 2001-2005 period that followed the Sept. 11 terrorist attacks. The carrier has incurred losses in four straight quarters even as other US airlines have returned to the black (ATW Daily News, Oct. 20).
AMR said it has approximately $4.1 billion in unrestricted cash and short-term investments available, which should enable it to pay its bills during the Chapter 11 process. Deutsche Bank senior analyst Michael Linenberg said in a Tuesday research note that the "bankruptcy filing is specific to AMR" and should not dampen continuing profitability for the rest of the US industry.