American Airlines seeks Chapter 11 bankruptcy protection

AP Photo/Tony Gutierrez

AP Photo/Tony Gutierrez

American Airlines and its parent company are filing for bankruptcy protection as they try to cut costs and unload massive debt built up by years of high fuel prices and labor struggles. There will no impact on travelers for now.

The nation's third-largest airline also said Tuesday that CEO Gerard Arpey stepped down and was replaced by company president Thomas W. Horton.

AMR Corp. has continued to lose money while other U.S. airlines returned to profitability in the last two years.

Horton said the board of directors unanimously decided to file for bankruptcy after meeting Monday in New York and again by conference call on Monday night.

American said it would operate normally while it reorganizes in bankruptcy. The airline said it would continue to operate flights, honor tickets and take reservations. It said the AAdvantage frequent-flier program would not be affected.

Horton said, however, that as the company goes through a restructuring it will probably reduce the flight schedule “modestly,” with corresponding cuts in jobs.

The company will delay the spin-off of its regional airline operation, American Eagle, which was expected in early 2012. AMR Eagle Holding Corp. also filed for bankruptcy.

American was the only major U.S. airline that didn't file for bankruptcy protection in the aftermath of the 2001 terrorist attacks that triggered a deep slump in the airline industry. The last major airline to file for bankruptcy protection was Delta in 2005.

Speculation about an AMR bankruptcy grew in recent weeks, however, as negotiations with pilots and other workers over cost-saving labor contracts seemed to stall. The company said that labor-contract rules forced it to spend at least $600 million more per year than other airlines.

Horton said, however, that there was no single factor that led to the bankruptcy filing. He said the company needed to cut costs in view of the weak global economy and high, volatile fuel prices. The average price of jet fuel has risen more than 50 percent in the past five years.

Ray Neidl, an analyst with Maxim Group LLC, said AMR was wise to file for bankruptcy while it still had about $4 billion in cash. He said the company has strong assets but needs to find labor peace and more revenue. He believes American might be pushed into a merger with US Airways.

The president of the pilots' union, Dave Bates, said his members were concerned about what the bankruptcy will mean for them — other airlines used bankruptcy to terminate pension plans.

“While today's news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way,” Bates said in a message to pilots.

Darryl Jenkins, a consultant who has worked for the major airlines, said AMR will be able to cut costs in bankruptcy and that employees and shareholders would be the big losers.

“Labor is going to take a major hit,” Jenkins said. “Their pensions are in danger.”

Shareholders will be wiped out — AMR shares had already tumbled 79 percent this year on bankruptcy fears. The shares closed Monday at $1.62.

American was the world's biggest airline as recently as 2008, but has fallen behind United and Delta after those two companies bought other airlines.

Fort Worth-based AMR lost $162 million in the third quarter and has posted losses in 14 of the last 16 quarters.

AMR has about $4 billion in cash and has announced plans to order 460 new narrow-body planes used primarily in the U.S., plus other jets for longer flights.

American was founded in 1930 from the combination of more than 80 smaller carriers. It now flies about 240,000 passengers per day and has about 78,000 employees.

The airline operates out of five major hubs in New York, Los Angeles, Dallas/Fort Worth, Chicago, and Miami. It has major international partnerships with British Airways and Japan Airlines.

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