American Airlines files for bankruptcy

Third-largest carrier in US says it is taking action after cost-cutting measures in recent years proved insufficient.

    American Airlines had been the only major US carrier to avoid bankruptcy in the past decade [Reuters]

    After failing to secure a labour deal with pilots and suffering from mounting fuel costs, American Airlines and its parent company AMR Corp have filed for bankruptcy.

    AMR, the third-largest US airline behind United Continental Holdings and Delta Air Lines, had been the only major US carrier to avoid bankruptcy in the past decade.

    Its rivals used bankruptcy, known in the US as Chapter 11, to restructure their labour agreements and cut costs.

    In its bankruptcy filing on Tuesday, AMR - which has had to contend with the highest labour costs in the industry and remains the only major airline still funding worker pensions - said its cost-cutting in recent years had been insufficient.

    The company said it could not continue without changing its "uncompetitive cost structure".

    "Without addressing the realities of the marketplace, AMR cannot be competitive with its peers," it added.

    Helane Becker, an analyst with Dahlman Rose & Co, said: "It completes the cycle. Every major airline in the United States has filed for Chapter 11."

    AMR's move comes as US airlines brace for an economic slump that could reduce travel demand this year.

    Some top airlines, including AMR, have announced service reductions to offset weak demand.

    Shares in AMR, whose passenger planes average 3,000 daily US departures, have tumbled 45 per cent since the end of September.

    Last week, the shares hit their lowest level since 2003, when AMR skirted bankruptcy by winning wage concessions from its unions.

    Costs up 40 per cent

    The airline, which also on Tuesday named Thomas Horton as chairman and chief executive to replace retiring Gerard Arpey, said last month it was also suffering from soaring fuel prices.

    The prices had sent its costs up 40 per cent in the third quarter compared with a year earlier, it said.

    Under its Chapter 11 bankruptcy filing in a New York court, the company listed assets of $24.72bn and liabilities of
    $29.55bn. The company said it has $4.1bn in cash.

    AMR said both American Airlines and its regional carrier American Eagle were expected to fly normal schedules throughout the Chapter 11 process.

    "We plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels," Horton said.

    The union representing AMR's pilots called the bankruptcy filing a "solemn occasion".

    "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," David Bates, president of the Allied Pilots Association, said in a statement.

    "The 18-month timeline allotted for restructuring will almost certainly involve significant changes to the airline's
    business plan and to our contract," he said.

    SOURCE: Agencies


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