American Airlines Parent Files for Bankruptcy

American Airlines' parent company, AMR Corp., filed for Chapter 11 bankruptcy on Tuesday morning and its chief executive Gerard Arpey has retired.

The Fort Worth-based carrier said it will continue to operate a normal flight schedule for American Airlines and its regional subsidiary, America Eagle, while it is reorganizing in bankruptcy.

The airline named its current president, Tom Horton, as the company's new chief executive.

“This was a difficult decision, but it is the necessary and right path for us to take – and take now – to become a more efficient, financially stronger, and competitive airline,” Horton said.

He pointed to the cost disadvantage American has compared to other legacy carriers, such as United Continental and Delta Air Lines, both who went through Ch. 11 reorganization in the last decade.

AMR said it has $4.1 billion in cash and as a result, does not need to obtain debtor-in-possession financing to maintain operations while under bankruptcy protection.

The company has had only two profitable years in the past decade, its stock has slipped to an eight-year low, closing at $1.62 on Monday.

AMR was also facing some large debt payments. The company had $1.8 billion due by the end of 2012. The net debt at the end of the third quarter was $16.9 billion.

And when $7.9 billion in underfunded pension benefits and $2.5 billion in other long-term liabilities are added, the company has close to $30 billion in debt and other long-term obligations.

In a letter sent to AMR employees on Tuesday morning, Arpey said the company's board had asked him to stay on as chief executive but that he chose to retire.

“After careful consideration, I concluded that my remaining in those roles would not be best for the company,” Arpey said in the letter. “In my view, executing the Board's plan will require not only a reevaluation of every aspect of our business, but also the leadership of a new Chairman and CEO who will bring restructuring experience and a different perspective to the process.”

Over the summer, American had announced the largest plane order in aviation history, saying it would buy 460 planes from Airbus and Boeing with aircraft deliveries expected to start in 2013.

The massive order would replace most of its domestic fleet with more fuel-efficient aircraft. The first 230 planes in the order were financed through the aircraft manufacturers.

However, on Tuesday morning, the company had not mentioned the order in its bankruptcy filing announcement. The carrier is also in contract negotiations with all of its major labor unions. Recently, American had been in intense talks with the Allied Pilots Association and while the two sides had thought they were close to a deal about a month ago, they were still far apart on issue of pay and work rules.

“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,” APA president Captain David Bates told pilots in a message on Tuesday morning.

“In 2003 American Airlines’ pilots provided management with significant cost savings that were characterized as essential to avoiding bankruptcy at that time. We agreed to sacrifice based on the expectation that our airline would regain its leadership position. What has transpired since has been nothing short of a “perfect storm.”

The company is holding a press conference at its Admirals Club at Dallas/Fort Worth Airport at 10 a.m.

© 2011 Fort Worth Star-Telegraph
© 2011 McClatchy-Tribune Information Services
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