American Airlines' parent firm files for bankruptcy

The parent company of American Airlines on Tuesday said that it had filed for bankruptcy protection, in an effort to reduce labour costs and shed its heavy debt load.

American’s parent, the AMR Corporation, was the last major airline in the United States to resist filing for Chapter 11 in an effort to shed contracts, a move that analysts said left it less nimble than many of its competitors.

AMR intends to operate normally throughout the bankruptcy process, as previous airlines have done. The company doesn’t expect the restructuring to affect flights or frequent flier programs. Thomas Horton, formerly the company’s president, is taking over as chairman and chief executive for Gerald Arpey, who is retiring.

“Our board decided that it was necessary to take this step now to restore the company’s profitability, operating flexibility, and financial strength,” Horton said in a statement.

Long the nation’s biggest airline, AMR began to lose ground in recent years as low-cost carriers like Southwest Airlines grew in prominence. Major airlines were forced to respond by cutting fares.

As competition intensified, AMR responded by borrowing more and more, eventually pledging nearly all of its assets and leaving it heavily indebted. It also sought to reduce expenses, having cut $4.1 billion by the end of 2004.

But its principal competitors, including Delta Air Lines and the UAL Corporation’s United Airlines, filed for bankruptcy, shedding billions of dollars in costs and renegotiating labour contracts.

Both also sought mergers to gain scale, with Delta pairing off with Northwest and United with Continental. Such deals allowed those airlines to become profitable again.

“Since their restructurings in chapter 11, AMR’s major network competitors all have lower costs than AMR,” Isabella D Goren, the company’s chief financial officer, wrote in a court filing.

AMR has posted annual losses three years in a row, including a $471 million loss last year. It has lost $982 million through the first nine months of this year.

Speculation about an AMR bankruptcy filing started to mount this year, spooking investors. The company’s stock has dropped 79 per cent in 2011.

As of September 30, AMR had $24.7 billion in assets and $29.6 billion in debt, according to a filing with the federal bankruptcy court in Manhattan. The company added that it has about $4.1 billion in cash and short-term investments that it can use to pay off vendors and suppliers.

The airlines largest unsecured creditors include the Wilmington Trust and Manufacturers and Trust Company, which represent several classes of bonds. The company is being advised by the investment bank Rothschild and the law firms Weil, Gotshal & Manges, Paul Hastings, Debevoise & Plipton and the Groom Law Group.

©2011 The New York Times News Service