American Airlines Files For Bankruptcy Protection
Updated 11/29 - 9:26 p.m.
FORT WORTH (CBSDFW.COM/AP) - The Fort Worth-based parent company of American Airlines and American Eagle has filed for Chapter 11 bankruptcy protection.
A news release on the AMR Corporation Investor Relations website Tuesday morning said the company has more than $4 billion in cash and wants to ensure everyone that there will be an "uninterrupted supply of goods and services" during the bankruptcy proceedings.
AMR Corp. and AMR Eagle Holding Corp. said Tuesday that they filed voluntary petitions to reorganize, saying its in the best interest of the companies and its shareholders.
♦♦♦ Read The Official AMR Bankruptcy Press Release ♦♦♦
News of the bankruptcy filing comes just one day after Gerard Arpey, the Chairman, President, and Chief Executive Officer (CEO) of AMR Corporation, informed the Board of his decision to retire. The Board appointed Tom Horton, currently the company's president, as the new Chairman and CEO.
♦♦♦ The New Face of AMR ♦♦♦
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.
♦♦♦ Click Below To Read The Letter Horton Sent To Colleagues ♦♦♦
"We're now at a point where its time to turn the page and move forward. Circumstances have changed and its time for us to move the company forward," Horton said in a press conference at DFW International Airport Tuesday afternoon.
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. In an email to customers, the airline said their 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 nation's third-largest airline says it sought protection to reduce its costs and debt to remain competitive in the airline industry.
As one of Fort Worth's largest employers, the news of AMR's bankruptcy filing is being closely watched by Fort Worth Mayor Betsy Price, who remains upbeat about the impact the filing will have on her city. "Of course we're concerned," she said, but added that the city was "optimistic that AMR and American will come out of this stronger."
♦♦♦ Click Here To Read The Entire AMR Bankruptcy Petition ♦♦♦
American was one of the only major U.S. airline that didn't file for bankruptcy protection after the 2001 terrorist attacks. The last major airline to file for bankruptcy protection was Delta in 2005.
Dallas-based Southwest Airlines, classified as a 'low-cost' carrier, has never filed for bankruptcy protection.
In Tuesday's press conference, new AMR CEO Horton said labor-contract rules has forced the airline to spend at least $800 million more than it's competitors.
"Labor costs right now are about 28-percent of their revenue. That is the highest, almost by a factor of two, of all of the major airlines that are out there," KRLD Financial Analyst David Johnson said after news of the bankruptcy broke. "So, a filing seemed inevitable unless an agreement could be reached with labor – that hasn't happened. But the fact is, you look at the hemorrhaging in this airline and probably its fate was sealed anyway."
When American was trying to avoid bankruptcy back in 2003, workers took some $1.6 Billion in annual concessions to keep the company afloat. During recent contract talks, American's pilots, flight attendants, mechanics and baggage handlers worked to try and regain some of those wages.
As for the future of those labor talks Allied Pilot's Association spokesman Greg Overman said, "I don't really have a crystal ball so I can't predict. I know for now the contract remains in full force and effect, nothing has changed on that front. But it [the contract] will be a topic of discussion and negotiations during the restructuring process."
An analyst for Fitch Ratings says that American will have to focus on terminating its underfunded pension plans and getting wage concessions from workers now that it has filed for bankruptcy protection.
Besides higher labor costs, American also struggled with rising jet fuel costs. Jet fuel cost an average of $3 per gallon so far this year -- a record according to government data that goes back to 1990. Jet fuel is more expensive now than the average of $2.96 per gallon in 2008, when oil rose above $147 per barrel for the first time. It's risen 56.4 percent in the past five years. The average price of jet fuel was $1.92 per gallon in 2006.
American lost $162 million in the third quarter and has lost money in 14 of the last 16 quarters.
American was founded in 1930 from the combination of more than 80 smaller carriers. According to AA.com, the company now flies about 275,000 passengers per day and has about 88,500 employees worldwide.
According to the North Texas Council of Government's 2010 data, AMR has over 20,000 employees based in North Texas.
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