American Airlines’ parent company AMR Corporation and certain of its United States-based subsidiaries (including American Airlines and American Eagle) have voluntarily filed for Chapter 11 bankruptcy reorganization under U.S. law.
The companies made their filings for protection under Chapter 11 of the U.S. Bankruptcy Code on November 29, in the U.S. Bankruptcy Court for the Southern District of New York. AMR Corporation had already previously decided to postpone its planned spin-off in early 2012 of American Eagle as a separate publicly traded company.
AMR Corporation says it filed for bankruptcy protection to be able to achieve a cost and debt structure that is competitive in the airline industry so that it can continue operating and competing against its major U.S. rivals, all of which have reorganized under Chapter 11 bankruptcy in the past.
As a result of their past Chapter 11 proceedings, these carriers – which include Continental Airlines, United Airlines, Delta Air Lines and its merger partner Northwest Airlines, and US Airways – now have significantly lower operating costs than American Airlines.
American expects to continue normal business operations throughout the reorganization process, and says the business will continue to be operated by the company’s existing management.
There has been one major change to AMR’s management team: Gerard Arpey has decided to retire as chairman and CEO, after 30 years at American, and AMR’s board of directors has appointed Thomas Horton, American Airlines’ president, as Arpey’s successor. Horton is now chairman, chief executive officer and president of AMR Corp and of American Airlines.
The United States Chapter 11 reorganization process enables a company to maintain normal business operations while it works to establish a competitive cost and debt structure.
Usually, companies under Chapter 11 bankruptcy protection reject (with the bankruptcy court’s approval) some or all of its existing labor, aircraft-financing and supplier contracts. AMR has not indicated to what extent it may seek to reject existing supplier and financing contracts, but new CEO Tom Horton said AMR would begin new negotiations with its unions to reduce its labor costs to “competitive levels”.
AMR’s action to file for Chapter 11 reorganization in the U.S. will have no direct legal impact on any American Airlines operations outside the United States, according to the company.
American Airlines says it is continuing to operate normal flight schedules, and is honoring tickets and reservations as usual, and making normal refunds and exchanges.
The company says American’s AAdvantage frequent flyer program is not affected. American remains part of the oneworld alliance, of which it is a founding member, and all of its codeshare partnerships continue, enabling customers to earn and redeem miles on convenient flight options worldwide.
“American’s customers are always our top priority and they can continue to depend on us for the safe, reliable travel and high quality service they know and expect from us,” Horton said in a statement.
“American serves 260 airports in more than 50 countries and territories, and we are committed to maintaining a strong presence in worldwide markets,” added Horton. “I am confident American will emerge even stronger as a global leader known for excellence and innovation, a travel partner customers seek out, and a carrier that serves communities throughout the world.”
AMR says that, throughout the Chapter 11 bankruptcy-reorganization process, American and American Eagle expect to continue to:
● Provide safe and reliable service;
● Fly normal schedules;
● Honor tickets and reservations, and make exchanges and refunds as usual;
● Fully maintain AAdvantage frequent-flyer and other customer service programs, and ensure all AAdvantage miles and elites status earned by members remain secure and intact;
● Provide Admirals Club access and similar amenities to members and eligible customers;
● Remain an integral member of the oneworld alliance, of which American is a founding member, and continue its codeshare partnerships;
● Provide employee wages, healthcare coverage, vacation, and other benefits, without interruption; and
● Pay suppliers for goods and services received during the reorganization process.
AMR has approximately $4.1 billion in unrestricted cash and short-term investments. It anticipates that this cash, as well as cash generated from operations, will be more than sufficient to assure that its vendors, suppliers and other business partners will be paid in timely fashion and in full for goods and services provided during the Chapter 11 process, in accordance with customary terms.
Because of the company’s current cash position, AMR neither considers necessary the need for debtor-in-possession financing nor anticipates seeking such financing.
American is filing motions with the bankruptcy court seeking interim relief to ensure the company’s continued ability to conduct normal operations, including the ability to:
● Provide employee wages, healthcare coverage, vacation, and other benefits without interruption;
● Honor pre-petition obligations to customers and continue customer programs, including American’s AAdvantage frequent-flyer program;
● Pay for fuel under existing fuel supply contracts, and honor existing fuel supply, distribution and storage agreements; and
● Assume and honor contracts relating to interline agreements with other airlines.
American Airlines has huge outstanding aircraft orders for Airbus and Boeing jets, including 130 Airbus A320-family aircraft and 100 Next-Generation Boeing 737s for which it placed orders in July. American’s outstanding orders also include around 50 Boeing 737NGs under previous orders, and six Boeing 777-200ERs and nine 777-300ERs.
The carrier has also committed to order up to 100 Boeing 787s, up to 410 Airbus A320neo-family aircraft, up to 85 additional A320-family jets, up to 40 more Boeing 737NGs and up to 160 Boeing 737 MAX aircraft.
AMR has given no indication yet whether it expects to retain or reject any of its aircraft orders and commitments.