DALLAS – American Airlines and its parent company filed for bankruptcy protection as they try to cut costs and unload massive debt built up by years of high fuel prices and labor struggles. There will be no impact on travelers for now, the company said.
The nation’s third-largest airline also said Tuesday that CEO Gerard Arpey stepped down and was replaced by company president Thomas W. Horton.
AMR Corp. has continued to lose money while other U.S. airlines returned to profitability in the last two years.
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.
It was a “very difficult decision made by our board … but I think it’s the right decision at the right time,” Horton said at a Tuesday news conference.
AA bankruptcy won’t affect fliers, company says
“The last decade has been extraordinarily hard on the U.S. airline industry,” Horton said, noting that bankruptcy filings by other major airlines. “The people of American Airlines have worked very hard and very honorably over the past decade to avoid that path but we are now at a point where it’s time to turn the page and move forward.”
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. It said the 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 company will delay the spin-off of its regional airline operation, American Eagle, which was expected in early 2012. AMR Eagle Holding Corp. also filed for bankruptcy.
American was the only major U.S. airline that didn’t file for bankruptcy protection in the aftermath of the 2001 terrorist attacks that triggered a deep slump in the airline industry. The last major airline to file for bankruptcy protection was Delta in 2005.
Speculation about an AMR bankruptcy grew in recent weeks, however, as negotiations with pilots and other workers over cost-saving labor contracts seemed to stall. The company said that labor-contract rules forced it to spend at least $600 million more per year than other airlines.
Horton said, however, that there was no single factor that led to the bankruptcy filing. He said the company needed to cut costs in view of the weak global economy and high, volatile fuel prices. The average price of jet fuel has risen more than 50 percent in the past five years.
Ray Neidl, an analyst with Maxim Group LLC, said AMR was wise to file for bankruptcy while it still had about $4 billion in cash. He said the company has strong assets but needs to find labor peace and more revenue. He believes American might be pushed into a merger with US Airways.
In a press release this morning, AMR said the approximately $4.1 billion in unrestricted cash and short-term investments is “more than sufficient to assure that its vendors, suppliers and other business partners will be paid timely and in full for goods and services provided during the Chapter 11 process.”
The company’s current cash position means the need for debtor-in-possession financing is not anticipated.
The president of the pilots’ union, Dave Bates, said his members were concerned about what the bankruptcy will mean for them — other airlines used bankruptcy to terminate pension plans.
“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,” Bates said in a message to pilots.
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