American Airlines files for bankruptcy as debt grows
The parent company of American Airlines filed for bankruptcy protection yesterday, seeking relief from crushing debt caused by high fuel prices and expensive labour contracts that its competitors shed years ago.
The company also replaced its CEO, and the incoming boss said American would probably cut its flight schedule "modestly" while it reorganises. He did not give specifics. American said its frequent-flier programme would be unaffected.
AMR Corp, which owns American, was the only major US airline company that did not file for bankruptcy protection after the September 11 attacks, which caused a deep slump in the industry.
Bankruptcy filings allowed American's competitors to shed costly labour contracts, unburden themselves of debt and start making money again. American was stuck with higher costs, and had to match its competitors' lower fares or lose money.
Other airlines also grew by pursuing acquisitions and expanding overseas.
American was the biggest airline in the world in 2008, but has been surpassed by United, which combined with Continental, and Delta, which combined with Northwest.
Delta was the last major airline to file for bankruptcy protection, in 2005.
In announcing the bankruptcy filing, AMR said CEO Gerard Arpey, a veteran of the company for almost three decades, had stepped down and was replaced by Thomas W Horton, the company president.
Mr Horton said the board of directors unanimously decided to file for bankruptcy after meeting on Monday in New York and again by conference call on Monday night.
In a filing with federal bankruptcy court in New York, AMR said it had $29.6bn (€22.2bn) in debt and $24.7bn (€18.5bn) in assets.
In addition to reducing the flight schedule, Mr Horton said there would probably be job cuts. American has about 78,000 employees and serves 240,000 passengers per day.
The company will delay the spin-off of its regional airline, American Eagle, which was expected early next year. The holding company for that airline also filed for bankruptcy.
AMR stockholders will be wiped out. The stock had already lost 79pc of its value this year on fears of bankruptcy. The stock fell to 33 cents yesterday morning, down $1.29 from the day before.
The stock had risen from about $1.50 in 2003 to more than $40 in 2007.
Speculation about an AMR bankruptcy grew in recent weeks as labour negotiations with pilots and other workers seemed to stall. The company said it was spending $600m more a year than other airlines because of labour-contract rules.
Yesterday, Mr Horton said no single factor led to the bankruptcy filing. He said the company needed to cut costs because of the weak global economy and high, volatile fuel prices. The price of jet fuel has risen more than 60pc in the past five years.
Ray Neidl, an analyst with Maxim Group LLC, an investment banking company, said AMR was wise to file for bankruptcy while it still had about $4bn in cash. He said the company has strong assets but needs to find labour peace and more revenue. (AP)