American Airlines parent seeks bankruptcy protection

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by BYRON HARRIS

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WFAA

Posted on November 29, 2011 at 6:40 PM

Updated Tuesday, Nov 5 at 1:11 AM

D/FW AIRPORT  — It's a decision that impacts 80,000 employees and leaves millions of travelers wondering: What's next?

American Airlines' parent company AMR filed for bankruptcy protection Tuesday morning.

The announcement has been rumored for weeks, as negotiations over labor contracts seemed to stall. The skyrocketing price of jet fuel may also figure into the equation. But the company maintains there is no single factor behind its decision.

Along with the bankruptcy bombshell came word that Gerard Arpey, AMR's chairman and CEO, is retiring. He is being succeeded by Thomas Horton, who was named president of the company in July of last year.

Horton is now in the pilot's seat of a company that just ten years ago was the world's biggest airline.

American Airlines has been bleeding red ink for years. This action was really to keep the airline from bleeding to death from high labor and operating costs.

"I don't think it's in anybody's interests to look backwards," Horton told reporters at D/FW Airport. "We're now at a point where we're going to restructure the company and we're going to make it very successful. And it's going to be in the benefit of all of our people."

Unknown to the hundreds of passengers preparing for flights two floors below, American's new CEO was announcing a new course for a company that was once the nation's largest airline.

The move followed months of unsuccessful contract talks with pilots and years of discussions with flight attendants. By reorganizing, the airline can craft new labor agreements more in line with its competitors.

"American's labor costs are about 28 percent of revenues," explained SMU economist Mike Davis. "Most of the other airlines have a cost of about 20 percent of revenues. It's a huge difference between American and the other airlines."

So for pilots, flight attendants and mechanics, there may be belt-tightening ahead, although contracts will be honored for the time being.

Passengers should see no changes in the short run. American has $4.1 billion in cash. No flights will be canceled; no alliances erased. Frequent flier miles, invented by American, will remain in effect.

There may be changes at D/FW Airport. Four of its five terminals are used by American. It controls 70 percent of the traffic. If the airline shrinks — as it probably will — D/FW will feel it.

The question is: How much and how fast?

The price of jet fuel is weighing heavily on American Airlines. Over the past five years, the cost has risen more than 50 percent. American says each one cent increase in a gallon of jet fuel translates to a $25 million cost over a year's time.

The road to bankruptcy has been a long one.

  • In 2001, American was the only major U.S. airline that didn't seek bankruptcy protection in the weeks following the September 11 attacks in which the carrier lost two aircraft.
  • In 2003, executives pushed a $1.8 billion wage cut package on employees, part of a massive restructuring campaign.
  • In 2006, American was still the world's largest carrier, but soon after that, mergers dropped it to third place.
  • 2010 marked the last time AMR reported a quarterly profit.
  • Last month, the company announced a $162 million loss for the third quarter.

Now, shareholders are wiped out. Yesterday, AMR stock closed at 1.62, down 54 percent over the past three months. It ended the day Tuesday at 31 cents a share, off more than 80 percent.

E-mail bharris@wfaa.com

 

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