NEW YORK—AMR Corp., the parent company of American Airlines, filed for Chapter 11 bankruptcy protection, on Tuesday, after unsuccessfully trying to renegotiate its labor agreements.
AMR, which owns both American Airlines and American Eagle, will use the bankruptcy protection to restructure its expenses and debt. Flight operations and schedules should remain normal during bankruptcy, according to the company.
“This was a difficult decision, but it is the necessary and right path for us to take—and take now—to become a more efficient, financially stronger, and competitive airline,” said Thomas Horton, CEO of AMR, in a statement. Horton replaced Gerard Arpey, who will retire, as CEO of the company following the restructuring announcement.
“[W]e must address our cost structure, including labor costs, to enable us to capitalize on these foundational strengths and secure our future. Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable.”
The Fort Worth, Texas-based-company is the last legacy carrier to seek protection from creditors, after most of its competitors did after Sept. 11, 2001. In a filing with the U.S. Bankruptcy Court in New York, AMR stated assets of $24.7 billion and liabilities of $29.6 billion.
After a flurry of mergers and deals, American Airlines has fallen behind its biggest rivals in size, dropping from the No. 1 carrier to No. 3. It now trails Delta Airlines (after its merger with Northwest Airlines) and United Airlines (after its acquisition of Continental Airlines), as the nation’s third biggest airline.
According to the company, both American Airlines and American Eagle will fly their normal daily schedules and honor all tickets and reservations, as well as maintain its AAdvantage frequent flyer program.
Sen. Kay Bailey-Hutchison (R-Texas) expressed concern over the bankruptcy. “I remain concerned about the company’s pension plan—one of the most generous in the industry—being placed in jeopardy by this unfortunate turn of events,” she said in an announcement.
“In 2003 American Airlines’ pilots provided management with significant cost savings that were characterized as essential to avoiding bankruptcy at that time,” said Allied Pilots Association (APA) President Dave Bates in a statement. “We agreed to sacrifice based on the expectation that our airline would regain its leadership position.” APA is an organization, which represents many of AMR’s pilots.
AMR is set to report its fourth consecutive year of annual loss this year and according to a court affidavit obtained by Bloomberg, company CFO Isabella Goren said that her company has the highest operating costs of all the legacy network airlines in the United States.
The company’s stock plunged about 80 percent on the news and was trading at about $0.35 a share by the end of the trading day.
The company employs roughly 80,800 people at American Airlines, American Eagle, cargo, and other operations.
