American Airlines Finally Files for Bankruptcy
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American Airlines Finally Files for Bankruptcy

December 1, 2011

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After years of speculation, the AMR Corporation, which owns American Airlines, finally filed for Chapter 11 bankruptcy protection in order to lower its labor costs and relieve itself of massive debts.

The company filed for bankruptcy this week, becoming the final major American airline company to seek reorganization in a bankruptcy court, according to a recent report in the New York Times.

Some experts say that the company’s failure to file bankruptcy earlier put it at a competitive disadvantage, as other major airlines have had lower labor costs and higher profit margins for years.

Despite this perceived disadvantage, American Airlines plans to operate normally during its bankruptcy filing. Sources indicate that flight schedules and frequent flier programs will remain unchanged, barring any major surprises.

The bankruptcy was seen as inevitable by many industry analysts who have observed that the company had posted record losses in recent years, including a loss of $471 million in 2010. Even worse, the company has lost $982 million in the first nine months of 2011.

The company has also reported staggering amounts of debt. According to court documents, AMR Corporation stated that it had more than $29 billion in debt, with only $4 billion available to make short-term payments to its lenders.

Thanks to the company’s overwhelming debt burden and its operational losses, AMR Corporation’s stock price has dropped by more than 70 percent this year.

In addition to the company’s desire to appease its creditors, AMR Corporation hopes to dramatically cut labor costs during the bankruptcy process. Talks between management and labor unions have stalled, upsetting a company that spends more on its employees than any other airline.

Sources indicate that federal bankruptcy law allows companies in bankruptcy to reject proposed labor contracts, which may allow AMR Corporation to take a harder line in its negotiations, particularly with its pilots’ union, which recently refused to send a contract proposal to its members for a vote.

While bankruptcy may help the company gain further leverage against its employees, it may also allow the corporation to shed some of its billion dollars in debt.

Bankruptcy helped many of its competitors regain their financial footing, and American Airlines hopes that its parent company’s filing will do the same.


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