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American files for Chapter 11 bankruptcy protection

written by australianaviation.com.au | November 30, 2011

American Airlines says it plans to go ahead with a massive order of narrow body jets after filing for bakruptcy protection.

Following in the footsteps of other major US carriers, American Airlines has filed for Chapter 11 bankruptcy protection as it seeks to restructure operations and cut labour costs.

American said the filing would have no immediate impact on flight schedules and would not affect its frequent flyer program. A “modest” reduction in flights and a corresponding round of job cuts could come as the restructuring moves forward, the company said.

Qantas said the bankruptcy filing would have no short-term impact on its alliance with American, which connects Qantas passengers to more than 400 US destinations through American’s Dallas-Fort Worth hub.

American was the only major US legacy carrier not to file for bankruptcy since 2001. Other airlines have used the process, which shields companies from creditors, as a means to push through lower cost labour deals and slash debt.  Some analysts said American had been hurt by its decision not to enter bankruptcy earlier as it continued to shoulder higher costs such as company-funded health and pension plans.

Now the third largest US carrier, American had also been hurt by the recent mergers of United and Continental, and of Northwest and Delta, as well as by soaring fuel costs and the emergence of budget carriers. Parent company AMR Corp has lost US$12 billion since 2001 and is on track to lose another US$1.1 billion this year.

American placed a US$38 billion order in July for up to 460 narrow bodied Airbus A320 and Boeing 737s as it seeks to upgrade its aging fleet with more fuel efficient aircraft. The airline says it intends to go forward with those orders. Once the world’s largest airline, American sought to describe the bankruptcy in anodyne terms, with a disclaimer on its website noting it had entered a “United States legal process [that] enables American to maintain normal business operations and improve our competitiveness.”

The company’s shares, which had already lost 78 per cent of their value this year, collapsed another 84 per cent after Tuesday’s announcement and are likely to be worthless after it emerges from bankruptcy. Assuming it survives the process, many analysts say American will likely seek a merger partner, perhaps US Airways.


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