Airways Magazine

American’s Two Years in Bankruptcy

 Breaking News

American’s Two Years in Bankruptcy

American’s Two Years in Bankruptcy
November 29
14:40 2013

MIAMI — AMR Corporation, the parent company of American Airlines, filed for Chapter 11 Bankruptcy Protection two years ago on November 29, 2011. Prior to the announcement on November 29, American was the only U.S. legacy airline to avoid Chapter 11, but American was in a tough place and filed for bankruptcy. Now two years later, it is safe to say that there has been a lot of change at American and that a “New American” is being built. In fact, American has received approval to exit bankruptcy and merge with US Airways on December 9.

(Credits: Author)

(Credits: Author)

In an effort to compete with low cost carriers as well as other legacy airlines, AMR increased their borrowing in the early 2000s, eventually pledging nearly all of their assets which left them heavily indebted. They were able to cut $4.1 billion in expenses by the end of 2004. Unfortunately for American, their competitors, Delta Air Lines and United Airlines, filed for bankruptcy and were able to shed billions of dollars in costs. Plus, Delta merged with Northwest in 2008 and United merged with Continental in 2010 which allowed the new Delta and new United to become strong competitors.

AMR filed for Chapter 11 on November 29, 2011 in an effort to reduce labor costs and to shed a heavy debt burden. Some analysts say that American’s reluctance to do so earlier left it less nimble than many of its competitors.

Gerald Arpey, who is the former CEO of American, retired when AMR filed for bankruptcy, and Thomas Horton took over. Mr. Horton said in a press release that “[AMR’s] board decided that it was necessary to take this step now to restore the company’s profitability, operating flexibility and financial strength.” Earlier in November 2011, American was in contract talks with their unions, but the negotiations stalled when the pilots’ union refused to send a proposal to its members for a vote. Two weeks later, AMR filed for bankruptcy.

Unfortunately, American was not in a good position, and many cuts were needed to return the airline to profitability. Mr. Horton held a meeting with labor leaders in early February 2012. He said that American may cut 13,000 jobs which would cut annual operating costs by $2 billion and boost revenue by $1 billion. Also, he said that there could be a 20 percent reduction in costs, and they may terminate their four pension plans. Luckily for some current and former employees, American announced they would freeze, not terminate, the pensions of its non-pilot employees in April 2012.

In mid-2012, American announced capacity cuts due to the grounding of several aircraft associated with its bankruptcy and lack of pilots. American’s regional airline, American Eagle, retired approximately 40 regional jets as well as their entire Saab turboprop fleet.

In September 2012, American announced plans to hire 2,500 new pilots over the next two years. Just a few weeks later, American said they were eliminating 10,000 jobs through buyouts and layoffs. Most of the jobs that were eliminated were mostly front line employees. While it did not seem like the tough times were over, 2013 would be probably the biggest year of change at American.

(Credits: Author)

(Credits: Author)

On January 17, 2013, American Airlines unveiled a brand new logo and brand image, and it became evident that a “New American” was taking shape. The new brand replaced the iconic brand that was introduced in 1968. The new symbol was dubbed the “Flight Symbol”, incorporating the eagle, star, and “A” of the classic logo.

Two weeks before American was to announce some big news, American Airlines flew their inaugural Boeing 777-300ER flight from Dallas/Ft. Worth to São  Paulo, Brazil. This inaugural was one of the most significant flights in the airline industry in years because it was more than than just the launch of a new airliner, it was about the re-birth of American Airlines.

On Valentine’s Day, February 14, 2013, American Airlines and US Airways tied the knot in what will probably be the last U.S. airline merger. Leading up to the merger, American was very quiet about the merger, while US Airways CEO, Doug Parker, was very vocal about a merger between American and US Airways since early-2012. The combined company will take the American name and keep the American Airlines headquarters in Fort Worth, Texas. Mr. Parker will be the new CEO, and the combined company will be a OneWorld Alliance member.

In July 2013, American Airlines took delivery of their first Airbus A319 which was a major step in their fleet overhaul. In 2011, American announced a $38 billion order for 460 aircraft from both Airbus and Boeing. This was the largest single-aisle jet order was part of a major overhaul to replace their aging fleet. With the new aircraft coming online, American expects to eventually shave 15 to 35 percent off their fuel bill by taking delivery of Airbus A320s and Boeing 737s to replace their older McDonnell Douglas MD-80s, and Boeing 757s and 767s. With a new fleet, American would also be introducing a new on-board product which includes leather seats in both classes as well and a personal entertainment system.

The Department of Justice (DOJ), along with six state attorney generals and the District of Columbia filed an antitrust suit to challenge the proposed merger between US Airways Group Inc. and American Airlines parent AMR Corporation on August 13, 2013. They believed competition would be decreased. The lawsuit marked the first time the Department of Justice sued to stop an airline merger, and it was not clear if American and US Airways would be given the green light to merge. Although, most were pretty certain that they would still be given approval to merge. However, American, US Airways, and the DOJ set a trial date for November 25 to take this issue to court.

After three months of waiting, American Airlines, US Airways and the DOJ reached a settlement on November 12. Several concessions were made. They will give up 52 slot pairs at Reagan National (DCA). DCA was at the center of the case as the combined carrier would have occupied approximately 70% of the available slots. They will also give up 17 slot pairs at New York’s LaGuardia airport along with an unspecified number of gates and facilities. Also, two gates and supporting facilities are to be given up from a handful of airports around the US including Boston Logan, Chicago O’Hare, Dallas Love, Los Angeles International, and Miami International.

On November 25, American presented their bankruptcy exit plan to the bankruptcy court, and they received approval to exit bankruptcy “without delay” on November 27.

American plans to exit bankruptcy and make their marriage with US Airways official by December 9. If the schedule does not change, AMR Corporation will be renamed American Airlines Group Inc., with its common stock to be listed and traded on the NASDAQ Global Select Market under the symbol “AAL” on December 9.

American and US Airways customers will not see any changes until January 7, 2014. On January 7, both airlines plan to allow customers to flyers are expected to be able to earn and redeem miles on both American and US Airways. Also, January 7 will be the day that American Airlines launches their new transcontinental product from New York JFK to Los Angles LAX with their new Airbus A321 Transcontinental aircraft. Could this be a coincidence?

(Credits: Airbus S.A.S.)

(Credits: Airbus S.A.S.)

There is still a long road ahead for American as they begin to merge with US Airways. It is safe to say that American has been one of the most watched airlines during the last two years, and they will continue to be watched closely as they merge with US Airways. Stay tuned!

Comments
0

About Author

Jack Harty

Jack Harty

Related Articles

Current Issue

Cart

Subscribe to our weekly Newsletter

Polls

Which is your favorite Boeing 787 Dreamliner variant?

View Results

Loading ... Loading ...

@airwaysmagazine

Airways YouTube Channel

0