American Airlines Flies for Chapter 11 Bankruptcy Protection

American Airlines has always prided itself on the fact that it was the only US major to have never filed for Chapter 11 bankruptcy protection. Well, that is no longer a fact that it can claim after the carrier and its regional operation American Eagle filed for Chapter 11 reorganisation in order to overcome its current financial problems.

In a statement from its parent company AMR Corporation, the voluntary petition was filed with a New York judge “in order to achieve a cost and debt structure that is industry competitive and thereby assure its long-term viability and ability to continue delivering a world-class travel experience for its customers.”

AMR’s Board of Directors determined that a Chapter 11 reorganisation was “in the best interest of the Company and its stakeholders” and as has been the case with many of its competitors in recent years, the process will enables American Airlines and American Eagle to continue conducting normal business operations while they restructure their debt, costs and other obligations.

The two airlines are continuing to operate their full flight schedule, although network cuts could be likely as part of the reorganization process when they emerge from protection, most likely during 2012. “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 W Horton, who has been appointed Chairman, Chief Executive Officer and President, AMR and American Airlines, succeeding Gerard Arpey at the helm of the airline.

“We have met our challenges head on, taking all possible action to secure our long-term position. But as we have made clear with increasing urgency in recent weeks, we must address our cost structure, including labour costs, to enable us to capitalise on these foundational strengths and secure our future,” he added.

American Airlines had been left at a major cost disadvantage over the past decade as many of its largest rivals had restructured their costs and debt through Chapter 11 filings and it had become more difficult for the carrier to compete given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.

“Our Board decided that it was necessary to take this step now to restore the Company’s profitability, operating flexibility, and financial strength. We are committed to working as quickly and efficiently as possible to appropriately restructure American so that it can emerge from Chapter 11 well-positioned to assure the Company’s long term viability and its ability to compete effectively in the marketplace, ” added Thomas W Horton.

American says it intends to maintain “a strong presence” in domestic and international markets, including what it describes as its “cornerstones” in Dallas Fort Worth, Chicago, New York, Miami and Los Angeles. However, it will “continue to evaluate” its operations and service, maintaining an efficient and productive network. The table below highlights American’s top ten markets by weekly seat capacity.

Despite the filing, American’s future is not in doubt as it has approximately $4.1 billion in unrestricted cash and short-term investments. This cash, as well as cash generated from operations, is anticipated to be more than sufficient to assure that its vendors, suppliers and other business partners will be paid timely and in full for goods and services provided during the Chapter 11 process.