American Airlines files for bankruptcy protection

Amer­i­can Air­lines and its par­ent com­pany are fil­ing for Chap­ter 11 bank­ruptcy pro­tec­tion as they seek to cut costs and unload mas­sive debt built up by years of high jet fuel prices and labor strug­gles. (Asso­ci­ated Press | Seth Wenig)

DAVID KOENIG

AP Air­lines Writer

DALLAS — The par­ent com­pany of Amer­i­can Air­lines filed for bank­ruptcy pro­tec­tion Tues­day, seek­ing relief from crush­ing debt caused by high fuel prices and expen­sive labor con­tracts that its com­peti­tors shed years ago.

The com­pany also replaced its CEO, and the incom­ing leader said Amer­i­can would prob­a­bly cut its flight sched­ule “mod­estly” while it reor­ga­nizes. He did not give specifics. Amer­i­can said its frequent-flier pro­gram would be unaffected.

AMR Corp., which owns Amer­i­can, was one of the last major U.S. air­line com­pa­nies that had avoided bank­ruptcy. Com­peti­tors used bank­ruptcy to shed costly labor con­tracts, unbur­den them­selves of debt, and start mak­ing money again. Delta was the last major air­line to file for bank­ruptcy pro­tec­tion, in 2005.

Amer­i­can — the nation’s third-largest air­line — was stuck with higher costs and had to match its com­peti­tors’ lower fares or lose passengers.

Other air­lines also grew by pur­su­ing acqui­si­tions and expand­ing over­seas. Amer­i­can was the biggest air­line in the world in 2008, but has been sur­passed by United, which com­bined with Con­ti­nen­tal, and Delta, which bought Northwest.

In announc­ing the bank­ruptcy fil­ing, AMR said that Ger­ard Arpey, a vet­eran of the com­pany for almost three decades and CEO since 2003, had stepped down and was replaced by Thomas W. Hor­ton, the com­pany president.

Hor­ton said the board of direc­tors unan­i­mously decided to file for bank­ruptcy after meet­ing Mon­day in New York and again by con­fer­ence call on Mon­day night.

In a fil­ing with fed­eral bank­ruptcy court in New York, AMR said it had $29.6 bil­lion in debt and $24.7 bil­lion in assets.

With reduc­tions to the flight sched­ule, Hor­ton said there would prob­a­bly be cor­re­spond­ing job cuts. Amer­i­can has about 78,000 employ­ees and serves 240,000 pas­sen­gers per day.

For trav­el­ers, Amer­i­can said it would con­tinue to oper­ate flights, honor tick­ets and take reservations.

AMR’s move could also trig­ger more con­sol­i­da­tion in the air­line indus­try — some ana­lysts believe Amer­i­can is likely to merge with US Airways.

The com­pany will delay the spin­off of its regional air­line, Amer­i­can Eagle, which was expected early next year.

AMR, how­ever, wants to push ahead with plans to order 460 new jets from Boe­ing and Air­bus, plus more than 50 pre­vi­ous jet orders. New planes would save Amer­i­can money on fuel and main­te­nance, but the orders will be sub­ject to approval by the bank­ruptcy court.

AMR stock­hold­ers will be wiped out. The stock had already lost 79 per­cent of its value this year on fears of bank­ruptcy. The stock fell to 35 cents Tues­day after­noon, down $1.26 from the day before.

AMR has lost more than $12 bil­lion since 2001, and ana­lysts expect it will post more losses through 2012. Spec­u­la­tion about an AMR bank­ruptcy grew in recent weeks as the com­pany was unable to win union approval for con­tracts that would reduce labor costs. The com­pany said it was spend­ing $600 mil­lion more a year than other air­lines because of labor-contract rules.

On Tues­day, Hor­ton said no sin­gle fac­tor led to the bank­ruptcy fil­ing. He said the com­pany needed to cut costs because of the weak global econ­omy and high, volatile fuel prices. The price of jet fuel has risen more than 60 per­cent in the past five years.

Ray Neidl, an ana­lyst with Maxim Group LLC, an invest­ment bank­ing com­pany, said AMR was wise to file for bank­ruptcy while it still had about $4 bil­lion in cash. That way, the com­pany will have a cush­ion to keep oper­at­ing with­out wor­ry­ing imme­di­ately about lin­ing up new financ­ing, he said.

Neidl said the com­pany has strong assets but needs to find labor peace and more rev­enue. He said Amer­i­can might be pushed into a merger with US Airways.

The pres­i­dent of the pilots’ union, Dave Bates, said his mem­bers were con­cerned about what the bank­ruptcy will mean for them. Other air­lines used bank­ruptcy to ter­mi­nate pen­sion plans.

“While today’s news was not entirely unex­pected, it is nev­er­the­less dis­ap­point­ing that we find our­selves work­ing for an air­line that has lost its way,” Bates said in a mes­sage to pilots.

Dar­ryl Jenk­ins, a con­sul­tant who has worked for the major air­lines, said that AMR will be able to cut costs in bank­ruptcy, and that employ­ees and stock­hold­ers would be the big losers.

“Labor is going to take a major hit,” Jenk­ins said. “Their pen­sions are in danger.”

James C. Lit­tle, pres­i­dent of the Trans­port Work­ers Union, which rep­re­sents mechan­ics, bag­gage han­dlers and other ground work­ers at Amer­i­can, was harsh in his assess­ment of the impact on labor.

“This (bank­ruptcy) is likely to be a long and ugly process and our union will fight like hell to make sure that front line work­ers don’t pay an unfair price for management’s fail­ings,” Lit­tle said.

AMR, which has head­quar­ters in Fort Worth, Texas, lost $162 mil­lion in the third quar­ter and has posted losses in 14 of the past 16 quarters.

Amer­i­can was founded in 1930 from the com­bi­na­tion of more than 80 smaller air­lines. Its hubs are New York, Los Ange­les, Dallas-Fort Worth, Chicago and Miami. Its major inter­na­tional part­ners are British Air­ways and Japan Airlines.

News of the bank­ruptcy swept through Fort Worth-based AMR’s hometown.

“Amer­i­can Air­lines is an insti­tu­tion in Dallas-Fort Worth, and when insti­tu­tions start to crum­ble, you look at every­thing around you,” said Elaine Vale, a jew­elry store owner who flew back from a Thanks­giv­ing hol­i­day on Amer­i­can. “After Amer­i­can, then who?”

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