While it is no surprise to Sky Talk readers that AMR's bankruptcy filing in November is the top aviation story for 2011, it did come as a surprise to many industry analysts who had not expected it to happen so soon.
This fall, bankruptcy rumors swirled around American Airlines' parent company and its stock price continued to decline as shareholders lost faith in the carrier's ability to avoid it. But Wall Street analysts said bankruptcy was not imminent for American as it still had plenty of cash on hand and wouldn't need to file for bankruptcy protection until the middle of 2012.
On November 28, American's board of directors decided that bankruptcy was the best choice for the Fort Worth-based carrier and the next day, filed for Chapter 11 bankruptcy protection in New York federal court. The airline had $4.1 billion in cash so the company did not need to obtain debtor-in-possession financing to maintain operations in bankruptcy and it gave management a little more control over the bankruptcy process.
On the day of the filing, AMR chief executive Gerard Arpey stepped down and its president, Tom Horton, took the reins. Arpey had often discussed how important it was to avoid bankruptcy and viewed it as a moral failing if the company did not live up to the contracts it had with its employees and customers.
Horton cited the carrier's higher labor costs, a global economic slowdown, high fuel prices and a credit downgrade as factors in the board's decision to declare bankruptcy. American said it had $30 billion in debt when it filed.
"All of those things taken together led us to the conclusion, the board to the conclusion, that this was really the right time to go through a full restructuring of the company," said Horton. "We spent 10 years trying to avoid this."
So far, during the bankruptcy process, American has been given court approval to continue purchasing 32 new planes from Boeing and to terminate leases for its Kansas City maintenance base, Chicago Midway Airport facilities and 20 older aircraft that are currently parked in New Mexico.
There have been no changes so far in the carrier's labor contracts with its pilots, flight attendants, mechanics and ground workers, but some analysts predict that will occur in the spring. And there have been no merger offers made yet, as US Airways made a merger offer to Delta Air Lines when it was in bankruptcy.
It could take American anywhere from 18 months to three years to emerge from bankruptcy. But experts agree, it will be a smaller, leaner, more cost-efficient carrier after it restructures.