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6:25 am
Tue November 29, 2011

American Airlines Files For Chapter 11 Bankruptcy Protection

Originally published on Tue November 29, 2011 10:39 am

American Airlines, one of the giants of the U.S. airline industry, just announced it is filing for Chapter 11 bankruptcy protection.

Saying it has begun the "legal process ... to improve competitiveness," AMR Corp., the airline's parent, said in a statement that it is taking the step "to achieve a cost and debt structure that is competitive in the airline industry so that it can continue delivering a world-class travel experience for its customers."

American had resisted the move, which its competitors made in recent years to cut costs — particularly labor expenses.

In October, as NPR's Wade Goodwyn reported, company executives were saying that even though American was struggling and losing money, they still thought they could avoid going into Chapter 11.

But the Dallas Morning News points out that:

"AMR, saddled with heavy debt and continuing losses, had more than $4 billion in cash and short-term investments as of Sept. 30 but faces heavy drains on its reserves through 2012. Industry analysts expect AMR, which has lost $868 million through the first nine months of 2011, to post a net loss of $1.1 billion for the full year. The Fort Worth-based company has lost money in eight of the 10 previous years."

And what happens if you're planning to fly on American. The company says operations should be "normal":

"American expects to continue normal business operations throughout the reorganization process, and the business will continue to be operated by the Company's management. The United States Chapter 11 reorganization process enables a company to maintain normal business operations while it establishes a competitive cost and debt structure. This action has no direct legal impact on any American Airlines operations outside the United States.

"American Airlines is operating normal flight schedules, honoring tickets and reservations as usual, and making normal refunds and exchanges. American's AAdvantage frequent flyer program is not affected."

American operates more than 3,300 flights daily.

We'll have more as this story develops.

Update at 10 a.m. ET. "A Failure Of Strategy":

Airline analyst Robert Mann tells Paul Brown of the NPR Newcast team that there are "two issues going on at AMR." It has been "increasingly uncompetitive on the revenue side ... as Delta/Northwest and as United and Continental combine and become the No. 2 and No. 1 combined networks." That's meant AMR has "gone in five years from the No. 1 network preferred by corporate travelers who tend to pay higher fares to the No. 3 network."

The company's second major issue, Mann said, is that "the rest of the industry's costs ... have simply not risen" as fast as AMR thought they would thanks to improvements in productivity — dealing another blow to AMR's competitiveness.

"It's a failure of strategy as much as anything else," he added.

Update at 7:45 a.m. ET. More Details, Background:

The Wall Street Journal adds that AMR "also named Thomas Horton as chairman and chief executive, succeeding Gerard Arpey, who will retire." The Morning News says "Arpey has spoken often of his distaste for bankruptcy, even though competitors now doing better than AMR had landed in bankruptcy and gained a cost advantage over AMR and American."

USA Today's Ben Mutzabaugh points out that "all of the United States' other traditional hub-and-spoke 'legacy' carriers have now filed for bankruptcy protection at least once in their histories."

Bloomberg News notes that "AMR was determined to avoid Chapter 11 in the years after the 2001 terrorist attacks, as peers used bankruptcy to shed costly pension and retiree benefit plans and restructure debt. American later watched as rival carriers combined, giving them larger route networks that were more attractive to lucrative corporate travel customers."

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