AMR CORPORATION, the parent company of American Airlines, has filed for bankruptcy protection in an last-ditch effort to shed its crippling debt burden and reduce its costs. The company also said its long-serving chief executive, Gerard Arpey, would retire.
The filing yesterday ends months of speculation about the US’s third-largest carrier, which has come under sustained assault in the equity markets after it produced a run of quarterly losses even as its peers have returned to profit.
Since the start of the year, the company’s shares have lost about three-quarters of their value. At the market close on Monday, AMR stock was worth about $1.62 a share, near its lowest levels. In pre-market trading AMR shares slumped more than 60 per cent to about $0.98 a share.
The move brings to end a nearly decade-long effort to avoid chapter 11. In 2003, American chose to avoid bankruptcy, while its rivals used the process to shed their pension plans and reduce structural costs, leaving it at a substantial disadvantage. AMR said in a statement that the move was difficult but necessary and would allow the company to become more competitive. The airline expects to continue normal operations throughout the bankruptcy proceedings.
The company also said that Mr Arpey would retire as chief executive of AMR and American Airlines and would be replaced by Tom Horton, the current president.
“This was a difficult decision,” Mr Horton said of the bankruptcy filing, “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.”
By filing for chapter 11 protection, the airline hopes to force through a radical restructuring that it has failed to accomplish by negotiation with its workforce and unions.
In recent weeks, American had been locked in talks with its pilots union in an attempt to wrestle down its labour costs. Those talks, however, failed to achieve a settlement pushing the board to act. British Airways and Iberia parent IAG said its transatlantic joint venture with American would continue to operate as normal during the bankruptcy process.
“We have every confidence in the future of American Airlines, we are pleased they are taking this step which shows commitment and determination,” IAG said in a statement.
“Our joint business, which is a revenue-sharing agreement, continues to operate as usual,” IAG added.
American said the bankruptcy would have no direct legal impact on operations outside the United States and it was not considering debtor-in-possession financing.
“From a bookings perspective, perhaps an airline in chapter 11 could be less attractive to consumers so sentiment could be hit,” said Stephen Furlong, an analyst at Davy Stockbrokers.
“I don’t think this will change IAG’s strategy, though, and American will continue to be an important part of its business.”
Earlier this year American placed one of the largest aircraft orders in aviation history with Boeing and Airbus, which could total more than 900 airliners, valued at nearly $40 billion. – Copyright The Financial Times Limited 2011