[ANALYSIS] Breaking Down the American Airlines Bankruptcy Situation

American Airlines’ parent company AMR today filed for Chapter 11 Bankruptcy, also known as bankruptcy protection. This gives AMR a chance to manage and restructure its debts and hopefully come out with some of their debts managed, and a brighter outlook for the future.

American Airlines was the only legacy carrier to have not filed for bankruptcy to this point. They have long prided themselves on staying out of bankruptcy. However, the harsh reality is that many of American’s competitors have emerged from bankruptcy and have turned a profit, namely Delta Air Lines, who posted net income of $765 million last quarter.

American is currently saddled with labor disputes and high expenses, which make their situation even more difficult. Chapter 11 is intended to help companies manage debt, and we’ve addressed some popular facts, fallacies, and hypothetical situations below

Fact

In summary, all day-to-day operations at American Airlines, AmericanEagle, and subsidiaries of American Airlines / AMR operate as normal.

  • American continues to operate flights as normal during Ch. 11: Anyone ticketed on an American Airlines or AmericanEagle flight should report to the airport as normal. The airline is running normal operations and honoring all tickets as usual. All ticket rules are the same as normal operations.
  • American continues to pay its employees: American continues to fulfill wages, vacation, and additional benefits as normal.
  • You can continue to earn and use AAdvantage miles as normal: The AAdvantage program is running as usual. Members continue to accrue miles on eligible flights, can redeem miles on award tickets, and use Citi AAdvantage cards and other mileage devices as usual. No changes have been made to the way this program works.
  • Admirals Clubs are open and operating: Admirals Clubs are open and operating as usual. There is no change to normal Admirals Club operations, fees, memberships, etc.

Fiction

A number of blatantly false rumors have circulated about American’s operations as they restructure the company.

  • Gerard Arpey did not receive a severance package: Gerard Arpey, the outgoing CEO of American Airlines, was not terminated. Arpey made the decision to resign after 29 years of service at AMR, and eight (8) years of service as CEO. A severance package is not included in his contract, even though he has a long tenure at AMR.
  • American is canceling its orders with Boeing and Airbus: American made big news a few months ago when they ordered nearly 500 airplanes from Seattle-based Boeing and France-based Airbus. As of right now, the orders stand as confirmed in the already negotiated deal.

Unconfirmed

The following statements are unconfirmed as of right now and are pure speculation that may or may not be likely to happen.

American Airlines is merging with US Airways: Personally, I believe this is a terrible arrangement. US Airways has already failed miserably at merging when they merged with America West Airlines in 2005. US Airways has not managed the merger well, and has been ranked the nation’s worst airline by Consumer Reports.

US has the distinction of being the nation’s most complained about airline, with 4.4 complaints per 100,000 customers (compared to Southwest’s 0.4 complaints per 100,000 customers, the lowest number in the nation). In all fairness, US has seen major improvement in the recent years, but it took them almost four years to fix the America West merger mess, and I personally believe that American would fall apart at the hands of US Airways. It should be noted that US Airways has launched more than one failed takeover bid, in which they attempted to take over Delta Air Lines in 2006 and United Airlines in 2008.

We’ll keep you updated on the status of the American Airlines bankruptcy as it progresses.

 

 

 

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