American Airlines’ parent files for Ch. 11 bankruptcy protection; CEO steps down

By Associated Press, November 29, 2011

American Airlines’ parent company is seeking Chapter 11 bankruptcy protection as it seeks to unload massive debt built up by years of accelerating jet fuel prices and labor struggles.

The nation’s third largest airline also said Tuesday that its CEO Gerard Arpey will step down. He’s being replaced by Thomas Horton, currently the company’s president.

Fort Worth, Texas-based AMR Corp., along with its regional affiliate AMR Eagle Holding Corp., said Tuesday that they filed voluntary petitions to reorganize.

American says it sought protection to reduce its costs and debt to remain competitive. The airline will continue normal flight operations during the reorganization.

American is the only U.S. legacy airline that hasn’t filed for bankruptcy protection. The last major airline to file for bankruptcy protection was Delta in 2005.

American says labor-contract rules force it to spend at least $600 million more than other airlines. That’s partly a result of AMR avoiding bankruptcy last decade, while airlines like United and Delta were able to scrap existing labor contracts after filing Chapter 11.

Besides higher labor costs, American also struggled with rising jet fuel costs. Jet fuel cost an average of $3 per gallon so far this year — a record according to government data that goes back to 1990. Jet fuel is more expensive now than the average of $2.96 per gallon in 2008, when oil rose above $147 per barrel for the first time. It’s risen 56.4 percent in the past five years. The average price of jet fuel was $1.92 per gallon in 2006.

American lost $162 million in the third quarter and has lost money in 14 of the last 16 quarters.

Analysts have speculated about a bankruptcy filing as the shares sank and AMR struggled to make money while its rivals reported profits. Most recently, AMR’s inability to reach a contract with its pilots fueled talk about a possible filing.

American was founded in 1930 from the combination of more than 80 smaller carriers. It now flies about 240,000 passengers per day and has about 78,000 employees.

The airline operates out of five major hubs in New York, Los Angeles, Dallas/Fort Worth, Chicago, and Miami.