American airlines files for Bankruptcy

American Airlines filed for bankruptcy protection to cut labor costs in the face of high fuel prices and dampened travel demand. AMR Corp, the parent of American Airlines, also filed for bankruptcy and replaced its chief executive. The company, which employs about 88,000, has been mired for years in fruitless union negotiations, complaining that it shoulders higher labor costs than rival domestic and foreign carriers that have already restructured in bankruptcy. United Continental Holdings Inc’s United Airlines and Delta Air Lines Inc, both of which used Chapter 11 to cut costs and later found merger partners, are now the largest US carriers. American ranks third. “The world changed around us,” incoming Chief Executive Tom Horton told reporters on a conference call. “It became increasingly clear that the cost gap between us and our competitors was untenable.” American plans to operate normally while in bankruptcy, but the Chapter 11 filing could punch a hole in the pensions of roughly 130,000 workers and retirees. AMR pension plans are $10 billion short of what the carrier owes, and any default could be the largest in US history, government pension insurers estimated. Bankruptcy gives AMR a chance to pare less profitable operations, and could result in the sale of flight routes. The process also gives AMR more flexibility, according to Jack Williams, a professor of law at Georgia State University. `”There are considerable tax benefits that they will be able to use in a bankruptcy case, and they will be able to more aggressively manage their liabilities,” Williams said. Shares of AMR closed Tuesday down $1.36, or 84 percent, at 26 cents, down from a 52-week high of $8.89 on January 7. Stock typically is wiped out in bankruptcy. Shares of rival airlines rallied on expectations that reduced competition could boost fares. AMR had kept a lid on industry wide fares in its effort to keep its airplanes full. United Continental shares closed up 6.3 percent at $17.63, Delta rose 5 percent to $7.80 and US Airways Group Inc climbed 4.4 percent to $4.46. AMR shares were halted 28 times on the NYSE on Tuesday for triggering a circuit breaker rule, activated when a stock moves up or down at least 10 percent within five minutes. In its bankruptcy petition filed in Manhattan, AMR reported assets of $24.72 billion and liabilities of $29.55 billion. The company has $4.1 billion in cash. AMR said the bankruptcy has no direct legal impact on non-US operations. It also said it was not considering debtor-in-possession financing. But it could susceptible to unsolicited takeover bids from rival carriers. AMR has long said it could thrive on its own. Robert Herbst, an analyst with AirlineFinancials.com and a former American pilot, said there was a “95 percent” chance American would join Most large US carriers are the products of mergers. United Continental combined the former United Airlines and Continental Airlines, while Delta bought the former Northwest Airlines. US Airways was formed from a 2005 merger with America West Airlines. US Airways and United Airlines filed for bankruptcy protection in 2002, and Delta and Northwest in 2005. US Airways had tried to buy Delta out of bankruptcy. Japan Airlines Co, one of American Airlines’ alliance partners, filed for bankruptcy last year. American Airlines said it would remain an active member of the oneworld global airline alliance.