Timing of AMR's Chapter 11 Filing Unexpected
DALLAS ( TheStreet) -- American Airlines and its parent AMR (AMR) filed Tuesday for Chapter 11 bankruptcy protection, pushing its share price close to zero, leading to its CEO's retirement and re-igniting speculation about a merger with US Airways (LCC).
While the filing in the New York bankruptcy court surprised no one, the timing was unexpected. Most experts had expected the carrier to more directly use the threat of bankruptcy in contract talks with its unions, which have been stalled for years and generally seemed to be headed nowhere.
In particular, in talks with its pilots union, the world's third-largest carrier had reached a point when it seemed unable to reach a contract deal, despite hopes last month that a deal was imminent.
"We worked honorably over the last 10 years to avoid this path," said Craig Kreeger, American senior vice president/customer experience, in an interview. "But the economic environment gave us less time to become competitive" by pursuing strategies that includes a focus on five major markets and an aggressive fleet renewal plan.The plan to order hundreds of new airplanes from Boeing (BA) and Airbus remains "a key building block," Kreeger said. "It will allow us to come out of this process as a stronger airline." The timing, he said, is due to four factors: competitors' cost advantages, the decline in the global economy, high fuel prices and a Nov. 29 credit downgrade by Fitch. Timing "was not specific to the pilots, but to a combination of these things," he said. With $4.1 billion in cash, the carrier should be able to control its fate, Kreeger said. Asked about the possibility of a merger, he said, "We often have said and continue to say that nothing is off the table, but we are focused on restructuring." However, Mike Flores, president of the US Airways chapter of the Association of Flight Attendants, said it is likely that US Airways will pursue a merger effort. "The American bankruptcy, while unfortunate for American employees and for the company, presents an opportunity for US Airways," Flores said, adding that the existing management team raised billions of dollars to pursue a merger with Delta (DAL). "I believe they would do it again," he said.
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