American Airlines filed for bankruptcy protection this morning, taking the road that many of the company’s competitors have taken in years prior.
AMR Corp., the holding company of American Airlines, and AMR Eagle Holding Corp., the holding company of American Airlines’ regional carrier, American Eagle, filed their Chapter 11 petitions this morning in the U.S. Bankruptcy Court for the Southern District of New York, despite the fact that both are headquartered in Fort Worth, TX. In a release, AMR’s Board of Directors noted that the filing would hopefully allow the company to achieve a cost and debt structure that is industry competitive, thereby assuring its long-term survival.
According to AMR’s most recent quarterly balance sheet, the company has $24.72 billion in assets and $29.55 billion in liabilities. It also has $4.1 billion in unrestricted cash and short-term investments, which the company said should be enough to ensure that vendors, suppliers and other business partners will be paid timely and in full for goods and services provided during the reorganization according to terms. AMR’s cash position also suggests that debtor-in-possession financing is neither considered necessary nor anticipated.
In an FAQ for suppliers and trading partners, AMR was mum on what sort of payment unsecured creditors could expect to see on their pre-petition claims. “It is impossible to predict before approval of the plan of reorganization how much holders of general unsecured claims will receive,” said the company. However, AMR also filed a separate motion with the court asking permission to pay certain foreign suppliers and vendors certain pre-petition obligations, meaning that these non-U.S. based companies may see payment sooner than later. The company said that it expects the court to approve the motion.
"Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges, " said AMR Chairman, CEO and President Thomas Horton. "Our Board decided that it was necessary to take this step now to restore the Company's profitability, operating flexibility, and financial strength."
Jacob Barron, CICP, NACM staff writer