Featured News 2012 Bankruptcy is “Up in the Air”

Bankruptcy is “Up in the Air”

It's not a newsflash; the economy is down and more and more companies are declaring bankruptcy to accommodate their losses and debts. One such company is the monumental AMR Corporation, which functions as the parent company to American Airlines. According to The New York Times, AMR Corporation filed for Chapter 11 bankruptcy in November of 2011. The company now wants to cut 13,000 workers from the force, which means that 16 percent of the American Airlines team would be fired. As well, American wants to end pension plans, and restrict health benefits for employees. In total, AMR hopes to shrink total costs by 20 percent. They hope that this will help them to shed contracts and restructure their financial obligations.

Why did the company choose to file bankruptcy? To give some background, the airline industry plummeted after the September 11 terrorist attacks in 2001, triggering a line of bankruptcies and restructurings. Some companies sold out to others, creating powerhouses. With the drop in the economy, things got even more complicated. American Airlines has always been a prominent airline company within the United States, but cheaper companies began to offer lower fares in recent years, and enticed loyal American Airlines customers away. Airlines such as Southwest, Delta, and more were gaining the upper hand, and American Airlines decided to cut their fares to keep up. In doing so, they were not able to afford all their expenses, and were compelled to borrow massive amounts of money. The company worked hard to reduce accumulated expenses and succeeded in eliminating $4.1 billion from their budget by the end of 2004. Other competitors were struggling with debt, but they opted to file for a bankruptcy to shed billions of dollars in owed amounts and renegotiate labor contracts with their employees. American Airlines held out from this decision for many years, but they have finally followed suit.

American Airlines revealed their restructuring plan on February 1, 2012, much to the chagrin of employees. Specifically, American Airlines wants to cut 4,600 mechanics, 4,200 ground service workers, 2,300 flight attendants and around 400 pilots. The company also wants to cut almost 1,500 jobs in grounds services and management and support in-office positions. The company hopes to cut gate agents, airline planners, and service representatives. The airline believes that cutting all these positions and costs can reduce $2 billion a year. While it is up to the court to determine whether or not this plan is viable, chances are that American Airlines may get the employment cuts they are seeking.

To date, AMR has lost $12 billion since their decline in 2001. The company's CEO states that they need to adapt to a new way of budgeting and managing their company, or they will sink. USA Today speculates that US Airways recently hired advisers to watch out for AMR, suggesting that a buy-out may be in the future. Industry experts say that American Airlines is still the world's third largest carrier in passenger traffic.

While the American Airlines CEO says that he hopes to see the company remain an independent entity, other airline companies will be vying for a buy-out. If another airline makes a substantial offer that attracts the creditors and bankruptcy judge, then it may be logical for AMR to sell itself to the company for an airline fusion. If US Airways was to buy the company, Airways would receive the size that they need to better their corporation. The merger would not be without complications; US Airways and American Airlines use different labor unions. Considering that American Airlines just hired a new CEO, the company is trying hard to stay independent and get back on top without selling out to another airline.

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