US airline lands in bankruptcy

AMR, the parent company of American Airlines, has filed for bankruptcy. Unlike its rivals Continental, Delta and US Airways, America's third-largest airline had previously avoided chapter 11 (whereby a company gains protection from its creditors while it restructures). American has lost over $10bn in the past decade, and has net debts and retirement obligations of $15bn.

What the commentators said

While its rivals have made money in recent years, American hasn't and the darkening macroeconomic backdrop won't help, said Economist.com. It has also been holding talks with staff to lower costs, but hasn't got very far. "Presumably the bankruptcy filing will help to concentrate minds at the negotiating table."

Bankruptcy courts "have wide latitude" to rewrite employment contracts, said Jeremy Lemer in the FT. When other airlines were in chapter 11, they managed to trim labour costs by up to 30%. Indeed, that's the main reason there was "an air of inevitability" about this filing.

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American has been struggling with labour costs that are far higher than its rivals', as well as an ageing, gas-guzzling fleet (which it is now replacing). American has $4.1bn of cash, which is still enough to keep operating through a restructuring. So it made sense to file before burning through much more, said Liam Denning in The Wall Street Journal. When it exits chapter 11, it "should be a smaller, leaner airline still possessing a well-known brand".

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