American Airlines files for Chapter 11

By Howard Dicus

HONOLULU and FT. WORTH, TEX. (HawaiiNewsNow) - American Airlines has flown into the protection of bankruptcy court, where it will have the power to break contracts and reduce labor costs.

No abrupt changes in operations are expected in the receivership of American's corporate parent AMR Corp., and American's Hawaii routes are seen as safe due to strong load factors.

"Our board decided it was necessary to take this step now," said Tom Horton, company president until the board promoted him to chairman and CEO this week, allowing predecessor Gerard Arpey to retire. "We must address our cost structure, including labor costs."

While competitors also paid high fuel bills, United and Delta had lower labor costs after going through bankruptcy several years ago when American did not. American did negotiate concessionary union contracts, but achieved a fraction of the savings its rivals secured, and days before the Chapter 11 a contract offer to pilots was rejected by the Allied Pilots Association, which declined even to offer it to its rank-and-file members for a vote.

In bankruptcy, a company may back out of any contract, including labor agreements. A bankruptcy judge may also compel service by vendors who might otherwise suspend credit and demand cash up front. American filed while it still has a substantial cash reserve. "Since their restructurings in Chapter 11, AMR's major network competitors all have lower costs," American CFO Isabella Green wrote in the actual filing.

American has indicated it still intends to take delivery on hundreds of new, fuel-efficient jets, but bankruptcy allows it to back out of leases, and it may do so on older jets that are gas guzzlers.

American has lost $10 billion since 2001, due to soaring jet fuel bills and high labor costs. It lost $471 million last year, and has lost $982 million in nine months this year.

American flies to Hawaii from three of its hubs, Los Angeles, Dallas-Ft. Worth and Chicago, and has flights to Honolulu, Kahului, Kona and Lihue.

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