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AMR Corp.'s voluntary bankruptcy filing today likely won't have any
immediate impact on customers of American Airlines and American Eagle, but
longer-term ramifications, according to industry analysts, may include a new
domestic partner for AA and removal of additional capacity, which in turn could
help carriers sustain pricing power.
in the U.S. Bankruptcy Court for the Southern District of New York "to
achieve a cost and debt structure that is industry competitive and thereby
assure our long-term viability." Top of mind is labor costs, for which AA
has claimed a large disadvantage versus its U.S. network competitors, some of
which secured more affordable worker union contracts through their own
restructurings during the past decade. AMR has been attempting to negotiate new deals with unions representing its pilots,
flight attendants and mechanics and today indicated that changes to the size of
its workforce and employee pay "likely will be necessary in the future."
filing came a day after AMR chairman and CEO Gerard Arpey told the company
board of his decision to retire. He immediately was replaced by Thomas Horton,
who also will continue to serve as president.
"The need to address our cost of capital, including labor
costs, was becoming increasingly urgent in recent weeks," according to a video message from Horton posted to American
Airlines' website. "This was a necessary path for our company to take, and
take now. Unlike others who took this path, by making this decision now we
enter the process with powerful assets and $4.1 billion in unrestricted
level is why UBS analyst Kevin Crissey in a research note issued this morning
wrote that AMR's Chapter 11 filing "came
sooner than we expected."
Crissey suggested that the AMR filing
"potentially works to the advantage of US Airways. American potentially
needs a partner to achieve more scale and US Airways may provide that
avenue." AA's competitors, Crissey added, "likely benefit initially
from customer disruptions and potentially longer-term from capacity reductions
resulting from the filing. We do not believe AMR's filing is an indication of
sector decline, but rather a company-specific issue."
Noting that AA and American Eagle account for about 17 percent of U.S.
capacity, Dahlman Rose & Co. analyst Helane Becker in a research note also
wrote that AMR's bankruptcy would be positive for the overall industry.
"During restructuring, AMR should remove unnecessary aircraft/capacity
from the industry and will allow AMR's competitors to keep load factors and
Becker indicated that AMR has allotted 18 months for the restructuring, though a "frequently
asked questions" page on the company site indicates that "it is too soon to say." She
added that Arpey "was very proud of the fact that AMR never filed for
Chapter 11, while the rest of the industry had filed. Unfortunately for AMR,
not filing for bankruptcy put the company at a huge cost disadvantage."
In a prepared statement, Arpey explained that
restructuring "will no doubt require far-ranging and
sometimes difficult change, but it represents an opportunity to rebuild
American in a way that assures its ability to compete in a changed world. I
appreciate the board's confidence in me, but I also believe that executing on
this plan requires a new leader for a new time."
that American Airlines and American Eagle will continue normal flight schedules, honor tickets and
reservations, and make normal refunds and exchanges. The company added that
neither its AAdvantage frequent flyer program nor its airport lounge operations
are affected. Its participation in the Oneworld alliance and all codeshare
arrangements also continue without disruption. Likewise, the AAirpass, BusinessExtrAA and AA Cargo programs will
continue to operate normally.
As for its network, AMR
said, "We intend to maintain a strong presence in domestic and
international markets, including our cornerstones in Dallas/Fort Worth, Chicago,
New York, Miami and Los Angeles. Just as all airlines do, we regularly evaluate
our operations and service to assure that our network is as efficient and
productive as possible, and we will continue to keep our customers informed of
our progress in this regard."
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