American Airlines files Chapter 11 Bankruptcy

[swiftus27]

(Not Chapter 7 liquidation)

http://money.cnn.com/2011/11/29/news/companies/american_airlines_bankruptcy/index.htm?hpt=hp_t2

[Dasha]

No real surprise there. It was coming for months. This was published about 1 or 2 weeks ago though:

http://www.aa.com/i18n/amrcorp/newsroom/fp_amr_fleet_agreement.jsp?v_locale=en_US&v_mobileUAFlag=AA

Under the new agreements, American plans to acquire 460 narrowbody, single-aisle aircraft from the Boeing 737 and Airbus A320 families beginning in 2013 through 2022 – the largest aircraft order in aviation history.

To me, being from Europe, it doesn't make any sense that a company with 4.6 billion USD in the bank, who've just made the largest order in history, can file for bankruptcy protection and it almost reeks of some form of 'dirty' business.

Had they not made that order, Airbus wouldn't give a flipping toss about AA going bankrupt, but now, with this order in place, Airbus might step up and support the bankruptcy protection. If something like this would have happened in Russia or something I would understand and accept it, but in America, I think somebody should at least do some research into it.

I think this chapter 11 is unfair competition for the whole industry. AA gets away with incompetent management and then make a big order to 'protect' them from bankruptcy. Any other company in another part of the world would have gone bankrupt and ceased to excist but somehow the American carriers won't.


Don't get me wrong I don't want AA to go bankrupt simply because it would affect so many people but from a competition point of view, I don't understand it at all.

[LemonButt]

No real surprise there. It was coming for months. This was published about 1 or 2 weeks ago though:

http://www.aa.com/i18n/amrcorp/newsroom/fp_amr_fleet_agreement.jsp?v_locale=en_US&v_mobileUAFlag=AA

To me, being from Europe, it doesn't make any sense that a company with 4.6 billion USD in the bank, who've just made the largest order in history, can file for bankruptcy protection and it almost reeks of some form of 'dirty' business.

Had they not made that order, Airbus wouldn't give a flipping toss about AA going bankrupt, but now, with this order in place, Airbus might step up and support the bankruptcy protection. If something like this would have happened in Russia or something I would understand and accept it, but in America, I think somebody should at least do some research into it.

I think this chapter 11 is unfair competition for the whole industry. AA gets away with incompetent management and then make a big order to 'protect' them from bankruptcy. Any other company in another part of the world would have gone bankrupt and ceased to excist but somehow the American carriers won't.


Don't get me wrong I don't want AA to go bankrupt simply because it would affect so many people but from a competition point of view, I don't understand it at all.

Chapter 11 is bankruptcy protection, which means that AA will get a chance to restructure their debt and renegotiate existing contracts.  It's actually much more fair than the alternative of just shutting the doors.  The company I work for went through Chapter 11 earlier this year.  They may have $4.6 billion in the bank, but ratios are more important than your bank statement.  Negative cashflow is really the only thing that matters.  AA hasn't made money in 4 years now and they are bleeding cash.  Filing for Chapter 11 means they can restructure their debts and liabilities to better match their revenue stream and hopefully return to profitability.  The alternative?  That would be liquidation--all assets are sold off and debtors and shareholders receive a percentage of what their investment was, which could be pennies on the dollar.  That means if you're holding a $5 share of stock, you may get $1.  If you are a bank owed $1 billion, you may get $200 million and then the bank has an $800 million loss.

Aircraft orders are a moot point.  They have an aging fleet that needs replacing (lots of MD-80s for one).  The orders represent a net cost savings since fuel is one of the biggest operating costs.  It wouldn't make any sense for a company bleeding cash to hold onto gas guzzlers versus transitioning to fuel efficient aircraft.

Unions don't help the situation.  AA could simply stop flying those gas guzzling aircraft, but they'd have to lay off lots and lots of pilots, mechanics, etc. which means HUGE severance packages.  Filing for bankruptcy protection means they can renegotiate union contracts and offer optional early retirement buyouts.  Delta (and virtually every major competitor) filed for bankruptcy years ago and were able to "trim the fat" and greatly reduce their labor costs--two friends of our family took early retirement as a result.

On top of all this, most banks are strapped for cash.  This means if AA owes a bank $1 million/month--they want their $1 million.  Businesses don't file for bankruptcy on a whim and they have certainly have already approached their debtors about restructuring their debts.  Now a bankruptcy court will force their debtors to restructure their debt with the alternative being liquidation where everyone loses.

[Dasha]

Now a bankruptcy court will force their debtors to restructure their debt with the alternative being liquidation where everyone loses.

This is the part I don't understand. Well I understand what you are saying I just don't see how it's fair. Sure the alternative of liquidation is far worse but let's say I'm company A.

I do things for AA and work my ass off for them. In return they pay me. I make costs for AA but as I'm smart, they pay me more than the costs I make. AA keeps spending money and at some point they cannot pay me anymore. In the meanwhile I'm still making costs for them. They are a big company so I'm guessing they can file for Chapter 11, me being a small company, I can say goodbye to my money, because AA (in my point deliberately) kept spending money they didn't have.

What if I'm getting in trouble because I cannot pay my debts because the money I get from AA get's restructured? Do I get to file for Chapter 11?



I understand why they order new planes and in my opinion they should have done so a long time ago but I just think doing so, a week before you are filing Chapter 11 is a bit of a fishy deal.

[Brockster]

Here's to AA unveiling a fresh, modern new identity, and coming out of Ch11 as a leaner, more competitive company! The big news here for me is that Arpey is retiring!  

EDIT: Also want to add that I hope the layoffs won't be too severe, because potentially thousands of people could lose their jobs... But I imagine that's what is going to happen for AA to become more competitive... It has always been my understanding that AA pilots for example were some of the highest paid in the industry.

[wapp11]

This is how it works in America... Buy a lot of stuff you can't afford, then file bankruptcy, and screw over the hard working people that just sold you the stuff. 

[swiftus27]

Wow, now that is not called for.

You clearly don't know the diff from chap 7 and 11.  

While you're there why not talk about the fact that Greece just did something similar to what americans know as a chapter 13 screwing banks out of billions.  No one is saying AA will get the massive writedown that Greece had....  or to mention Italys debt or Icelands complete bankruptcy/failure.  Honestly, if it weren't for germany bailing europe out, the euro would have failed by now

In the end it is the big banks who are taking the hit.  The same evil ones many are protesting. 

[alexgv1]

This is how it works in America... Buy a lot of stuff you can't afford, then file bankruptcy, and screw over the hard working people that just sold you the stuff. 

Word.

Let's go Occupy somewhere!

[Bolier Dweller]

Let's Occupy DFW!!!!!

[Dasha]

Wow, now that is not called for.

You clearly don't know the diff from chap 7 and 11.  

While you're there why not talk about the fact that Greece just did something similar to what americans know as a chapter 13 screwing banks out of billions.  No one is saying AA will get the massive writedown that Greece had....  or to mention Italys debt or Icelands complete bankruptcy/failure.  Honestly, if it weren't for germany bailing europe out, the euro would have failed by now

In the end it is the big banks who are taking the hit.  The same evil ones many are protesting. 

That is not fair either...

I don't know the difference between all the different chapters of bankruptcy but the way I see it (from a none American perspective) is that the whole Chapter 11 is a free ticket to mismanagement because in the end when things go sour, you file a chapter 11 protection and all will be well.

Maybe in the US market that is fair since MOST of the US carriers have at one point in there lives done it, on a global level, it's not fair. That's the point I'm trying to make. When AF-KL does the same mismanagement as happened with AA, they would go bust.

[alexgv1]

Look at the USA and UK. You can mismanage your company for years (like ENRON). Then when you f*ck up and it hits the fan you will get a government bail out... see RBS et ali. At the taxpayers expense.

[LemonButt]

Now a bankruptcy court will force their debtors to restructure their debt with the alternative being liquidation where everyone loses.

This is the part I don't understand. Well I understand what you are saying I just don't see how it's fair. Sure the alternative of liquidation is far worse but let's say I'm company A.

I do things for AA and work my ass off for them. In return they pay me. I make costs for AA but as I'm smart, they pay me more than the costs I make. AA keeps spending money and at some point they cannot pay me anymore. In the meanwhile I'm still making costs for them. They are a big company so I'm guessing they can file for Chapter 11, me being a small company, I can say goodbye to my money, because AA (in my point deliberately) kept spending money they didn't have.

What if I'm getting in trouble because I cannot pay my debts because the money I get from AA get's restructured? Do I get to file for Chapter 11?



I understand why they order new planes and in my opinion they should have done so a long time ago but I just think doing so, a week before you are filing Chapter 11 is a bit of a fishy deal.

Of course it's fair.  The reason that banks loan money to companies with an interest rate versus doing it for free is because there is risk involved.  We have a credit rating in AWS that works the same way--the worse of your airline is financially, the higher the interest rate.  If the company goes bankrupt, you get your fair share.  Since the risk is greater, the interest rate is higher.  Everyone who made loans to AA took a calculated risk.  Normally, companies don't go under, but there will always be failures and writeoffs.

If a bank makes enough bad loans because they miscalculated the risk, then the banks go bankrupt as well and gets sold off to the highest bidder via FDIC sealed bid auction.  In the small town I live in North Carolina, we've had probably 5 local multi-branch banks go under from bad loans and get bought out by larger ones.  Heck, even the big bad Wachovia out of Charlotte got purchased by Wells Fargo and the Wachovia brand is now gone.

As a result of this, most banks are strapped for cash.  The conservative banks making money can buyout the debt owed to less conservative banks to maintain their own cashflow.  For example, if AA has $5 million in debt to a bank, another bank might give $4 million in cash to the bank and then AA owes the new bank the same $5 million with restructured terms.  Everyone comes out ahead with the original bank taking a $1 million loss, but also has $4 million in cash to take care of short term business.  The alternative is liquidation where all the assets are sold and each debtor receives their fair share, which means that $5 million in debt might see a $2 million payment.

As mentioned, the company I work for went through Chapter 11.  Our company is very profitable, but not profitable enough to cover the payments on the mound of real estate debt our owner racked up in using our company's value for financial leverage.  We can pay off our debts because we're profitable, we just can't pay them off as quickly as we agreed to originally because of the current circumstances.

As a sidenote, American, Southwest, and jetBlue were the only 3 major carriers who have not filed for bankruptcy post-9/11.  I read an article that said if they were able to restructure their labor agreements similar to their competitors, American would save $800 million/year.

[LemonButt]

Look at the USA and UK. You can mismanage your company for years (like ENRON). Then when you f*ck up and it hits the fan you will get a government bail out... see RBS et ali. At the taxpayers expense.

Actually ENRON didn't get a bailout, nor did Lehmann Brothers and many of the large airlines that have fallen (TWA, Pan-Am, Eastern, etc.).  Most companies don't want bailouts because it comes with a whole lot of government oversight and regulation that most sane people would rather not deal with.

[alexgv1]

Actually ENRON didn't get a bailout, nor did Lehmann Brothers and many of the large airlines that have fallen (TWA, Pan-Am, Eastern, etc.).  Most companies don't want bailouts because it comes with a whole lot of government oversight and regulation that most sane people would rather not deal with.

Nope, never said they did but just couldn't think of a better example of a mismanaged company.

They get these bailouts because the government is too heavily invested in them or they convince them that they can't function without them. Yeah like you said there are many clauses attached with these bailouts, part of Northern Rock bank was sold a few weeks ago to Virgin Money and there were strings on that deal too.

[swiftus27]

There is no free lunch.

[coopdogyo]

I think we should all put in some money and attempt a hostile takeover of AA. Then we can try our hand at running a real airline. Its market cap is only 120 million now.

[alexgv1]

I think we should all put in some money and attempt a hostile takeover of AA. Then we can try our hand at running a real airline. Its market cap is only 120 million now.

Hahaha yes... if only US banks was doing sub-prime mortgage lending... then I'm sure an asset-less student like me could raise a couple of mill in no time.

[swiftus27]

I think we should all put in some money and attempt a hostile takeover of AA. Then we can try our hand at running a real airline. Its market cap is only 120 million now.

Im sure they are trading lower than book value after todays news

[JumboShrimp]

This is how it works in America... Buy a lot of stuff you can't afford, then file bankruptcy, and screw over the hard working people that just sold you the stuff.  

Or more precisely, people who lend you money to buy all this stuff...

But creditors generally still come out ok out of these bankruptcy proceedings (when normal rules are followed, unlike Chrysler bankruptcy, where Obama administration acted like Hugo Chavez does).

The people who get screwed the most in general are the shareholders, since the creditors, as part of the restructuring will end up with some equity (shares).  Shareholders of old shares end up with little or nothing...

[swiftus27]

Or more precisely, people who lend you money to buy all this stuff...

But creditors generally still come out ok out of these bankruptcy proceedings (when normal rules are followed, unlike Chrysler bankruptcy, where Obama administration acted like Hugo Chavez does).

The people who get screwed the most in general are the shareholders, since the creditors, as part of the restructuring will end up with some equity (shares).  Shareholders of old shares end up with little or nothing...

GMs shareholders were given next to nothing.  The Union got a large stake and the government held a majority ownership in them.  They only recently began spinning them back off.