court filings

from WSJ

Yesterday, as I was driving home from work, I heard that American Airlines is filing for bankruptcy. American Airlines. Depending upon how you measure, American Airlines is one of the biggest, if not the biggest, airline in the country. American Airlines, along with Southwest Airlines, weathered the 9/11 downturn fairly well. So what happened? In their court filings, American Airlines has $24.7 billion in assets and $29.6 billion in debt. So how did this happen? What is the problem?

It’s the planes –

American’s mainline jet fleet of 619 planes includes 247 twin-engine MD-80s made by McDonnell Douglas Corp., according to the airline’s website. Boeing acquired McDonnell Douglas in 1997. Those planes, which are no longer in production, are being replaced by Boeing 737-800s, which are about one-third more fuel efficient.

Placing an order for aircraft “creates a contract,” and in bankruptcy accepting or rejecting the contract will be up to AMR, said Scott Peltz, the national leader of RSM McGladrey’s Financial Advisory Service in Chicago. Boeing and other suppliers will probably have representatives at AMR’s bankruptcy hearings who “will be looking at what their options are,” he said.

Boeing said it has “no reason to doubt” that the jet order remains pivotal to AMR. Boeing and Airbus will provide $13 billion of financing on the first 230 jets, American said in July.

Maybe it’s more than just the planes. I read this in the Wall Street Journal:

The Fort Worth, Texas, company for years has resisted the type of court-protected restructuring that allowed other big carriers including United Continental Holdings Inc.’s United Airlines and Delta Air Lines Inc. to realign costs and find merger partners. AMR said its annual labor costs, including pensions, are about $800 million more than rivals, a figure unions dispute. Its financial woes have grown in recent months as contract talks with its pilots fizzled and fuel prices rose.

The bottom line, as I see it, is that this isn’t good for the country or for labor. There are going to be job losses. There are going to be fewer flights, especially to smaller cities. This isn’t good.