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American Airlines files for bankruptcy

Jeremy Hobson Nov 29, 2011

Jeremy Hobson: News this hour out of Dallas Fort Worth that American Airlines has filed for bankruptcy protection. Now American says it’s keeping all flight operations normal, it’s honoring all tickets, and it’s keeping its frequent flier program intact. But in its filing, the company listed about $25 billion in assets, and about $30 billion in debt.

For more, we’re joined live by Seth Kaplan, who watches the industry for Airline Weekly. He’s with us now. Good morning.

Seth Kaplan: Good morning, Jeremy.

Hobson: So, what happened here, Seth? Why did they have to file for bankruptcy?

Kaplan: I would say they didn’t have to file today, but they were burning cash. And you know, clearly, they recognize that the situation they were in wasn’t sustainable. So they probably had to make a decision, that if they weren’t going to be able to fix it, better to do it sooner rather than later, and kind of preserve what’s still there and get on with restructuring.

Hobson: And tell us why American is in such worse shape than other airlines?

Kaplan: Well, primarily because of their higher cost structure. You know, they stayed out of bankruptcy when most of their competitors went into it in the last decade — particularly after 9/11. And so that left them in an uncompetitive position. Most of their competitors, for example, no longer have traditional pension plans for most of their employees, whereas American’s still pouring hundreds of millions of dollars into its plan, and its employees are reasonably well-compensated.

Hobson: And Seth, can they get out of this? And if so — how?

Kaplan: Well they can. You know, as I mentioned, many airlines have in fact gone through processes like this and have emerged  stronger. We looked at Delta airlines — today, a very strong airline — merged a few years ago with Northwest. Both of those airlines — Delta and Northwest — in fact have gone into bankruptcy, and merged as they emerged from it.

You know, American has a lot of stakeholders who want to make sure that it survives — people who sell airplanes, people who supply it with everything that it uses. Obviously, its employees, who I’m sure are going to make concessions. So there are a lot of people who want to make sure this airline survives. It likely will survive — but it’ll be a smaller airline.

Hobson: Seth Kaplan of Airline Weekly, thanks so much.

Kaplan: Thank you.

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