American Airlines files for bankruptcy

By Chris Isidore and Blake Ellis @CNNMoney November 29, 2011: 9:54 AM ET

American Airlines filed for bankrutpcy protection Tuesday morning.

NEW YORK (CNNMoney) -- American Airlines, one of the few major U.S. airlines to avoid bankruptcy, finally succumbed Tuesday and filed for chapter 11.
Corporate parent AMR also filed, and said that American, American Eagle and all other subsidiaries will honor all tickets and reservations and operate normal flight schedules during the bankruptcy filing process, using its $4.1 billion in cash.

The airline also announced that Gerard Arpey, its chairman and CEO, is retiring. He is being succeeded by Thomas Horton, who was named president of the company in July 2010.
In an interview with CNN's Richard Quest Tuesday after the filing, Horton insisted that American customers should see "business as usual" in spite of the bankruptcy. But he said that the cost disadvantage for American compared to other major U.S. carriers that have already gone though bankruptcies of their own since the Sept. 11, 2001 attacks left it no choice.
"Folks at American have worked very hard and honorably to avoid that path over the last decade, but it became clear that gap had become too wide now, it had become untenable, and it was time to turn the page," he said.
Before Tuesday's filing, American and Southwest (LUV, Fortune 500) were the only major U.S. airlines that had not filed for bankruptcy reorganization.
American has been widely seen as the weakest of the major airlines for some time now. It has reported a profit in only one quarter since 2007, and it lost $4.8 billion over those 3-1/2 years. Analysts surveyed by Thomson Reuters expect its losses to continue through at least 2012.
Still the company officials had been insisting that it was not looking at bankruptcy.
As recently as last month, company spokesman Andy Backover, responding to questions about a possible bankruptcy, said "Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference. We know we need to improve our results, and we are keenly focused as we work to achieve that."
On Tuesday, Horton told CNN that bankruptcy "never has been a goal or preference." He said that American faced an $800-million-a-year cost disadvantage compared to the labor deals at its competitors. But he said efforts to renegoiate both its labor contract and its debt structure had proved unsuccessful.
"Clearly it was our preference to do this in consensual fashion," he said. "Unfortunately, we were not successful in that regard." American will now gain significantly greater leverage in those talks given the bankruptcy court's power to void contracts.
The airline announced a massive order for 460 jets from Boeing (BA, Fortune 500) and Airbus in July in an effort to modernize its fleet. Horton said American intends to move ahead with that purchase and keep the financing package for the planes in place.
American was the world's largest air carrier as recently as 2006. But mergers have dropped it to third in terms of miles flown by paying passengers, behind United Continental (UAL, Fortune 500) and Delta Air Lines (DAL, Fortune 500).
The airline said that its cash reserves, coupled with the cash from ongoing ticket sales, should give it the funds it needs during reorganization, and that it will therefore not need what is known as a "debtor-in-possession" loan that bankrupt companies typically use to operate under Chapter 11.
Shares of AMR (AMR, Fortune 500) were not trading Tuesday. Share had already plunged nearly 80% since the start of the year through Monday's close, and they tumbled another 63% to 60 cents a share in pre-market trading before the halt. Shareholders are typically wiped out during the bankruptcy process. 

First Published: November 29, 2011: 7:18 AM ET