American Airlines faces turbulent ride

I hate to see a singular company of a pack become less competitive largely based on the fact that they did not seek government protection.
 
The bigger problem is that they reported a $250-million loss last quarter. And you can't blame exec salaries because Arpey doesn't make more than many of his pilots. Hate to say it, but any company that has pension liability is going to find it hard to be competitive.
 
After reading the article, it sounds like American's problems go much deeper than failing to file for Chapter 11 over 5 years ago. They are a dinosaur of an operation and need to modernize to stay competitive.
 
It's not just the management of American that is causing these problems... and I shall give an example.

My father has worked for American for 25 years, and my little bro just got hired there, both at a maintenance base.

Yes I understand that the company has been jerking the unions around for the past few years in regards to their contracts, and that those employees have successfully bargained for the wages and benefits that they have earned...

But I know first hand that the employees at AA, especially the older ones, do whatever is in their power to do work as slowly as possible and make it last as long as possible, rather than getting it done quickly and efficiently, just to spite management.

No don't get me wrong, AA has kept clothes on my back and food in my belly the whole time I was growing up, but it's actions like I mentioned above that have a contributing detrimental effect on the airline's bottom line.
 
In the "good old days" an airline bankruptcy just prolonged the eventual shutdown of most of the carriers that filed Chapter 11.

In 2002 USAirways was able to do something that had not been done since Frank Lorenzo put Eastern and Continental in Bankruptcy.

USAirways was able to get rid of their pension liabilty problem in their Chapter 11 filing. At the time of filing most Bankruptcy lawyers thought USAir would not be able to make this stick. But they did. This was the "game changer" in this industry and all of the the other major legacy airlines (except American) quickly entered Chapter 11 to get rid of their pension liability problems.

Since "every airline had done it", the stigma of bankruptcy was not as serious as it had once been. All of the airlines that filed bankruptcy emerged as stronger and more competive airlines with operating costs that were actually below that of the low cost leader, Southwest Airlines.

In 2010, Delta Airlines made more profit (during a recession) than at any other time in the airline's history. This could have never happened without Delta and Northwest going through their Chapter 11's.

In each of these airline Chapter 11's, the law actually did what a Chapter 11 was set out to do. It allowed companies to remain in business, restructure their operations, and emerge as a going enterprise. That is exactly the way a Chapter 11 is supposed to work.

As an aside, the original owners of those airlines (the stockholders) saw their stock declared worthless and new stock issued to the new owners that put up the money to recapitalize the business. For example, the owners of USAir today are not the same owners that were there in 2002. Those original owners lost all of their investment.

American Airlines made a strategic decision not to file bankruptcy when every other airline did just that. In the olden days that would have been the correct decision. But, in this instance it was not. American now has the highest costs in the industry with no way to reduce those costs to compete with the other airlines that have reduced their costs. Unfortunately this puts American on a permanent steady money losing business model. There does not appear to be any way for American to become profitable again without a drastic re-structuring.

It may actually be 4 years to late for American to file bankruptcy and emerge from it as a leaner company. Time will tell.

Joe
 
"American is also in the process of trying to separate its unprofitable regional airline, American Eagle, into an independent airline." Well, good game to the guaranteed job at American Airlines that Eagle just posted recently.
 
I agree with a whole lot of what you said about what Chapter 11 was designed to do, Joe, but I would point out that there's something inherently wrong with a bankruptcy system that allows an airline to stiff it's retirees and void its labor contracts, yet leaves that airline with enough capital exiting bankruptcy to then go on an airline buying spree—Cactus buying USAir; Delta gobbling up Northwest; United taking over Continental, etc., etc., etc. That would be a like allowing an individual declaring bankruptcy to stiff all his creditors, yet leave him with enough money exiting bankruptcy to buy a new Bentley and an outrageously expensive home theater system.

And people wonder why the Take Over Wall Street protestors are fed up with such a system? This is precisely why.
 
hambone said:
"American is also in the process of trying to separate its unprofitable regional airline, American Eagle, into an independent airline." Well, good game to the guaranteed job at American Airlines that Eagle just posted recently.
Click to expand...
Applicable to pilots on the property on or before October 11, 2011. Details. :)
 
JOEFRIDAY2 said:
As an aside, the original owners of those airlines (the stockholders) saw their stock declared worthless and new stock issued to the new owners that put up the money to recapitalize the business. For example, the owners of USAir today are not the same owners that were there in 2002. Those original owners lost all of their investment.
Click to expand...
While I agree that the bankruptcy is a legitimate tool for a failing business model, one of the things that has always confused me is that I thought that the mission of a business was to operate in the best interests of its shareholders. Declaring bankruptcy, making your shareholders investments worthless and reinventing yourself would seem to me to be contradicting that mission. Unless there is something I'm missing. Thoughts?
 
RDoug said:
I agree with a whole lot of what you said about what Chapter 11 was designed to do, Joe, but I would point out that there's something inherently wrong with a bankruptcy system that allows an airline to stiff it's retirees and void its labor contracts, yet leaves that airline with enough capital exiting bankruptcy to then go on an airline buying spree—Cactus buying USAir; Delta gobbling up Northwest; United taking over Continental, etc., etc., etc. That would be a like allowing an individual declaring bankruptcy to stiff all his creditors, yet leave him with enough money exiting bankruptcy to buy a new Bentley and an outrageously expensive home theater system.
Click to expand...

Although not to the extreme of buying a Bentley, that is what was happening before the new bankrupcy laws took effect a few years ago.

Bankrupcy (for the individual) is a ever changing item. It used to heavily favor the debtors, now the door has swung the other direction where the laws now favor the creditors. The new laws are in favor of the creditors so much right now that there was a 'run on the bank' type situation with people filing bankrupcy before the law changed. :crazy:
 
Well, the law certainly isn't tilted in favor of creditors for corporate bankruptcies, now is it. And that's the problem.
 
Beagle will be spun off/sold off to pay for the retirements at American. For a reference, see Continental Express.

The company wins two fold when this happens. First their retirements are paid out, and second the company puts itself in a position to lower the regional feed costs by allowing other companies to bid on the flying. If Beagle retains the flying for X number of years, AMR Corp still wins because those costs of Beagle are now off their balance sheet, and onto somebody else's.

What happens to Beagle after this doesn't matter, just that American is able to fund it's pension obligations and lean out the company.

Sorry Beagle.
 
hambone said:
"American is also in the process of trying to separate its unprofitable regional airline, American Eagle, into an independent airline." Well, good game to the guaranteed job at American Airlines that Eagle just posted recently.
Click to expand...

The a agreement goes on even if we are not owned by AMR, and if somebody buys us only Eagle pilots can move on to AA.

jtrain609 said:
Sorry Beagle.
Click to expand...

Don't feel sorry for anyone at Eagle. We have at least 5 more good years and who know how many after that. 5 years is a life time in the airlines. Hell word is we might join the fun that is the Skywest family.
 
Gonzo said:
Don't feel sorry for anyone at Eagle. We have at least 5 more good years and who know how many after that. 5 years is a life time in the airlines. Hell word is we might join the fun that is the Skywest family.
Click to expand...
Yeah, I can get a "ONE LIST" sticker for my flight kit too! Woot. :D
 
Gonzo said:
The a agreement goes on even if we are not owned by AMR, and if somebody buys us only Eagle pilots can move on to AA.



Don't feel sorry for anyone at Eagle. We have at least 5 more good years and who know how many after that. 5 years is a life time in the airlines. Hell word is we might join the fun that is the Skywest family.
Click to expand...

I wouldn't be surprised to see this at all. Skywest has the cash on hand, and if they want to dominate the market, purchasing Beagle is the best way to do it.

I think the biggest issue would be finding terms that both AMR and Skywest can agree to.
 
RDoug said:
I agree with a whole lot of what you said about what Chapter 11 was designed to do, Joe, but I would point out that there's something inherently wrong with a bankruptcy system that allows an airline to stiff it's retirees and void its labor contracts, yet leaves that airline with enough capital exiting bankruptcy to then go on an airline buying spree—Cactus buying USAir; Delta gobbling up Northwest; United taking over Continental, etc., etc., etc. That would be a like allowing an individual declaring bankruptcy to stiff all his creditors, yet leave him with enough money exiting bankruptcy to buy a new Bentley and an outrageously expensive home theater system.

And people wonder why the Take Over Wall Street protestors are fed up with such a system? This is precisely why.
Click to expand...

Congress did put in new rules (after Lorenzo), in 1984, to prevent airlines from getting rid of labor contracts and retiree obligations in Bankruptcy. However, USAir was able to convince a bankruptcy judge in 2004 that those Lorenzo rules did not apply to them. Once they did that, other airlines followed suit with the same business model.

I'm with you, I don't agree with it, but it is what it is.

Joe
 
exneophyte said:
While I agree that the bankruptcy is a legitimate tool for a failing business model, one of the things that has always confused me is that I thought that the mission of a business was to operate in the best interests of its shareholders. Declaring bankruptcy, making your shareholders investments worthless and reinventing yourself would seem to me to be contradicting that mission. Unless there is something I'm missing. Thoughts?
Click to expand...

Actually the mission of the Bankruptcy Court is to protect the creditors and return as much to them as possible. They are not concerned about the shareholders.

In reality everyone (creditors, employees and shareholders) generally gets the shaft and the legal system makes a lot of money on bankruptcy cases.

Joe
 
You must log in or register to reply here.
Back
Top