Political India: Engaging America

In a development that underscored weakness in the United States economy, the parent company of American Airlines, the country’s fourth-largest airline operator, has filed for Chapter 11 Bankruptcy Protection.

AMR Corporation, the owner of AA, said that it had filed voluntary petitions for Chapter 11 reorganisation in the U.S. Bankruptcy Court for the Southern District of New York, “in order to achieve a cost and debt structure that is industry competitive and thereby assure our long-term viability and ability to continue delivering a world-class travel experience for customers.”

The action by AMR, which comes on the back of an ailing job market and unresolved budget deficit crisis, is likely to deepen concerns of slow economic growth and consequently fears of a double-dip recession.

AMR’s two key airlines, AA and American Eagle, were however said to be operating normal flight schedules, and said it was “business as usual” for customer reservations, customer service, and all similar operations. Normal flight schedules would continue, the airline said, adding that the filings would also have no direct legal impact on American's operations outside the U.S.

However court documents posted online and statements by AA to vendors, creditors and investors suggested uncertainty in terms of the company’s future prospects.

Thomas Horton, Chairman, Chief Executive Officer and President of AMR and American Airlines, alluded to competitive weakness and global economic factors saying, “Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.”

In a note to aircraft lessors, lenders and trustees, AA said “We plan to make payments when due of aircraft rent and mortgage principal and interest payments only on certain aircraft in our fleets,” adding, “Some aircraft leases will be rejected soon while others may be rejected later.”

The corporation further said to investors that it was not possible to predict what the ultimate value of AMR’s common stock may be or whether shareholders could expect any financial recovery in the Chapter 11 proceedings. It also warned that the New York Stock Exchange could delist AMR stock if its specific listing requirements were not met by AMR stock.