American Airlines (photo, from aljazeera.com), the third-largest US airline behind United Continental Holdings and Delta Air Lines, has filed for Chapter 11 protection on Tuesday with its parent company AMR Corporation.
Chapter 11 refers to a section of the US Bankruptcy Code which protects a company from its creditors, allowing it to reorganise its debts or sell parts of the business.
American Airline which employs 78,000 staff worldwide and operates out of five major US hubs, failed to secure a labour deal with pilots and suffered from mounting fuel costs.
While three years ago it was the world’s biggest airline, it has fallen behind Delta and United after they bought out other airlines.
And in 2002 United was one of the first to file for bankruptcy, followed by Delta in 2005. Both have used it to restructure their labour agreements and cut costs.
On Tuesday American Airlines named Thomas Horton chairman and chief executive to replace Gerard Arpey who has retired.
“We plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels,” Mr Horton said.
He also said that while restructuring the airline, its flight schedule in the US would be reduced “modestly” with a corresponding reduction in staff.
The bankruptcy filing was described as a “solemn occasion” by the union representing AMR’s pilots.
“While today’s news was not entirely unexpected, it is nevertheless disappointing that we find ourselves working for an airline that has lost its way,” David Bates, president of the Allied Pilots Association, said in a statement.
“The 18-month timeline allotted for restructuring will almost certainly involve significant changes to the airline’s
business plan and to our contract,” he said.
The airline also said that last month it was suffering from soaring fuel prices which had sent its costs up 40 per cent in the third quarter compared with a year earlier.
In the third quarter of 2011, AMR Corporation lost $162m and has reported losses in 14 of the last 16 quarters.
Under its Chapter 11 bankruptcy filing in a New York court, the company listed assets of $24.72bn and liabilities of $29.55bn and added that it has $4.1bn in cash.