MercoPress. South Atlantic News Agency

American Airlines files for bankruptcy; plans to cut drastically labour costs

The last major airline not to file for Chapter 11

American Airlines and its parent company AMR Corp filed for bankruptcy on Tuesday after failing to win a labour deal with pilots and suffering from mounting fuel costs.

AMR had been the only major US carrier to avoid bankruptcy in the past decade. Its rivals used bankruptcy to restructure their labour agreements and cut costs.

That left AMR, the third-largest US airline behind United Continental Holdings Inc and Delta Air Lines Inc, with the highest labour costs in the industry and the only major airline still funding worker pensions.

“It completes the cycle,” said Helane Becker, an analyst with Dahlman Rose & Co. “Every major airline in the united States has filed for Chapter 11.”

AMR's move comes as US airlines brace for an economic downturn that could see travel demand sag this year. Some top airlines, including AMR, have announced service reductions to offset weak demand.

In its bankruptcy filing, AMR said its cost-cutting in recent years had been insufficient and that it could not continue without changing its “uncompetitive cost structure.”

“Without addressing the realities of the marketplace, AMR cannot be competitive with its peers,” it said.

Shares of AMR, whose passenger planes average 3,000 daily US departures, have tumbled 45% since the end of September. Last week the shares hit their lowest level since 2003, when AMR skirted bankruptcy by winning wage concessions from its unions.

The airline said last month it was also suffering from soaring fuel prices that sent its costs up 40% in the third quarter compared with a year earlier.

AMR on Tuesday named Thomas Horton as chairman and chief executive, replacing Gerard Arpey, who retired.

Under its Chapter 11 bankruptcy filing in a New York court, the company listed assets of 24.72 billion dollars and liabilities of 29.55 billion dollars. The company said it has 4.1 billion in cash.

AMR said both American Airlines and its regional carrier American Eagle were expected to fly normal schedules throughout the Chapter 11 process.

“We plan to initiate further negotiations with all of our unions to reduce our labour costs to competitive levels,” Horton said.

The union representing AMR's pilots called the bankruptcy filing a “solemn occasion.”

“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