Chun predicts no fall-out from American Airlines’ bankruptcy filing

POSTED: 11/30/11 7:11 AM

An American Airlines jet aircraft on the tarmac at the Princess Juliana International Airport.

GREAT BAY/DALLAS – Director of the St. Maarten Tourism Bureau May Ling Chun does not anticipate that St. Maarten will be adversely affected by American Airlines and its parent AMR Corp’s filing for bankruptcy protection on Tuesday. The move is to allow the airline to cut labor costs in the face of high fuel prices and dampened travel demand.

     According to Chun rather than hearing about a scale back St. Maarten can expect more flights as the airline has just resumed daily flights between John J. Kennedy in New York and has either already started or will begin flying a second daily flight between Miami and St. Maarten soon.

AMR, which replaced its chief executive in the move, had been mired for years in fruitless union negotiations, complaining all the while that it shoulders higher labor costs than rival domestic and foreign carriers that have already restructured in bankruptcy. American Airlines, once the largest U.S. carrier, is now third behind United Continental Holdings Inc’s United Airlines and Delta Air Lines Inc, both of which used Chapter 11 to cut costs and later found merger partners.

“The world changed around us. It became increasingly clear that the cost gap between us and our competitors was untenable,” incoming Chief Executive Tom Horton told reporters on a conference call.

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

The airline said it and its regional affiliate American Eagle would continue to operate as usual, fly their normal schedules, honor reservations and make exchanges and refunds.

Ray Neidl, aerospace analyst at Maxim Group, said it was a lack of progress in contract negotiations with pilots that ultimately tipped the carrier into Chapter 11.

American Airlines hopes bankruptcy will cut labor costs. Shares of AMR, whose passenger planes average 3, 000 daily U.S. departures, had slid 45 percent from the end of September through Monday. On Tuesday the shares tumbled 84 percent to close at 26 cents on the New York Stock Exchange. Stock typically is wiped out when a company exits Chapter 11 and new shares are issued, making the old shares worthless.

       AMR shares were halted 28 times on the NYSE on Tuesday for triggering the circuit breaker rule on the exchange, which is activated when a stock moves up or down 10 percent or more in a five-minute period. Shares of rival airlines rallied on expectations that fares could rise, as AMR kept a lid on industry wide fares in its effort to keep its airplanes full. United Continental shares closed up 6.33 percent to $17.63, while US Airways Group Inc climbed 4.5 percent to $4.46 and Delta Air Lines rose 4.98 percent to $7.80.

Under its Chapter 11 bankruptcy filing in a New York court, the company listed assets of $24.72 billion and liabilities of $29.55 billion. The company has $4.1 billion in cash. Bankruptcy allows the company to force creditors to agree on a plan to reorganize the company, and it also gives AMR the chance to sell flight routes. But AMR’s bankruptcy filing showed few details about how the company would proceed.

Experts believe AMR stands to save billions by restructuring its obligations in bankruptcy. AMR itself said the bankruptcy has no direct legal impact on operations outside the United States and that it would remain an active member of the global airline alliance one world. It also said it was not considering debtor-in-possession financing. While in bankruptcy, AMR becomes vulnerable to unsolicited takeover bids from rival carriers. AMR has said for years that it could thrive as a stand-alone carrier, but some experts believe another airline could make an offer.

LABOR PAIN

American has struggled with labor costs even though it won massive concessions from unionized workers in 2003 to avoid Chapter 11. Contract talks with pilots have dragged on for five years, hitting a wall in recent weeks over wages, benefits and work rules. Negotiations with unionized flight attendants have also lagged. A wave of pilot retirements earlier this year prompted speculation American could soon seek Chapter 11 and pilots were exiting to preserve pensions that could be terminated as part of a restructuring. An American Airlines pension plan default in bankruptcy would be the largest in U.S. history as its accounts are underfunded by $10 billion, government pension insurers estimated on Tuesday.

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