American Airlines’ parent company AMR Corporation filed for Chapter 11 bankruptcy protection last Monday. The company currently faces $29.6 billion in debt that continues to grow as a result of operating losses. During reorganization, the airline company will likely aim to reduce labor costs, leaving many worried that wage-cuts and layoffs may come in the near future. AMR stated that American Airlines expects to continue normal business operations throughout the reconstruction process. Specifically, American and American Eagle assured customers that they would fly normal schedules, honor tickets and reservations, maintain frequent flyer miles, and continue to pay employee wages as well as provide health benefits.
According to the Financial Times, this marks the end of company’s decade-long attempt to avoid Chapter 11. In 2003, American chose to avoid bankruptcy, while many of its peers chose to use Chapter 11 to reduce structural costs and cut pension plans, putting American at comparative disadvantage. For example, the company claims that it is currently paying at least $600 million more for labor contracts than other airlines such as Delta and United who were able to eliminate existing contracts after filing chapter 11. Federal bankruptcy rules allows a company filing for Chapter 11 the ability to reject contracts. As such, AMR will be able to take a stronger stance when it renegotiates with labor unions. This will be one of the first steps AMR will take in its attempt to use reorganization to become more efficient, competitive, and financially secure.
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Editorial Staff
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