American Airlines, and its parent company AMR (NYSE:AMR), filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court on Tuesday.
The company made the move to "become a more efficient, financially stronger, and competitive airline," Thomas Horton, incoming Chairman and CEO of AMR and American Airlines said in a statement. As part of the transition, former Chairman and CEO Gerard Arpey will retire, and will be succeeded by Horton.
The Texas-based airline plans on "conducting normal business operations" while it restructures its debt and other obligations, it said in a separate release. To that end, flights are expected to continue as normal and the reservations and customer service departments will conduct business as usual as well.
AMR is the only major airline to have not filed for bankruptcy in the past ten years, putting it at a "very substantial disadvantage" to its competitors, the company said . The airline found itself stuck in lengthy, and unsuccessful, negotiations with the unions representing its major workgroups, which left it locked in a non-competitive cost structure. It also still needs to fund worker pensions, which other major carriers do not.
The decision was also influenced by "global economic uncertainty, volatile and rising fuel prices, and intensifying competitive challenges."
AMR posted a third-quarter loss of $162 million in October, and currently has $4.1 billion in cash and unrestricted investments on hand, which it deems sufficient to pay vendors, suppliers and other business partners.
It presently holds $24.7 billion in assets and $29.6 billion in debt, according to its bankruptcy filing. The largest two unsecured claims are by Wilmington Trust and Manufacturers and Traders Trust Company.
The New York Stock Exchange said it is reviewing the continued listing of AMR shares on the exchange. Shares plunged 85% to 23 cents a share in choppy trading on Tuesday.
Generally, shareholders of common stock only recover value after secured and unsecured creditors are paid. At this point, AMR has "not contemplated that either interest will be paid or that interest will continue to accrue on unsecured securities during the Chapter 11 proceedings."
AMR is tapping high-profile New York-based Weil, Gotshal & Manges as its legal counsel, and plans on using Rothschild Group as its financial advisor, according to court documents. The Honorable Sean Lane is overseeing the case, the documents the show.
The case is Case No. 11- 15463 (SHL) filed in United States Bankruptcy Court for the Southern District of New York.
AMR Bankruptcy Filing