American Airlines forced to seek shelter from economic storm

Carrier cites fuel costs and fierce competition for bankruptcy move after three years of losses
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The Independent Online

American Airlines became the last major US carrier to file for bankruptcy protection yesterday, blaming soaring fuel costs, low-cost airlines and mergers between competitors for its woes. AMR, the parent company of American Airlines and American Eagle, the regional commuter carrier, filed for Chapter 11 protection as it sought to buy time to cut costs and reduce its mounting debts.

The group also named American Airlines' president, Thomas Horton, as the carrier's new chairman and chief executive, succeeding Gerard Arpey, who is retiring, despite being asked to stay on.

"This was a difficult decision, but it is the necessary and right path for us to take – and take now – to become a more efficient, financially stronger and competitive airline. Our very substantial cost disadvantage compared to our larger competitors... has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices and intensifying competitive problems."

The main competitors of American Airlines, the world's biggest carrier as recently as 2008, went into bankruptcy protection after the 11 September terrorist attacks. Among them were Delta Air Lines and United Airlines, which used bankruptcy proceedings to renegotiate staff contracts and substantially reduce their costs. They were able to cut costs further through large mergers, with Delta teaming up with Northwest and United pairing up with Continental. They have since returned to profit.

By contrast, AMR has stayed single and posted losses three years in a row, including a $471m (£301m) loss last year, rising to a $982m deficit in the first nine months of 2011.

American Airlines has also been squeezed by competitive pressure from the rise of low-cost airlines, such as Southwest Airlines, and a 50 per cent jump in fuel prices in the past five years.

Speculation that AMR might file for bankruptcy has been mounting in recent months, contributing to a 79 per cent dive in its share price so far this year.

The group said it expected to fly normal schedules throughout the Chapter 11 process and it has no plans to cancel or postpone its huge orders for new Airbus and Boeing aircraft, which are due to start arriving next year. However, the planned spin-off of American Eagle has been put on hold.

Mr Arpey retires from AMR after 30 years at the company. He joined American Airlines as a financial analyst, rising up the chain before becoming chief executive of AMR and American in 2003 and chairman a year later.

Mr Horton joined AMR in 1985, holding a range of senior financial positions before becoming president of AMR and American Airlines in July 2010.