Wall Street seems in a panic over the outlook for American Airlines, and the prospect that the only major US carrier that has avoided Chapter 11 restructuring in recent years may be forced into a filing due to the economic slowdown. With a major order for more than 400 aircraft in place, AA’s new fleet would generate significant savings and help the carrier become more competitive. But if it is forced to restructure, will it be able to take delivery of new orders of that magnitude, and will it find a more difficult time financing them?
It is amazing that American has survived this long without a filing, as the elimination of competitor debts has placed it at a competitive disadvantage vis-a-vis those who have filed. But it has steadfastly tried to compete the best it can, despite disadvantages, and is finding this double-dip economic recession difficult, with continuing losses. American is attempting to shed American Eagle, and sell other assets to maintain its operations without having to resort to Chapter 11, but the vultures now appear to be circling overhead.
AA could take the easy way out and file for bankruptcy – but that would be antithetical to its culture and management. Always a fighter, here’s hope that AA can find a way to more effectively compete without resorting to restructuring.
AMR has maintained a “Hold on, wait for us to build it, and they will come” attitude. But as the “jobless decade” dragged on, time is nearly expired. Cost parity is years overdue and has not yet been achieved (by others raising theirs, faster). Similarly, AA’s joint ventures were delayed for years, and have yet to produce. Hope springs eternal, but how much longer can the status quo last? As long as the cash, which is finite.
Despite their denials, and the opinion of many analysts today, I suspect AA’s endgame is bankruptcy. Their labor negotiations with their unions are not going well (major understatement). Management may feel that the only leverage they have going forward is to take the company into Chapter 11 and use the threat of having the labor contracts voided by a federal judge to wrest concessions from their workforce. I don’t know how that will play out; I suspect not well. Will their workers oblige the company and make concessions like they did back at the turn of the century? I doubt it.
This ain’t a happy company right now.