Wednesday, Nov. 30, 2011 — This post comments on the top story in today’s The Wall Street Journal “American Lands in Bankruptcy” along with numerous sidebars including the article on what fliers can expect to happen, which is essentially a sister article to today’s top Business section story in the Denver Post “Flights to Continue.”
Whereas a couple of years ago bankruptcy articles in the popular press were virtually nonexistent, Denver Post and Wall Street Journal have reported on Chapter 11 bankruptcy filings nearly on a daily basis as we approach the end of 2011.
The WSJ reports that the parent of American Airlines filed for Chapter 11 bankruptcy protection with about $30 billion in debt, most of it secured by collateral that could be repossessed by creditors, about $25 billion in assets, and — this is what is interesting — more than $4 billion in cash on hand. This high amount of cash “surprised some industry observers but drew praise from bankruptcy experts.” This is because — whether it’s a big corporation seeking Chapter 11 debt relief or an individual seeking Chapter 7 relief — too often people and companies wait too long before seeking the relief that they deserve.
“Cash is critical to a successful restructuring in bankruptcy,” bankruptcy attorney for AMR (American’s parent company) Tom Roberts is quoted as saying. I would add that cash is critical to a personal restructuring through a Chapter 13 as well as to a personal debt liquidation through a Chapter 7. Mr. Roberts is further quoted: “Problem is, if we waited any longer, we may have adversely affected our ability to successfully restructure.”
Attorney Eric Schaffer, who is quoted as having worked on past airline restructurings, said AMR’s filing appears to have been “very well planned.” The article features a graphic showing six Chapter 11 filings since 2000 by major airlines: US Airways filed in 2002 and emerged in 2003, then filed again in 2004 only to emerge in 2005 through a merger with America West; TWA filed in 2001 only to emerge in 2001 through a merger with American; United filed in 2002 and emerged four years later; Northwest and Delta separately filed in 2005, both emerged in 2007, and then the two carriers mergged in 2008.
WSJ reported that AMR said its annual labor costs including pensions are about $800 million more than rivals, a figure unions dispute. Now labor groups will have to compete with other creditors, leasing firms and others for a position on the creditor’s committee during the bankruptcy process. The creditor’s committee in a Ch 11 filing is ultimately apppointed by a Justice Department representative.
AMR’s stock price has dropped, WSJ reported, from a January high of $8 per share to a low yesterday of $0.26.