Tuesday, November 29, 2011

American Airlines Files Chapter 11

Perhaps we should not be surprised that American Airlines' parent company has filed for bankruptcy protection.  American remained the last of the legacy U.S. carriers not to have filed Chapter 11.  All others had done so at one point or another.  As a result, the other legacy carriers had been able to use Chapter 11 to restructure their balance sheet and modify their labor contracts significantly.  American remained at a disadvantage because it had not been able to reduce labor costs and debt obligations as substantially as its rivals.  To some extent, Chapter 11 offers the opportunity to level the playing field.  It may seem strange to suggest that a firm may be compelled to file Chapter 11 in part because all its rivals have filed previously.   Yet, that dynamic does exist in this industry.  One should not come to the conclusion, however, that such a domino effect always exists.  Clearly, Ford has managed to be very competitive, despite the fact that it was the only one of the Big Three not to engage in a government-aided bankruptcy restructuring. 

No comments: