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AMR Could Play Bankruptcy Card To Break Labor Logjam - Forbes (http://us.rd.yahoo.com/finance/external/forbes/rss/SIG=143knshb4/*http%3A//www.forbes.com/sites/greatspeculations/2011/09/21/amr-could-play-bankruptcy-card-to-break-labor-logjam/?partner=yahootix)

Trying for $800 million in savings

At the Deutsche Bank Aviation and Transportation Conference held recently, American Airlines denied seeking bankruptcy liquidation (Chapter 7) but did not rule out the possibility of seeking bankruptcy protection (Chapter 11) to reorganize its labor agreements that put it at a marked disadvantage to airline industry peers such as Delta Air Lines, Southwest Airlines,US Airways and United Continental.

In the past, several major players including Delta, US Airways and United Airlines have filed for bankruptcy in an attempt to rationalize their costs. American Airlines has avoiding bankruptcy so far, but this looks increasingly likely as negotiations have broken down between the unions and management.

Below, we take a look at what might factors may cause American to file for bankruptcy protection and how these may impact the company’s valuation.

We have a $5.65 price estimate for American Airlines, implying a premium of around 60% over the current market price.

American Airlines’ work force is said to rank among the lowest in the industry in terms of productivity and according to management estimates, the airline is at $800 million-a-year disadvantage to competitors on labor costs (See AMR Faces Union Stalemate in Bid for $800 Million Labor Savings).

While competitors have negotiated better deals with the unions through bankruptcy, American continues to honor its expensive labor agreements. The airline has been trying to negotiate new agreements with its union for years now, but the contract negotiations have stalled badly. While labor costs account for about 31% of all operating costs at American, they stand at around 22-23% for Delta and United Continental.

However, the airline is trying to make up for the higher labor costs through efforts like fleet replacement aimed at deriving fuel efficiencies and the recent spin-off of its regional carrier, American Eagle to access more competitive rates from other carriers. The airline has also entered into new partnerships with British Airways and Japan Airlines that should boost revenue from international travel.

If American files for bankruptcy and comes out with re-negotiated labor contracts, it should be able to reduce its operating expenses by eliminating the $800 million cost disadvantage relative to peers, at least in part. This indicates a potential upside to the current valuation which factors in heavy compensation and retirement liabilities.

They can try that, but I do not think APA would play ball.

I heard today that several banks were getting credit down grades and more could come as Moody's and friends say that it is no longer the case, given the financial situation of the government, that banks are too big to fail. They can fail.

Wonder if this will apply to airlines? Could AMR be that much more too late to the chapter 11 table?

FtB:

I suspect that may be the case. The laws changed the month after DAL filed. They got under the wire. AMR will not be as lucky as we were.

My crazy guess is, if they go CH11 they will be forced to fragment. I know what we want, and it would be in NYC, DFW and MIA.

FTB,

The bankruptcy rules have changed.

To know what is going to happen at American, watch the management staffing. Delta hired bankruptcy experts fives years (and some NINE years) before the actual filing. A lot of financial engineering went on between 2000 and 2005 to protect those who's paychecks and retirements the Board was willing to protect.

Since the value of the common stock will go to zero, the "club" of those enriched off of bankruptcy is exclusive and they follow a pattern. You could see the Delta and NWA bankruptcies follow a nearly identical pattern as United did.

Lots of McKensie consultants hanging around is a sure sign, even on other Continents:
NEW DELHI: Air India may be flying low these days, but the national carrier has a raft of consultants on a high as the airline management seeks expensive suggestions, which it often finds hard to implement.

This Friday, the national carrier's board will consider a proposal to appoint McKinsey & Co as advisor to suggest ways to recover. An airline official, requesting anonymity, said the consultancy was demanding Rs 14 crore as fee for its services, mostly aimed at improving operations and joining the global air synergy, the Star Alliance.

Civil Aviation Minister Vayalar Ravi (http://indiatoday.intoday.in/story/vayalar-defends-air-indias-plane-buy/1/151260.html) is fighting the battle of his life to save national carrier Air India from bankruptcy. But it's not an easy job.
In an exclusive interview to Headlines Today, Ravi says he has to beg the Finance Ministry every month to pay salaries of Air India (http://indiatoday.intoday.in/story/cag-report-on-air-india-praful-patel-denies-helping-private-airlines/1/150595.html) employees.
"Every month end I go to Pranab Mukerjee's house at 12 o'clock in the night and so he asks me 'why have you come?' To which, I say I need Rs 200 crore. Arre Rs 200 crore in the night? Which means, I have to get the money from him for the salaries also. I need to be in a position, where I can depend on myself. That is my first step," Ravi told Headlines Today on Tuesday.
This is sorry tale of a man with perhaps the toughest job in government right now: turning around the troubled national carrier.
The minister claims he has already started working towards it.
"The various directors for important posts are missing. Prime Minister Manmohan Singh has told me to appoint members from the open market and most of them have been filled now: HR, finance, marketing and commercial and also certain propositions. So, the team has come. Now, we are looking at the process, by which we can help save the posts, save the money and the areas from where we can get more cash flow," says Ravi.
But the biggest problem at hand continues to be the delay in the payment of salaries of the AI employees.

My crazy guess is, if they go CH11 they will be forced to fragment. I know what we want, and it would be in NYC, DFW and MIA.

My (far less crazy) guess is that there will be no fragmentation and you'll have to find another target of opportunity.

Your bloodthirstiness is obvious.

My (far less crazy) guess is that there will be no fragmentation and you'll have to find another target of opportunity.

Your bloodthirstiness is obvious.

Trust me, I prefer to have AMR in the drivers seat on that necessary merger over LCC or B6.

I hope that little announcement/comment is for posturing in negotiations. One thing about a bankruptcy is that management is along for the ride just like labor. The BK judge and creditor committee call the shots - not management. For that reason alone a strategic bankruptcy is very risky and may not yield the desired effect. Most management teams do everything to stay out of Chapter 11 simply because they lose control over the company.

I hope that little announcement/comment is for posturing in negotiations. One thing about a bankruptcy is that management is along for the ride just like labor. The BK judge and creditor committee call the shots - not management. For that reason alone a strategic bankruptcy is very risky and may not yield the desired effect. Most management teams do everything to stay out of Chapter 11 simply because they lose control over the company.

It takes some big brass ones to intentionally foray into Ch.11 if it's not an absolute last resort, but with excellent planning and a top-notch (and totally unscrupulous) team it cam pay off big time for the few key players.

I admit I've lost my SA on how that would work since the new rules came about. Maybe it wouldn't be worth the risk anymore.

How has Chapter 11 changed regarding labor agreements?

GF

American Airlines gives upbeat 3Q revenue outlook - Yahoo! Finance (http://finance.yahoo.com/news/American-Airlines-gives-apf-3678502297.html?x=0&.v=6)



American Airlines Gives Upbeat 3Q Revenue Outlook
American Airlines 3Q revenue, costs up, analyst says management must gain investor confidence




DALLAS (AP) -- American Airlines said Wednesday that its revenue is rising, but higher fuel prices are also pushing up costs in the third quarter.

Analysts had mixed reviews for the latest news from American, the nation's third-largest airline. They praised the upbeat revenue forecast but noted that while other airlines are making money, American parent AMR Corp. is expected to post losses through next year.

AMR's stock price has fallen 55 percent this year through Tuesday, and one analyst suggested that management changes may be needed if the company doesn't come up with a plan to win back investor confidence.

The company updated its outlook in a filing Wednesday with the Securities and Exchange Commission. AMR said third-quarter revenue per mile will rise between 7.8 percent and 8.8 percent compared with a year ago, even with a $25 million loss from 1,200 flights cancelled because of Hurricane Irene last month.

Analysts said the upbeat revenue news, along with similar comments from United Continental Holdings Inc. and Delta Air Lines Inc., should ease fears that the weak economy has hurt travel demand.

But analysts were discouraged that AMR expects costs per mile to rise by 9.2 percent to 10.2 percent. Most of the increase is due to jet fuel, but AMR said other costs are rising too.

AMR also said it might take a big write-down in the fourth quarter to cover the falling value of its older planes. American is replacing some of its gas-guzzlers, and recently announced plans to buy 460 planes over the next several years.

A J.P. Morgan analyst widened his estimated third-quarter loss for AMR, and a Dahlman Rose & Co. analyst cut her target price on AMR shares.

The harshest comments, however, came from longtime airline analyst Ray Neidl of Maxim Group LLC, who said management and labor at American Airlines need a wake-up call.

Neidl said the airline's labor costs are too high -- an argument that American's management makes at every opportunity -- and that the company's leaders are riding on its storied history instead of adapting to changes in the industry. American fell from the world's biggest airline in 2008 to No. 3 in the U.S. today as rivals grew through mergers -- first Delta and Northwest, then United and Continental.

"AMR remains an attractive franchise in our opinion that is undermanaged," Neidl wrote in a note to clients. "The current management seems to be more of a caretaker of a deteriorating asset."

Neidl said AMR does not face imminent bankruptcy because it has $4.9 billion in cash -- although that's down by $900 million in just three months. He added if company leaders don't produce a workable plan to regain investor confidence, it may be necessary to replace them "to save the carrier in the long term."

AMR sidestepped a public spat with Neidl. A spokesman said the company doesn't comment on analysts' opinions.

American has raised its revenue with higher fares and by introducing new fees this year -- most recently, charging extra for good seats such as windows and aisles. It hopes to sell more international travel through partnerships with British Airways and Japan Airlines, and it's spinning off the American Eagle regional affiliate, which should eventually save AMR money. New planes from Boeing and Airbus will cut fuel and maintenance costs.

There has been less progress in labor negotiations. The company has been negotiating with pilots, flight attendants and mechanics since 2008.

Shares of AMR fell 15 cents, or 4.3 percent, to close at $3.33. This year's share price drop of 55 percent compares with declines of 13 percent at United Continental, 34 percent at Delta, 35 percent at Southwest Airlines Co., and 40 percent at US Airways Group Inc.

Maybe the "Ch 11" considerations are simply tough talk for contract negotiations with APA.

$800 million is chump change. Delta paid double that for Comair. And they didn't even want us. :D

Arpy should give the APA pilots a significant raise, and allow the rest of the industry to beat it.

The fellow who introduced me to commercial aviation was a senior American pilot, who is now retired(thankfully he took the cash payout). It is very sad to see American in this situation. I think they are in a very bad position and it sucks:(

FtB:

I suspect that may be the case. The laws changed the month after DAL filed. They got under the wire. AMR will not be as lucky as we were.

My crazy guess is, if they go CH11 they will be forced to fragment. I know what we want, and it would be in NYC, DFW and MIA.

Boy with all these airlines getting ready to fragment it's gonna be a big old auction. Hey adadadad we have Charlotte goin 6 do I hera 7 odadadada.:eek:

Neidl said AMR does not face imminent bankruptcy because it has $4.9 billion in cash -- although that's down by $900 million in just three months.

I've taken the liberty to nudge your highlight to the second half of that sentence.

At that cash burn rate there 16 months left.
Since you need cash to enter CH11, maybe half that.

Unless AMR shows at least 2 consecutive profitable quarters, CH11 is unavoidable.

I'd imagine a deal will be struck (merger etc.) just prior to reaching the Edge of Ch11. That gives the head-honchos the most leverage in gaining concessions. The fact that the CH11 scenario is being floated is part of a concerted effort to set up the narrative over the next 6-9-months.

AMR is a great company, too bad the other players changed the rules mid-game.

Cheers
George

AirlineFinancials:


I have received a lot of questions from a lot of pilots regarding AA/AMR's (apparent) financial and operational problems.

The majority of questions revolve around:
* What is the likelihood of AMR restructuring via bankruptcy or possibly something similar to what was done in 2003
* Why is AA's revenue performance falling behind network competitors

Re: Restructuring.. At first glance, when you hear of $billions in cash, new aircraft orders, full airplanes, higher fares, etc. it is a challenge to understand let alone accept a -potential- AMR BK.

OPINIONS surrounding AMR's future can be found to say most anything one WANTS to believe.

My OPINION is that: Based on AMR's current *and* projected financial condition, my analysis shows AMR's (unrestricted) cash position will be under $4 billion before the end of Q2 2012. I expect (no one on the outside knows) if AMR's cash position does fall to less than $4 billion, the AMR BoD will direct management to file bankruptcy.

It's important to note that Northwest was the only airline bankruptcy I can find that reorganized without requiring DIP financing. NWA was able to finance their own restructuring only because of their high cash position going into bankruptcy. Contrary to popular belief there is no minimum "cash" threshold required before filing bankruptcy. The only real requirement is for management to show the bankruptcy judge that the current business plan is "unsustainable". In my OPINION, AMR could easily show an unsustainable business plan to a bankruptcy judge as early as today.

For some reality perspective: Northwest filed for chapter 11 bankruptcy protection in September 2005. In NWA's most recent 10Q prior to their filing (quarter ending 6/30/2005), they reported $2.14B in cash and equivalent. That was approximately 18% of their annual revenue.

~18% of AMR's revenue would be approximately $4.3B. At the end of Q2 2011, AMR reported $5.2B in unrestricted cash/equivalents. From my analysis, it is a challenge to see how AMR will NOT burn through a $billion in cash over the next 3-9 months.

Re: The (supposed) fall off in AMR's revenue performance. I have attached some charts showing historical operating metrics comparing the four major network carriers.

Revenue performance- Until recently (last couple of quarters), AA has generally led the industry (PRASM, RASM and Yield).
Most noticeable on the charts is that while AA's network competitors have closed the gap on AA's relative revenue premium, AMR has done nothing to shrink the gap in CASM.

While AA's revenue metrics are still at or near the highest for the network carriers. AA's unit costs (CASM) are simply uncompetitive.

The most alarming change is AA's falling yield performance relative to the competing network carriers.

In my opinion, the revenue "gap" has been closing because AA's competitors have, over the last few quarters, built up much stronger GLOBAL networks using their alliance partners and have significantly higher regional/affiliate feed capacity for their domestic operations.

There should also be no argument consolidation made DAL/NWA and UAL/CAL significantly stronger together than they were as stand-a-lone competitors. As such, I suspect AA is losing more-and-more of the higher yield business passenger to UAL and DAL.

I support the arguments above by showing AA's load factors have more-or-less remained competitive with the network carriers and the month-to-month change in capacity has been more-or-less similar for all four network carriers.

Refer comments and questions to:


Bob Herbst

Heyas,

I think this illustrates the futility of bargaining with management to try to save a company. 3-4 years of reduced earnings only to result in a abrogated contract anyway. The time value of money makes this brutal, and thats before you consider the loss of any deferred compensation, like a retirement that gets thrown away.

A better strategy is probably a "max pay to the last day" plan, and negotiate a short term BK contract, then an aggressive follow up contract.

Nu

Heyas,

I think this illustrates the futility of bargaining with management to try to save a company. 3-4 years of reduced earnings only to result in a abrogated contract anyway. The time value of money makes this brutal, and thats before you consider the loss of any deferred compensation, like a retirement that gets thrown away.

A better strategy is probably a "max pay to the last day" plan, and negotiate a short term BK contract, then an aggressive follow up contract.

Nu

From a pilot's perspective it's kind of broken record isn't it?

You can get pilot pay cut in half if you ask for 30% now to save the company from chapter 11, which isn't the goal, then go into chapter 11 and use that new baseline and ask for another 30%- 51% cut. Had you not gotten that cut the court may not have given you a 51% cut, it may have been less. So first, get employees to give up money to save the company and then go into chapter 11. If employees don't give up pay, then take that to the court and blame them for ruining the company. Win-win.

Do I need my tin foil hat? I'll go find it.

I've taken the liberty to nudge your highlight to the second half of that sentence.

At that cash burn rate there 16 months left.
Since you need cash to enter CH11, maybe half that.

Unless AMR shows at least 2 consecutive profitable quarters, CH11 is unavoidable.

I'd imagine a deal will be struck (merger etc.) just prior to reaching the Edge of Ch11. That gives the head-honchos the most leverage in gaining concessions. The fact that the CH11 scenario is being floated is part of a concerted effort to set up the narrative over the next 6-9-months.

AMR is a great company, too bad the other players changed the rules mid-game.

Cheers
George

I totally agree with this. Arpy knows he needs to be in the drivers seat of any consolidation his airline will be part of. I suspect that Capstone, or another one of the Ft Worth superfunds will work in concert with "their" Fort Worth airline to make sure he is.

If AMR were to go CH11, the ball is totally out of their hands. Like I said it would lead to fragmentation of their airline, and that is not what their investors or leaders want. For this reason I suspect that your position is the one that will be the direction they take.

I would suspect a AMR/B6 and fragmented LCC tie up. LCC is the one that needs to get fragmented, and SWA, AMR, DAL, and to a lesser degree UCAL are in the position to absorb the assets.

As with everything, that is my guess based upon what I see and hear.

Heyas,

I think this illustrates the futility of bargaining with management to try to save a company. 3-4 years of reduced earnings only to result in a abrogated contract anyway. The time value of money makes this brutal, and thats before you consider the loss of any deferred compensation, like a retirement that gets thrown away.

A better strategy is probably a "max pay to the last day" plan, and negotiate a short term BK contract, then an aggressive follow up contract.

Nu


If the writers facts and logic are correct, I completely agree with your conclusion.

In the case of DAL (when DAL filed for bankruptcy), I completely agree with your conclusion too...Even to the point of liquidation/ fragmentation.

Heyas,

I think this illustrates the futility of bargaining with management to try to save a company. 3-4 years of reduced earnings only to result in a abrogated contract anyway. The time value of money makes this brutal, and thats before you consider the loss of any deferred compensation, like a retirement that gets thrown away.

A better strategy is probably a "max pay to the last day" plan, and negotiate a short term BK contract, then an aggressive follow up contract.

Nu

The general concesus here is that pilot compensation will neither push AA to BK, nor prevent it from happening. Additionally, any contractual provisions agreed upon prior to BK can be further decimated in BK, so most here see little point in being enablers of this management team (a LOOSE term) once again. The labor give-backs in 2003 have essentially been squandered on management bonuses and funding American Eagle. The pilots give-backs alone have been basically the pilots funding their own retirement plan for the last 8 years to boot. It seems management is pulling out all the "union buster" tricks including making good use of sympathetic media sources to send mixed messages as pressure. This is all old stuff, the only difference this time is that it won't work. I think they've overplayed their stay at the concessions table and the only way significant concessions will come is through BK, ESPECIALLY on scope. Again, at this point the majority I talk to would rather get something this time for their givebacks and that is damage to the management as well. Most prefer to have management stick the knife in rather then have it handed to them to commit seppuku with. If you're going to get gutted anyway, better to do so with honor.

As for BK itself, I don't see fragmentation of the airline. AA needs to grow to compete, not break apart. AA has to decide what it will be, either a competitive legacy with UAL and DAL or something else, but right now it's nothing. AMR must have a cash position minimum to fund their own BK and if and when they get there, they'll make that move. My bet says they have a "projection date" that they'll hit whereby, they'll begin a process of pre-packaging for a filing (perhaps they already have started that behind the scenes ?). The big cash burn included a fat pension contribution I believe and another is due in March. 1113 will provide the foundation to impose the last contract offer, so that box still has to be checked. I think AMR became agressive on pilot negotiations recently to both get a view of the current landscape among the pilots and to check the little stuff off, leaving only key items to be part of the "last, best and final offer" to come. Even if accepted, it can be modified in BK and if not, a good chance of most of their interests imposed.

Again, from my perspective at this point, nobody cares. Most say, "bring it on already and stop trying to play us like chumps". Most would love to see the books opened, as much of the management changed as possible and hopefully the gluttonous management compensation trough will be drained. From my perspective, the worst miscalculation that AA management has made in this spiraling disaster is their assumption that once they "clean house" with labor, they'll just move forward with a competitive PRODUCT.

Yes, their COSTS may be competitive, but the people who produce and present that product will be hopelessly damaged for the remainder of their tenure a AA and AA will become the "I don't give a damn" airline, providing poor service. Shiny planes, cheap fares and good schedules won't change that. You simply can't force enthusiasm. It's been said that AMR stands for "Ain't My Responsibility" and that philosophy has been CULTIVATED over time. I shudder to think of the emotional landscape here after the knife is stuck in once again. If management thinks they're going to gut the employees yet again (and this time a complete evisceration) and re-stitch something that shows effort and pride, they're wrong. You can't make a silk purse out of a sows a**hole and regardless of what happens, the AA "product" is almost certain to be the worst out there 5 years from now. You also can't rock a boat that's already sunk and again, from my perspective, this employee group (across the board) has absolutely had it with this philosophy of motivating and inspiring people.

I think most here think BK here would actually be like opening the windows in a smally bathroom on a windy day.

Just my .02

FtB:

I suspect that may be the case. The laws changed the month after DAL filed. They got under the wire. AMR will not be as lucky as we were.

My crazy guess is, if they go CH11 they will be forced to fragment. I know what we want, and it would be in NYC, DFW and MIA.

Nice maybe you can move up on the backs of your brothers, hey I remember you when we went into ch-11, thx for showing your true colors!

The general concesus here is that pilot compensation will neither push AA to BK, nor prevent it from happening. Additionally, any contractual provisions agreed upon prior to BK can be further decimated in BK, so most here see little point in being enablers of this management team (a LOOSE term) once again. The labor give-backs in 2003 have essentially been squandered on management bonuses and funding American Eagle. The pilots give-backs alone have been basically the pilots funding their own retirement plan for the last 8 years to boot. It seems management is pulling out all the "union buster" tricks including making good use of sympathetic media sources to send mixed messages as pressure. This is all old stuff, the only difference this time is that it won't work. I think they've overplayed their stay at the concessions table and the only way significant concessions will come is through BK, ESPECIALLY on scope. Again, at this point the majority I talk to would rather get something this time for their givebacks and that is damage to the management as well. Most prefer to have management stick the knife in rather then have it handed to them to commit seppuku with. If you're going to get gutted anyway, better to do so with honor.

As for BK itself, I don't see fragmentation of the airline. AA needs to grow to compete, not break apart. AA has to decide what it will be, either a competitive legacy with UAL and DAL or something else, but right now it's nothing. AMR must have a cash position minimum to fund their own BK and if and when they get there, they'll make that move. My bet says they have a "projection date" that they'll hit whereby, they'll begin a process of pre-packaging for a filing (perhaps they already have started that behind the scenes ?). The big cash burn included a fat pension contribution I believe and another is due in March. 1113 will provide the foundation to impose the last contract offer, so that box still has to be checked. I think AMR became agressive on pilot negotiations recently to both get a view of the current landscape among the pilots and to check the little stuff off, leaving only key items to be part of the "last, best and final offer" to come. Even if accepted, it can be modified in BK and if not, a good chance of most of their interests imposed.

Again, from my perspective at this point, nobody cares. Most say, "bring it on already and stop trying to play us like chumps". Most would love to see the books opened, as much of the management changed as possible and hopefully the gluttonous management compensation trough will be drained. From my perspective, the worst miscalculation that AA management has made in this spiraling disaster is their assumption that once they "clean house" with labor, they'll just move forward with a competitive PRODUCT.

Yes, their COSTS may be competitive, but the people who produce and present that product will be hopelessly damaged for the remainder of their tenure a AA and AA will become the "I don't give a damn" airline, providing poor service. Shiny planes, cheap fares and good schedules won't change that. You simply can't force enthusiasm. It's been said that AMR stands for "Ain't My Responsibility" and that philosophy has been CULTIVATED over time. I shudder to think of the emotional landscape here after the knife is stuck in once again. If management thinks they're going to gut the employees yet again (and this time a complete evisceration) and re-stitch something that shows effort and pride, they're wrong. You can't make a silk purse out of a sows a**hole and regardless of what happens, the AA "product" is almost certain to be the worst out there 5 years from now. You also can't rock a boat that's already sunk and again, from my perspective, this employee group (across the board) has absolutely had it with this philosophy of motivating and inspiring people.

I think most here think BK here would actually be like opening the windows in a smally bathroom on a windy day.

Just my .02

The only people who think that bankruptcy will somehow be better off are people that have never been through it. I doubt you will find even a small fraction of Delta pilots that went through (DAL/NWA) bankruptcy and said "Hey that was much better for us, glad that happened."

For the APA the one warning I would give is to protect your work rules. Both US Air and United went into bankruptcy with not much of a plan on how to work the contract. They ended up with terrible work rules that made people's lives miserable, especially domestic narrow body pilots. At Delta we did the pre-bankruptcy restructuring and were able to control, for the most part, how the work rules came out. We kept the most important duty rigs and avoided the 20 hour unpaid layovers in the airport hotels. We did improve productivity for the company, but did it in a way that preserved the essential quality of life for our pilots. If you decimate your work rules, they take forever to get back.

In bankruptcy, you will find out how out of control you are. You think that management will get smacked around and they will leave you alone but I assure you the opposite is true. I hope the APA is planning well on how to handle a potential bankruptcy. If you compare the four carriers that went in during the last round, you will see vastly different outcomes. What you do does make a difference.

So I appreciate your forum bluster, you seem full of bluster lately. Let me know how that works out for you.

Nice maybe you can move up on the backs of your brothers, hey I remember you when we went into ch-11, thx for showing your tue colors!

I already noted this.......I mean, geez, it was pretty hard to miss.

Yes, on pilot forums, it's common for pilots to present one facade while letting the inner desires slip thorugh accidentally. Perhaps he's sincere about the APA coming out ahead, but I'll bet there would be no tears shed from him if AA were to fragment and he benefitted handsomely. Being a forum moderator doesn't eliminate the true pilot mentality that's existed for decades and that's first and foremost, "EVERY PILOT FOR HIMSELF".

I mean if you REALLY take a hard look around this industry, pilots have been attacking each other for as long as I can remember. That's exactly WHY they are in the predicements they are in, i.e., they're their own worst enemy. Mangements are simply opportunists of this and that is why it's so easy for them.

Sad, but true and it will never change.

Yes, their COSTS may be competitive, but the people who produce and present that product will be hopelessly damaged for the remainder of their tenure a AA and AA will become the "I don't give a damn" airline, providing poor service. Shiny planes, cheap fares and good schedules won't change that. You simply can't force enthusiasm. It's been said that AMR stands for "Ain't My Responsibility" and that philosophy has been CULTIVATED over time. I shudder to think of the emotional landscape here after the knife is stuck in once again. If management thinks they're going to gut the employees yet again (and this time a complete evisceration) and re-stitch something that shows effort and pride, they're wrong. You can't make a silk purse out of a sows a**hole and regardless of what happens, the AA "product" is almost certain to be the worst out there 5 years from now. You also can't rock a boat that's already sunk and again, from my perspective, this employee group (across the board) has absolutely had it with this philosophy of motivating and inspiring people.

CAL went through BK at least twice. USAirways has been through it twice. DAL and UAL have each been through. Compare their financial, operational and customer service rankings with AMR. Note also, of those carriers only Delta pilots currently are paid higher than American.

The general concesus here is that pilot compensation will neither push AA to BK, nor prevent it from happening. Additionally, any contractual provisions agreed upon prior to BK can be further decimated in BK, so most here see little point in being enablers of this management team (a LOOSE term) once again.

On this point we are in complete agreement. Pilot contract (wage/productivity) costs alone will not send AMR to bankruptcy. A failed management team, labor productivity, pension costs and the unfairness of a legal system that allowed all the other carriers to restructure (read welch on deals) while AMR paid its debts will (imo).

I think most here think BK here would actually be like opening the windows in a smally bathroom on a windy day.



I'm guessing based on this quote you haven't "lived the dream.":eek: Bankruptcy is like sitting on a smelly port-a-potty and having the damn thing knocked over with you inside.

http://www.youtube.com/watch?v=XAqyWw56CDE

The only people who think that bankruptcy will somehow be better off are people that have never been through it. I doubt you will find even a small fraction of Delta pilots that went through (DAL/NWA) bankruptcy and said "Hey that was much better for us, glad that happened."

No one here (to my knowledge) is confused that AA (or AA pilots) will be better off in BK. It's just that at this point, it matters little what pilots agree to or not. A good contract (especially on scope) wont be the final straw for BK and rolling over and spreading our butt cheeks won't prevent it. Most have no more interest in ASSISTING this management team in ANYTHING anymore if you ask me.

It's actually THAT BAD now.

For the APA the one warning I would give is to protect your work rules. Both US Air and United went into bankruptcy with not much of a plan on how to work the contract. They ended up with terrible work rules that made people's lives miserable, especially domestic narrow body pilots. At Delta we did the pre-bankruptcy restructuring and were able to control, for the most part, how the work rules came out. We kept the most important duty rigs and avoided the 20 hour unpaid layovers in the airport hotels. We did improve productivity for the company, but did it in a way that preserved the essential quality of life for our pilots. If you decimate your work rules, they take forever to get back.

Some things to think about;

A judge will look over the competitive landscape to determine what is an acceptable change to either the last offer (which he/she may impose) or what he/she comes up with based on the arguments by both management and labor. AMR may ask for a blank check, but that doesn't mean they'll get it.

In fact, if a judge DID give AMR HUGE concessions, that would only destabilize the industry by THEN putting UAL and DAL at serious disadvantage and what may that ultimately result in ?

Both of those carriers possibly going back (again) to BK themselves to "level the field". If a judge is TOO gracious to managements whims, they can actually cause more damage then harm (wiping out a whole group of new shareholders and damaging creditors at other carriers). Yes, their primary responsibility is to creditors, but there DOES have to be a balance. AA's pilot pay is ALREADY competitive with DAL and UAL (in between, I think) and scheduling issues have already been agreed to for the most part providing the needed efficiency. My guess is scope would be loosened to approximate what UAL and DAL already have and of course, the A-fund would be mailed to the taxpayers, while virtually ALL of their debt is eliminated. To be honest and blunt, the employees at UAL and DAL should loathe an AA BK as much as anyone, for once that happens, NO WAY will their managements agree to contracts that accelerate above and beyond AA's. A new, LOWER bar will exist and you'll be lucky to keep what you have. It will likely be a case of one BK changing the ENTIRE industry compensation-wise.

Oh....and forget about strikes. The current big-business sympathetic congress will never allow a major carrier to be shut down by labor ever again (I say that with confidence). FAR too many excuses of the damage that would cause and quite frankly, thr unsympathic public would go right along with that.

In bankruptcy, you will find out how out of control you are. You think that management will get smacked around and they will leave you alone but I assure you the opposite is true. I hope the APA is planning well on how to handle a potential bankruptcy. If you compare the four carriers that went in during the last round, you will see vastly different outcomes. What you do does make a difference.

So I appreciate your forum bluster, you seem full of bluster lately. Let me know how that works out for you.

Again, no one here has any illusions of the lack of control. Quite frankly, you're "over there" and I'm "here" on this one, but thanks for a reminder of the obvious (lack of control, different outcomes, different situations), but this BK might not be what YOU apparently believe it to ultimately be either. :cool:

CAL went through BK at least twice. USAirways has been through it twice. DAL and UAL have each been through. Compare their financial, operational and customer service rankings with AMR. Note also, of those carriers only Delta pilots currently are paid higher than American.

Considering what's occured here the last 10 years, assuming the AA "product" will follow the same path as the other carriers have is in error, IMHO.

The issue isn't BK itself, it's what has occured here in the 10 years PRIOR to any BK.

I'm guessing based on this quote you haven't "lived the dream.":eek: Bankruptcy is like sitting on a smelly port-a-potty and having the damn thing knocked over with you inside.

Britney Spears Jackass 3 Deleted Scene - Regenerect The Movie - YouTube (http://www.youtube.com/watch?v=XAqyWw56CDE)

LOL !!!

Man, I've been on this forum from day one reminding regional pilots, THERE IS NO "DREAM" ANYMORE in this business. The major airlines have been gutted primarily due to the selfishness of individual pilots and pilot groups and the worthlessness of their so-called unions who've become nothing more then self-interested business themselves.

I came to AA with no illusions. In fact, I expect AA to become what Eagle WAS. 14-15-days off/month flying 80 hours, similar work rules, 401(k) and slightly higher wages...........basically the former Eagle, but with bigger and shinier jets.

The REAL bad part is that if THAT is what AA is likely to become (and quite frankly where UAL, DAL and JEEEZ, U already are), think of what it will be like flying for Eagle or any other regional in the future regardless of whether you're in a Q400 or E-190.

All I did was jump from one boat to the next to MAINTAIN my former Eagle QWL. Believe me, it was either do that or quit the industry. Also, BK will impact pilots differently at any given carrier due to seniority, age and the ability to recover.

The major airlines have been gutted primarily due to the selfishness of individual pilots and pilot groups and the worthlessness of their so-called unions who've become nothing more then self-interested business themselves.I really disagree with this part - the mainline pilots are certainly fighting for wages and work rules - the problem is two-fold.

One, management has figured out that the lower an airline ticket costs, the more people fly. So, lower the price as far as they can, and they'll make it up in volume. So they focus on lowering costs, in every way possible. One obvious way is to lower labor costs (not just pilots, but FA, mechanics, dispatchers, cleaners, etc) by using lower cost labor - ie, regionals. I'm sure if they could, AMR, DAL, UAL - all of them, etc would prefer to get rid of all mainline pilots and replace them with regional pilots, at regional wages of course.

Second, as pilots we have NO leverage anymore. In the past, there was a RLA that let us strike - as was pointed out, NMB (and the President, democrat or republican) is not going to let us strike, or even "threaten" a strike. All it takes it the idea of 70,000 people out of work, all over the country, for either the NMB or Congress/President to say it's not in the national interest for a strike.

I really disagree with this part - the mainline pilots are certainly fighting for wages and work rules - the problem is two-fold.

One, management has figured out that the lower an airline ticket costs, the more people fly. So, lower the price as far as they can, and they'll make it up in volume. So they focus on lowering costs, in every way possible. One obvious way is to lower labor costs (not just pilots, but FA, mechanics, dispatchers, cleaners, etc) by using lower cost labor - ie, regionals. I'm sure if they could, AMR, DAL, UAL - all of them, etc would prefer to get rid of all mainline pilots and replace them with regional pilots, at regional wages of course.

Second, as pilots we have NO leverage anymore. In the past, there was a RLA that let us strike - as was pointed out, NMB (and the President, democrat or republican) is not going to let us strike, or even "threaten" a strike. All it takes it the idea of 70,000 people out of work, all over the country, for either the NMB or Congress/President to say it's not in the national interest for a strike.

Who gave away that leverage ?

Most think it was given away in 1992 when ALPA turned their backs on the first RJ thinking it wasn't a threat, but actually most mainline pilot groups did this much earlier by creating and maintaining an "us and them" environment with their participating regional carriers that began flying they "didn't want to do".

What mainline PILOTS and their bargaining representatatives SHOULD have done then was bring these pilot groups CLOSER so as to prevent them being used against them in the future.

They flunked.

Then, once the drug was in place all they needed was the correct needle.........AKA the 'RJ". Now you don't have innocent little BE-99's and metroliner's flying around but CRJ-900's and E-175's.

Personally, I think you really need to take a sobering look backward on the systemic failure of self-interested pilots and their sloppy bargaining reps to see why the profession of "major-airline pilot" is now hoplessly in the garbage can.

"Leverage" had to start somewhere in infancy and the above was its metamorphasis to the broken-down old man this career has become.

It's a shame too.

Who gave away that leverage ?

Most think it was given away in 1992 when ALPA turned their backs on the first RJ thinking it wasn't a threat, but actually most mainline pilot groups did this much earlier by creating and maintaining an "us and them" environment with their participating regional carriers that began flying they "didn't want to do".

What mainline PILOTS and their bargaining representatatives SHOULD have done then was bring these pilot groups CLOSER so as to prevent them being used against them in the future.

They flunked.

Then, once the drug was in place all they needed was the correct needle.........AKA the 'RJ". Now you don't have innocent little BE-99's and metroliner's flying around but CRJ-900's and E-175's.

Personally, I think you really need to take a sobering look backward on the systemic failure of self-interested pilots and their sloppy bargaining reps to see why the profession of "major-airline pilot" is now hoplessly in the garbage can.

"Leverage" had to start somewhere in infancy and the above was its metamorphasis to the broken-down old man this career has become.

It's a shame too.I wasn't in the business much when the RJs first appeared on the screen, but here's my view. It's not just lower wage pilots that kept RJs from mainline. It's a total cost structure that is lower. The RJ is a high cost airplane - no way around that. It's CASM is much above mainline jets. The only way to profitable operate it is to have (a) much higher RASM or (b) much lower cost structure. In the beginning, management thought they could get high ticket prices when they were competing with turboprops and they were flying out of secondary markets like Lexington, Lansing, Albany, NY, etc. After 9/11, the explosion of LCCs (brought on by mainline reductions) made it reasonable for people in Lexington, KY (for example) to drive to Louisville to catch SWA. People saved hundreds of dollars - the result was that Legacy carriers had to drop prices to get people to fly that RJ out of Lexington rather than drive.

Which brought on the need for a lower cost structure: I'm sure someone did the math and said if we pay everyone from the CEO down to the janitor 75% less, we can make these planes profitable. Also, by bringing everyone in a first year pay, it's cheaper still. Why do you think Comair is getting axed? High costs because it's been around so long. So, if the Delta pilots wanted Delta to own and operate the airplanes, the pilots would have to operate them at such lower wages, it wouldn't make sense. It's not just the pilots - mechanics, FAs, dispatchers, ground staff, etc would all want to service the airplanes (and might have a contractual right to) - raising the operating cost of the RJs. Makes for a high cost operation, even if it was only the pilots who wanted to fly them.

I wasn't in the business much when the RJs first appeared on the screen, but here's my view. It's not just lower wage pilots that kept RJs from mainline. It's a total cost structure that is lower. The RJ is a high cost airplane - no way around that. It's CASM is much above mainline jets. The only way to profitable operate it is to have (a) much higher RASM or (b) much lower cost structure. In the beginning, management thought they could get high ticket prices when they were competing with turboprops and they were flying out of secondary markets like Lexington, Lansing, Albany, NY, etc. After 9/11, the explosion of LCCs (brought on by mainline reductions) made it reasonable for people in Lexington, KY (for example) to drive to Louisville to catch SWA. People saved hundreds of dollars - the result was that Legacy carriers had to drop prices to get people to fly that RJ out of Lexington rather than drive.

Regardless of the above, the fact is that it is the RJ that got managements nose in the tent flap for undermining arguably now HALF the former route structures of the major carriers and it's the pilots of the past (both as union leaders and supporters) who failed at the critical juncture of seeing this and acting on it.

I was here before 1992 and I saw it then and wondered why major carriers were shutting out their regionals well prior to that and then when the RJ arrived (Comair CRJ-200), I said to myself this will be the beginning of the end. It mattered little about the economics then or NOW, as once that infrastructure blossems, they'll be flying aircraft that ARE profitable like 100-seat RJ's and not flying smaller routes, but REPLACING mainline flying.

That is exactly what happened. If I could look and figure that out over 20 years ago, why couldn't people who were smarter ?

This is all rationalization.

The fork in the road was passed back then and now there are no more forks. The major of the future, is the regional of the past, compensation-wise for pilots.

How could the stock market plunge today affect upcoming retirement numbers on OCT 1st? Is it really a 90 day look back for stock price?

Moody's Lowered Outlook Stokes AMR Liquidity Concerns - Forbes (http://www.forbes.com/sites/greatspeculations/2011/09/22/moodys-lowered-outlook-stokes-amr-liquidity-concerns/?partner=yahootix)

American descends

American Airlines showed modest gains midweek after tanking on Monday as Moody’s lowered its outlook on American Airlines parent AMR Corp.’s unsecured debt to negative. The outlook was revised citing poor liquidity expectations for the airline due to significant debt burden and capital expenditures.

This will weigh heavily on sentiment especially as labor negotiations have stalled. We believe the company is taking the right steps to reorganizing its cost structure, but the heavy debt burden and existing obligations reduce visibility in the near term.

The airline primarily competes with the likes of Delta Airlines, Southwest Airlines, US Airways and United Continental.

We have a $5.65 price estimate for American Airlines, implying a premium of about 60% over the current market price.

High Debt Burden Hurting Outlook

During the last five years, the company raised an aggregate of approximately $8.8 billion in financing to fund operating losses, capital commitments (mainly for aircraft and ground properties), debt maturities, employee pension obligations and to bolster its liquidity. The company reports in its 10-K that it expects to incur substantial additional debt (including secured debt) in the future to help cover the costs of its fleet.

The airline has about $3.1 billion in debt payments due by the end of next year. As of June 30, AMR had $5.2 billion unrestricted cash which are expected to drop below $4 billion by the end of next year, as per Moody’s, indicating that cash reserves may fall inadequate for debt repayments in absence of sufficient operating cash flow the following year.

Besides debt repayment obligations, AMR is likely to bear high interest costs as refinancing debt on favorable terms would be very challenging for the airline, given its history of poor operating profitability.

Efforts to Improve Cash Flow

The above obligations will be mitigated to an extent as the replacement of older technology aircraft with new fuel-efficient carriers will help American realize significant savings from increased efficiency, lower fuel burnout and lower maintenance costs.

Also, the recent spin-off of its regional carrier, Eagle will result in reduced costs by helping the airline diversify its regional feed and access more competitive rates (See AMR Spins Off American Eagle in Effort to Grow Regional Business). The company may also seek bankruptcy protection to reduce its exorbitant labor costs (See AMR May Seek Bankruptcy Protection as Labor Talks Hit Impasse).

Despite the cost reduction measures currently underway at AMR, fears about a downgrade further into junk territory are difficult to assuage. It would depend on how quickly these efforts are visible in the company’s bottom line and boost cash inflows, that would determine AMR’s ability to meet its obligations.

In the long term, it is important for the company to improve its profitability fundamentally by going after an aggressive strategy to boost top-line or by altering its cost structure which is currently inferior to most peers, in order to be comfortable on the liquidity front on a sustainable basis.

With any rating downgrades, the company’s valuation is likely to take a hit as dismal profitability prospects indicated by the downgrade are built into company’s cash flow forecasts.

Nice maybe you can move up on the backs of your brothers, hey I remember you when we went into ch-11, thx for showing your true colors!

I already noted this.......I mean, geez, it was pretty hard to miss.

Yes, on pilot forums, it's common for pilots to present one facade while letting the inner desires slip thorugh accidentally. Perhaps he's sincere about the APA coming out ahead, but I'll bet there would be no tears shed from him if AA were to fragment and he benefitted handsomely. Being a forum moderator doesn't eliminate the true pilot mentality that's existed for decades and that's first and foremost, "EVERY PILOT FOR HIMSELF".

I mean if you REALLY take a hard look around this industry, pilots have been attacking each other for as long as I can remember. That's exactly WHY they are in the predicements they are in, i.e., they're their own worst enemy. Mangements are simply opportunists of this and that is why it's so easy for them.

Sad, but true and it will never change.

I want AA and APA to win, not just for them but for pilot industry wide.

When I refer to fragmentation, it is not for person benefit. My view of the airline landscape includes fragmentation. I prefer for it not to be AMR, but like you, I have little control in the matter.

I know it is hard to believe but I see no personal gain in AMR getting split up. It leaves three, not four players left, and that is an issue. With three there will be room for start up carriers, with four there is too much pricing power for any more start up airlines to destroy our industry or our careers.

I have many close friends at AMR/APA and want then to win in every scenario. Like I have said, I see fragmentation as a eventuality, and it is not mean at a red meat moment for my benefit. I aplogize if you saw it that way. It is my position on where the industry is going. It very well could have been DAL and not LCC and AMR that were facing these issues. No one is immune to it.

I do hope for all pilots and especially the APA pilot's sake that APA is looking long and hard at the CH11 plan, and a possible fragmentation. It is good business to plan for every contingency. No more no less. Do not take my statement personally, I was discussing industry tectonics, not possible gains by me over you.

I want AA and APA to win, not just for them but for pilot industry wide.

When I refer to fragmentation, it is not for person benefit. My view of the airline landscape includes fragmentation. I prefer for it not to be AMR, but like you, I have little control in the matter.

I know it is hard to believe but I see no personal gain in AMR getting split up. It leaves three, not four players left, and that is an issue. With three there will be room for start up carriers, with four there is too much pricing power for any more start up airlines to destroy our industry or our careers.

I have many close friends at AMR/APA and want then to win in every scenario. Like I have said, I see fragmentation as a eventuality, and it is not mean at a red meat moment for my benefit. I aplogize if you saw it that way. It is my position on where the industry is going. It very well could have been DAL and not LCC and AMR that were facing these issues. No one is immune to it.

I do hope for all pilots and especially the APA pilot's sake that APA is looking long and hard at the CH11 plan, and a possible fragmentation. It is good business to plan for every contingency. No more no less. Do not take my statement personally, I was discussing industry tectonics, not possible gains by me over you.

Okay, I guess it was the "I Know what we want " comment that got my attention.

Okay, I guess it was the "I Know what we want " comment that got my attention.

Sorry, we as in the company. We as in the pilots is for AMR to kick SWA's six. :D

"AMR remains an attractive franchise in our opinion that is undermanaged," Neidl wrote in a note to clients. "The current management seems to be more of a caretaker of a deteriorating asset."

. . . He added if company leaders don't produce a workable plan to regain investor confidence, it may be necessary to replace them "to save the carrier in the long term."

No comments on this?

Slight thread drift...

It is interesting that the most recent "regional" formed is Lynx, now Republic. In my opinion, just 4 years ago, the F9 pilots failed to utilize the lessons learned from the last two decades of rj erosion, signed away scope and now have Great Lakes, Republic, and Chataqua flying their routes.

who gave away that leverage ?

Most think it was given away in 1992 when alpa turned their backs on the first rj thinking it wasn't a threat, but actually most mainline pilot groups did this much earlier by creating and maintaining an "us and them" environment with their participating regional carriers that began flying they "didn't want to do".

"what mainline pilots and their bargaining representatatives should have done then was bring these pilot groups closer so as to prevent them being used against them in the future."

they flunked.

Then, once the drug was in place all they needed was the correct needle.........aka the 'rj". Now you don't have innocent little be-99's and metroliner's flying around but crj-900's and e-175's.

Personally, i think you really need to take a sobering look backward on the systemic failure of self-interested pilots and their sloppy bargaining reps to see why the profession of "major-airline pilot" is now hoplessly in the garbage can.

"leverage" had to start somewhere in infancy and the above was its metamorphasis to the broken-down old man this career has become.

It's a shame too.

bingo!!!!!!!!!!!!

Fellas, with all this doom and gloom, are there any prospects for AMR getting to the end of the recall list and hiring anytime soon? Pardon the naivite, but I'm in the AF looking to jump in a couple of years. Thanks.

Fellas, with all this doom and gloom, are there any prospects for AMR getting to the end of the recall list and hiring anytime soon? Pardon the naivite, but I'm in the AF looking to jump in a couple of years. Thanks.

If AMR does not declare CH11 it will most likely be one of your best options for rapid seniority growth in the near future. Don't know what single seat aircraft you fly, but they also have Guard and Reserve units near two of their major domiciles of DFW and MIA.

Forget AA; aim higher if you want a career with a stable airline. AA ain't it.

Bankruptcy is an unknown variable, as well. If chapter 11 occurs, which it most likely will, the aftermath isn't going to attract new-hire pilots.

APA was approached to merge the list back in 1990 when there was only 500 pilots at AE. Lavoy member of the APA board made the same suggestion. APA board did not want to soil there seniority list with regional pilots. Ever since then they have blamed the regional pilots for everything that goes wrong with there careers. But it is always great to have a a scapegoat to blame for all there problems. Unfortunately is all due to there short sightedness even when it was explained to them what would happen and has happened as it was explained to them. There superior attitude and all the mainline pilots attitude has brought this upon themselves and they all use the regional pilots as an excuse for there problems. ALPA started this long road we all have gone down and APA went along.

AA will file for c-11, it is not if but when. My belief is between January and February 2012 with a prepackaged deal and financed wholly by the cash on hand AMR has. BK will take 6 months and by summer 2012 they will be leaner and cheaper.

what happened to all the "bright future talk" at AA. huge retirements, fast track to Captain seat if hired today, etc etc

now they are talking Ch 11

welcome to aviation

????

AMR Could Play Bankruptcy Card To Break Labor Logjam - Forbes (http://us.rd.yahoo.com/finance/external/forbes/rss/SIG=143knshb4/*http%3A//www.forbes.com/sites/greatspeculations/2011/09/21/amr-could-play-bankruptcy-card-to-break-labor-logjam/?partner=yahootix)

Trying for $800 million in savings

At the Deutsche Bank Aviation and Transportation Conference held recently, American Airlines denied seeking bankruptcy liquidation (Chapter 7) but did not rule out the possibility of seeking bankruptcy protection (Chapter 11) to reorganize its labor agreements that put it at a marked disadvantage to airline industry peers such as Delta Air Lines, Southwest Airlines,US Airways and United Continental.

In the past, several major players including Delta, US Airways and United Airlines have filed for bankruptcy in an attempt to rationalize their costs. American Airlines has avoiding bankruptcy so far, but this looks increasingly likely as negotiations have broken down between the unions and management.

Below, we take a look at what might factors may cause American to file for bankruptcy protection and how these may impact the company’s valuation.

We have a $5.65 price estimate for American Airlines, implying a premium of around 60% over the current market price.

American Airlines’ work force is said to rank among the lowest in the industry in terms of productivity and according to management estimates, the airline is at $800 million-a-year disadvantage to competitors on labor costs (See AMR Faces Union Stalemate in Bid for $800 Million Labor Savings).

While competitors have negotiated better deals with the unions through bankruptcy, American continues to honor its expensive labor agreements. The airline has been trying to negotiate new agreements with its union for years now, but the contract negotiations have stalled badly. While labor costs account for about 31% of all operating costs at American, they stand at around 22-23% for Delta and United Continental.

However, the airline is trying to make up for the higher labor costs through efforts like fleet replacement aimed at deriving fuel efficiencies and the recent spin-off of its regional carrier, American Eagle to access more competitive rates from other carriers. The airline has also entered into new partnerships with British Airways and Japan Airlines that should boost revenue from international travel.

If American files for bankruptcy and comes out with re-negotiated labor contracts, it should be able to reduce its operating expenses by eliminating the $800 million cost disadvantage relative to peers, at least in part. This indicates a potential upside to the current valuation which factors in heavy compensation and retirement liabilities.





it wil cost amr more than a billion for attorney fees, accounting firms and financial firms.......sounds to me a tactic to scare APA.... I know a regioanal on BK last year it cost over 265 million without union or contract issues

AA will file for c-11, it is not if but when. My belief is between January and February 2012 with a prepackaged deal and financed wholly by the cash on hand AMR has. BK will take 6 months and by summer 2012 they will be leaner and cheaper.That makes sense with the changes in Bankruptcy Law from 2005. But labor is under considerably less pressure than they were. Congress got tired of Leo Mullin and his Harvard Buddies dumping pension obligations on them. The labor provisions attempted to close the door on the practice of raping and robbing the employees.

New Rules for Corporate Bankruptcy
Although the act's main goal was to reform personal bankruptcy rules, it did change some rules on corporate filings. But Skeel says he is not convinced the changes were needed. The corporate-bankruptcy system has long been very effective, he suggests.
Previously, a company that filed for bankruptcy protection could remain under the control of its managers -- the "debtor in possession" -- indefinitely. Under the new rules, the company will have the exclusive right to plan the reorganization for only 180 to 210 days. After that, creditors will be able to propose plans of their own. Skeel says critics are rightly concerned that in some cases certain creditors will stall a company's reorganization so that they can propose one that favors them over other creditors.
Another provision will make it tougher for bankrupt companies to wriggle free of leases. This could make reorganization more difficult for retailers, though Skeel doesn't think this will be as big a problem as many of the law's critics do.
The act also makes it harder for companies in bankruptcy to pay bonuses to managers. That was mainly intended to prevent corporate crooks from continuing to plunder their companies in bankruptcy.
But Skeel argues these cases are rare. Most corporate bankruptcies do not involve fraud, and in those that do the crooks are usually gone by the time bankruptcy is filed. Managers who take companies out of bankruptcy have long been compensated primarily with performance-based bonuses, and that system has worked well, Skeel says. After the law takes effect, it will be important to see whether talented managers will stay through reorganizations without bonuses. "It seems pretty clear that when Congress put this provision in, it was not thinking about this."

Doesn't look too good:

American Airlines wants to raise $725.7 million by borrowing against aircraft

American Airlines Inc. intends to borrow $725.7 million and may borrow another $232 million, using a variety of airplanes to secure the debt, the carrier said Tuesday.

...Last week AMR projected that its liquidity - cash and short-term investments - will drop to about $4.7 billion as of Friday, Sept. 30, down from $5.6 billion on June 30.

Assuming the deal closes, AMR's liquidity as of Dec. 31 should remain above $3.5 billion, or more than 15 percent of its operating revenues over the previous 12 months...

American Airlines wants to raise $725.7 million by borrowing against aircraft | Airline Biz Blog | dallasnews.com (http://aviationblog.dallasnews.com/archives/2011/09/american-airlines-wants-to-rai.html)

If I were at AA, I'd try to get a contract pronto including big work-rules improvements and the largest possible raise that can be gained with an immediate signing... That will serve as the baseline should there be a BK.
You could even make it amendable in 2013, just to get a stopgap deal...

Cheers
George

AMR in Stalemate in Bid for $800 Million Labor Savings - Bloomberg (http://us.rd.yahoo.com/finance/external/bloomberg/rss/SIG=13gbk1gla/*http%3A//www.bloomberg.com/news/2011-09-02/amr-faces-union-stalemate-in-bid-for-800-million-labor-savings.html?cmpid=yhoo)

AMR in Stalemate in Bid for $800 Million Labor Savings
By Mary Schlangenstein - Sep 29, 2011

AMR Corp. (AMR)’s American Airlines, saddled with the U.S. industry’s highest labor costs, now faces contract negotiations stalled so badly that federal mediators have walked away from the talks.

A stalemate with three unions is thwarting American’s bid to chop what it says is an $800 million-a-year disadvantage to rivals in labor expenses. Pilots say “considerable gaps” remain as they meet with executives at a rural Texas resort this week to assess what to do next in bargaining that began in 2006.

Unions for the pilots, flight attendants and ground workers want to recoup at least part of the $1.6 billion in annual concessions made to avert bankruptcy in 2003. Fort Worth, Texas- based AMR seeks productivity gains to cut labor bills that are helping drag it to a fourth straight annual loss.

“Not only do they need to be able to exact some cost savings out of labor agreements, but they need certainty to navigate what’s ahead,” said Brian Nelson, president of equity research at Valuentum Securities Inc. in Chicago. “While they do have a large cash position, their cash-flow generation is faltering. I would put labor near the top of the priority list.”

AMR will be alone among peers with a 2011 loss and won’t post a profit in 2012, based on analysts’ estimates compiled by Bloomberg. Its labor spending last year equaled 30.9 percent of sales, the most among the six largest U.S. airlines, according to data compiled by Bloomberg.

Union Template?

“The breakthrough would be if you got the pilots to do some concessions,” said Henry Oechler, an attorney with Chadbourne & Parke LLP in New York who has handled airline labor issues. “That could serve as a template for the other unions.”

By law, airline contracts don’t expire, so existing pay scales and work rules stay in place pending a new accord. American has flown for years under terms it wants to change while working on deals with three unions whose members make up 73 percent of employees at the third-largest U.S. carrier.

A National Mediation Board mediator recessed talks last month between American and the union for 11,000 mechanics over a lack of progress and didn’t set new sessions, after a similar outcome for baggage handlers in July. An April NMB session ended with no dates for more talks with 17,000 attendants.

American and its pilots have been on their own for talks since October, when the NMB abandoned those negotiations.

‘Very Challenging’

“As tough as 2011 has been, 2012 is shaping up to be another very challenging year,” Jeff Brundage, American’s senior vice president for employee relations, said in an e-mail before he and Vice President Mark Burdette gathered this week with pilot leaders at Rough Creek Lodge & Resort in Glen Rose, Texas.

While Brundage said American was “working as quickly as possible with our unions,” the Allied Pilots Association said it didn’t see any agreement soon.

“We’ve got considerable gaps between our positions on some of the big areas,” Sam Mayer, a union spokesman, said in an interview. “I don’t think either side has an expectation of getting there in one week, but we’ll have a better idea if both sides think they have a way to bridge the gaps.”

A contract with American’s 8,700 active pilots can’t come too soon for the airline, which hasn’t posted an annual profit since 2007 and saw competitors return to profit in 2010.

Stock Performance

AMR is the worst performer on the 10-carrier Bloomberg U.S. Airlines Index in 2011, tumbling 55 percent before today. The shares closed yesterday at $3.52, compared with $24.69 when talks started with pilots on Sept. 20, 2006.

Most American rivals were in bankruptcy then or had exited within 12 months. Avoiding Chapter 11 meant American couldn’t chop costs in court protection. Then it missed out on consolidation such as last year’s United Airlines-Continental Airlines merger, which created the world’s biggest airline.

AMR should end 2012 with $4.4 billion in liquidity, “so no financial risk” now, Dan McKenzie, a Rodman & Renshaw analyst in Chicago, said in a report yesterday. “But the margin for error continues to narrow.”

Through 2015, AMR has $6.37 billion due in principal payments on long-term debt, spokesman Sean Collins said.

Adding to the urgency for a pilot accord is the fact that American has ordered hundreds of Boeing Co. (BA) and Airbus SAS jets it can’t fly until new pay scales are negotiated, said Hunter Keay, an analyst at New York-based Wolfe Trahan & Co. who rates AMR as “underperform.” McKenzie recommends holding the stock.

NMB’s Role

The National Mediation Board declined to comment on the status of American’s labor talks. With the freeze, American isn’t getting its sought-after savings, and its work groups don’t have payback for the 2003 concessions or the required federal clearance to move toward a strike.

“We might be sitting on the sidelines for quite some time,” said Sidney Jimenez, president of Transport Workers Union Local 568 in Florida, which represents workers such as baggage handlers.

American has reached agreements with each work group on numerous contract provisions. The unresolved issues are those that often require the most negotiating time, including compensation and retirement.

Laura Glading, president of the Association of Professional Flight Attendants, said it was “baffling” that American hasn’t concluded agreements with its biggest unions.

“All three groups are offering them some increased productivity and efficiency,” Glading said in an interview. “Yet you still don’t do what you need to do to close the deals.”