American Airlines Files For Bankruptcy

One of the biggest U.S. carriers, American Airlines, and its parent AMR Corp, filed for bankruptcy protection (Chapter 11) on Tuesday. The airline claimed that this declaration was necessary in order to cut labor costs in the face of high fuel prices and dampened travel demand.

AMR what seems to be for years complained that American Airlines carries high labor costs when other domestic and foreign airlines have already restructured theirs in bankruptcy. It was apparent that management could not achieve the desired cost cuts without declaring bankruptcy.

Chapter 11 was filed while the company still had some cash (about $4.1 billion) available to help itself to self-sustain. Bankruptcy usually allows a company to force creditors to work on a plan to reorganize the company. However at this point, American Airlines has not settled on a reorganization strategy.

Some analysts question whether restructuring under Chapter 11 of the U.S. Bankruptcy Code will solve any operational issues that have negatively affected American Airlines’ revenue, indicating there may be more problems that need to be addressed.

Weeks before the busiest travel time of the year, the airline confirmed that it will continue to operate as usual, the schedules are not being changed, and the airline will honor reservations as well as make refunds and exchanges. It also promised to honor frequent flyers miles. American Eagle, the American Airline‘s regional affiliate, also will continue to operate as scheduled.