American files motion to extend bankruptcy exit

With a January 28 deadline staring American Airlines in the face, the company asked a Manhattan bankruptcy court for an extension to March 11 in order to complete plans to exit bankruptcy. The motion has the backing of the airline’s creditors.

AMR Corporation, the parent company of American Airlines, filed for bankruptcy protection in 2011 in an effort to knock down labor and operating costs and set the airline on a course to profitability. The filing is a sign that the airline is well down the path to settling with creditors and unions and that it will soon be ready to leave the protection of bankruptcy court.

The American Airline’s filing stated that the proposed extension would benefit all parties and help the airline. In a public statement, the company said it takes time to work out all the restructuring deals but that everyone will benefit in the end.

American protects itself from a hostile bid

This extended period will bar creditors from mucking up the works by proposing their own plans about how the airline should exit bankruptcy. It also blocks US Airways from mounting a hostile action to take over American. US Airways had previously expressed interest in buying American after it left bankruptcy. 

AMR has stated that it wants American to exit bankruptcy as a stand-alone company. American is, though, discussing mergers with other companies, including US Airways. The pilot’s union has been in a long fight with the airline to improve its contract, and the union supports a merger with US Airway. A union spokesman, Dennis Tajer, said that the extension request is a positive sign that “things are proceeding in a positive way.”

Pilots will vote on a new contract

Both American and United Airlines pilots are scheduled to vote on a new labor contract in a few weeks. These contracts will offer significant raises for the pilots. The pilots have given the airline various concessions over the years. The airlines, though, are not willing to give other unions significant raises and benefits, stating that there are risks that the airline’s recovery could stall. Flight attendants, unhappy with that news, voted last week to authorize a strike against US Airways.

Since the airline filed for bankruptcy in 2011, American has dealt with the labor groups by rewriting contracts. It has restructured debt to make the airline leaner. It has also addressed the aging mainline fleet. The main problem in a bankruptcy restructuring is deciding who gets what. Everyone wants part of the pie, and it’s a matter of deciding what is fair to whom. 

For these reasons, it’s paramount that companies seek out the advice of an experienced new jersey bankruptcy attorney to get it right. “Bankruptcy is primarily about leverage - who’s got leverage at the moment and what can any of the other stakeholders do to get it,” said Linda LaRue, a Dallas bankruptcy attorney familiar with American. The primary issues for American were dealing with labor and its concerns about retirement obligations, LaRue said.

Mike Trevino, a spokesman for the airline, said that American had made outstanding progress toward rebuilding the airline. “We are well on our way to building a new American Airlines,” said Trevino.

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