American Airlines Files Bankruptcy Protection Under Chapter 11


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American Airlines Files Bankruptcy Protection Under Chapter 11

By Mike Mitchell

November 29, 2011 - American Airlines, Inc. announced that its parent company, AMR Corporation, and certain United States-based subsidiaries today voluntarily filed for bankruptcy under Chapter 11 of the Bankruptcy Code.  

American took this action in order to achieve a cost and debt structure that is competitive in the airline industry so that it can continue its operations. American expects to continue normal business operations throughout the reorganization process, and the business will continue to be operated by the Company's management.

The United States Chapter 11 reorganization process enables a company to maintain normal business operations while it establishes a competitive cost and debt structure. This action has no direct legal impact on any American Airlines operations outside the United States. Chapter 11 is a chapter of the United States Bankruptcy Code, permits reorganization under the bankruptcy laws of the United States.

Chapter 11 bankruptcy is available to every business, whether organized as a corporation or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. In contrast, Chapter 7 governs the process of a liquidation bankruptcy, while Chapter 13 provides a reorganization process for the majority of private individuals. 

When a business is unable to service its debt or pay its creditors, the business or its creditors can file with a federal bankruptcy court for protection under either Chapter 7 or Chapter 11. In Chapter 7, the business ceases operations, a trustee sells all of its assets, and then distributes the proceeds to its creditors. Any residual amount is returned to the owners of the company. In Chapter 11, in most instances the debtor remains in control of its business operations as a debtor in possession, and is subject to the oversight and jurisdiction of the court. 

AMR Corporation And American Airlines announce a leadership transition. The Board of Directors of AMR Corporation, the parent of American Airlines, has named Thomas Horton chairman and chief executive officer of the Company, succeeding Gerard Arpey, who on Monday informed the Board of his decision to retire. Horton will also succeed Arpey as chairman and chief executive officer of American. Horton will continue to serve as President of AMR and American. "Today, we entered a new phase in the evolution of this great company with a talented and experienced new leader, Tom Horton, succeeding Gerard Arpey, who skillfully led our company through some of its most challenging times," said Armando M. Codina, lead independent director of AMR.


"Our Board decided that it was necessary to take this step now to restore the Company's profitability, operating flexibility, and financial strength. We are committed to working as quickly and efficiently as possible to appropriately restructure American so that it can emerge from Chapter 11 well-positioned to assure the Company's long term viability and its ability to compete effectively in the marketplace," Horton stated. He further stated "Achieving the competitive cost structure we need remains a key imperative in this process and, as one part of that, we plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels."

The Company has approximately $4.1 billion in unrestricted cash and short-term investments. This cash, as well as cash generated from operations, is anticipated to be more than sufficient to assure that its vendors, suppliers and other business partners will be paid timely and in full for goods and services provided during the Chapter 11 process in accordance with customary terms.  Because of the Company's current cash position, the need for debtor-in-possession financing is neither considered necessary nor anticipated.

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