American Group AMR Corporation, which owns one of the giants of the airline industry, American Airlines, has announced on Tuesday a decision to be placed under bankruptcy protection (Chapter 11). The decision was made in the context in which the company tries to reduce labor costs and cut its debts.
“Our board decided that it was necessary to take this step to restore profitability, operating flexibility and financial strength”, said Thomas W. Horton, AMR chairman, quoted by New York Times. Therefore, American Airlines becomes the last American airline seeking protection from creditors. AMR tried to avoid this since the terrorist attacks of 2001 when the U.S. airline industry has faced financial problems and the main competitors have resorted to bankruptcy protection in the context of a business slowdown.
AMR plans to operate normally during the bankruptcy process, as other airlines have done it earlier. In late September, AMR had assets worth $24.7 billion and liabilities of $29.6 billion. At that time, the company announced that it had about $4.1 billion in cash and short term investments, which can be used to pay suppliers.
The provisions of Chapter 11
Chapter 11 of Bankruptcy Code gives debtors protection in the U.S., being used almost exclusively by businesses due to cost and complexity of the process. Companies can turn to this option when debt restructuring is necessary and offers the advantage of keeping a large part of the assets protected from execution. The first concern of the debtor is to achieve a restructuring plan, which must be accepted by all creditors. Otherwise, the plan may be proposed by creditors, but if it is not accepted by the debtor, the judge decides liquidation.