Here comes the BK threat from the company

[eolesen]

I suggest you abandon the internet and actually reach out to a couple pilots at DL, preferably those who don't drink the kool-aid in a 64oz cup, and find out where they are on scope, or if they're supporting the split from ALPA.

And maybe while you're at it, you should talk to some of the guys at UA or CO who work within ALPA.

Start reading the Magenta Line as regularly as I have, or the UAL MEC's newsletters... The UA/CO merger negotiations aren't exactly unicorns and rainbows.

DL can give the contractual pay increases, but it won't smooth over the issue of scope, and won't go far at stopping the movement to dump ALPA and form an in-house union. Seems the DL guys finally came to the realization that ALPA has a conflict of interest by representing the Express carriers as well as mainline...

So I stand by my statement. US's pilots weren't worth mentioning because they're the poster child for infighting and dysfunctional...

 

[Maark767]

really? what information do you have that labor relations at DL and UA are anywhere close to the boiling point that AA's labor relations are... and since DL's pilots still have contractual raises do to be passed out in the next coming months putting them even further ahead of all other US network carriers, I'm not sure where you get that anything is stuck. Even if you look at UA/CO, they still have a long ways to go before things blow up.
OTOH, labor relations at AA and - US, yeah that's the other one - are at the point where the industry could be substantially reshaped in the next six to nine months solely by labor relations at those two carriers. Pretending that everyone else's labor relations are as bad as AA's is stretching the truth more than just a little bit.

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And no company regardless of whether BK is imminent or not will say anything about BK until the minute AFTER they show up on the courthouse steps - and walk through the door.
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Hopeful,
You can look at just about any other labor contract or pay scale (for non-union airlines), take the minimum (or in the case of medical benefits take the highest employee costs), then take off another 10% and figure that might be where AA will go with pay and benefit cuts. That isn't meant to scare but to help you realize that if you look at previous airline bankruptcies, the companies dig deep fast in order to stem the losses and provide a chance for the company to survive.
You are absolutely right that the chances are very high that AA will continue to bleed money for some time which is all the more reason why they will take big cuts from employees. AMR is in the unfortunate position of being the only major US airline that has to restructure at the present time which means the competition will be very aggressive in attacking AMR's key revenue - in just the same way that the low fare carriers went after the four network carriers that restructured in the last decade. Add in the fact that the economy is still in the tank and that every carrier is looking for places to redeploy capacity as a result of increased prices throughout the industry - and the resulting reduced capacity in most markets - and AA is in a very difficult position strategically.
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I know enough AA employees to know that many have prepared for what will come down in the next couple months - whether it is announced in two weeks or two quarters is immaterial in the light of the failed restructuring that has dragged on for 8 years.
Wise AA and AE employees have cut their expenses and debt and are prepared to ride out yet another very turbulent ride in the airline industry.
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Here's hoping you and others - including my brother - make it through and personally come out relatively unharmed.

I've been hearing this kind of doom and gloom for what 10 years now. I think the only people that really know what direction AA is going in is the guys at the top. Please know that I'm NO big fan of management. The proof is in the fact that this latest A/C order says something about how this company is ran. Only time will tell!

 

[WorldTraveler]

Regardless of how many pilots of any stripe you find, there simply is no credible argument to be made for saying that labor relations at any carrier - DL included - are anywhere close to the abysmal failure that exists at AA right now. The only carrier that comes close to that level with the pilots is US and that is as much about union-union conflicts as it is about union-mgmt failures. AA's current labor relations disaster cuts across ALL union lines - and even the non-union employees are beyond upset with the company. That type of employee sentiment is what happens when companies are run into the ground and the employees are handed the bill for the turnaround - even if it has yet to occur with previous "payments".
The simple fact is that DL has added more new international flying than all other US airlines combined over the past five years, they haven't had to ask "permission" from ALPA to add any of that including the longest routes flown by US airlines, and fully staffed with an equal number of captains and first officers. Further, DL is completely alone among US airlines in shifting flying BACK from regional carriers to DL mainline. Are there DL pilots who want even more? But there is no union leader who believes DL pilots will beat their own already industry leading pay and international expansion - which has completedly benefitted DL pilots.
And in the next few weeks, you will see announcements showing that DL's international expansion will continue in 2012, again to the benefit of DL pilots.
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Even for the UA/CO pilots, they have significant issues to iron out, including the use or larger RJs in CO hubs in the manner that UA has used them - but the simple fact is that UA/CO's disagreements internally within the pilot groups or with management is NOWHERE close to the level as what exists at AA.
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Might I suggest that you - who seem to find far more time to post on here than I - actually look at the big picture and DATA which will clearly show that AA's condition has rapidly deteriorated and that its situation is far more grave than any other US airline. Pretending to white wash how bad the situation is at AA by saying "it ain't so bad elsewhere" is nothing but an attempt to hold onto the pride which may have existed at AA years ago but certainly doesn't exist for the men and women who continue to be subjected to the ineptitude of AA mgmt today.

Maark,
the whole reason why you have heard the doom and gloom for 10 years is because AA has yet to turn its around 10 years after the huge shakeup in the industry that began even before 9/11. AMR mgmt has put bandaids on the problems for 10 years while other airlines - using all of the tools available to them including the legally available option of bankruptcy, did the hard work and have turned their companies around.
It is precisely because AA/AMR is in the unique position of having to now dramatically restructure while other carriers can afford to make tweaks to their business plans that the pain of the AA/AE restructuring will be far greater than what any other airline employee group has faced. AA will lose strategic options and be beat in key markets as other carriers are far better positioned to grow their own businesses at AA's expense during the next two years while AA's long-awaited restructuring has no choice but to occur.
Don't kid yourself about how severe the restructuring will be for AA/AE employees, esp. in light of the cuts that were taken 8 years ago. Perhaps only US employees will have endured more cuts by the time AA is through cutting. The depth of AA's problems, the environment in which it has having to restructure, and the much more limited strategic options available to AA make it imperative that AA mgmt dig deep to quickly turn the ship around.
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Sure, AA has billions of dollars of aircraft on order and the chances are quite high that in five years AA's fleet will be one of the most modern in the industry. But that refleeting and the rest of AMR's restructuring will come on the backs of its employees more so than perhaps at any other airline that has restructured. Yes, AA will likely survive but with much lower paid employees operating a much smaller network and having lost most if not all of the competitive advantages that built AA into the airline it was at its peak. Further, there is a very good chance that AA's only way to compete with much larger competitors DL, UA, and WN will be by merging - and it is far from clear that AMR/AA will be the surviving company in a merger. If you can take pride in where AA will end up - shiny new planes, far fewer employees who are paid far less, a smaller network with competitors all over the markets that built AA, and with the very real possibility that AA may not survive as an independent company, then go for it..... I'm not too sure very many AA employees would consider that a victory.

As much as you and I would like to think that this restructuring will be less painful than what other airline employees have gone through, the whole truth is that there are economic principles that AMR mgmt has attemped to overcome which has wrought enormous damage to the company and can only be corrected by taking extraordinarily painful steps - much of which will be borne by the employees.

 

[Hopeful]

As much as you and I would like to think that this restructuring will be less painful than what other airline employees have gone through, the whole truth is that there are economic principles that AMR mgmt has attemped to overcome which has wrought enormous damage to the company and can only be corrected by taking extraordinarily painful steps - much of which will be borne by the employees.

You got that right! But don't forget how the executives will hurt their arms patting themselves on their backs for "having made the oh-so painful decision to file for bankruptcy" as they ask the judge to abbrogate all labor agreements,.,,,Oh and don't forget how they will ask the same bankruptcy judge to increase CEO and executive compensation so the mangement team stays "onboard and help right the ship."

 

[Buck]

And all of this is going to happen with the current sitting President campaigning for his job?

The current President is for labor. How can this country afford to have a major airline fall into turmoil when the bankruptcy could mean a loss of jobs and or buying power?

 

[strikeforce]

And all of this is going to happen with the current sitting President campaigning for his job?

The current President is for labor. How can this country afford to have a major airline fall into turmoil when the bankruptcy could mean a loss of jobs and or buying power?

Don't fall for the BK doom & gloom. All the guys preaching BK are trying to soften the AMT's to agree to more concessions. I'm not buying it! Do these guys really believe Airbus & Boeing would ratchet up production and incur substantial costs making hundreds of airplanes so AMR can go BK. Please don't insult my intelligence...E....World Traveler...and any other AA lover out there.

Buck, that would be like going to your nearest Chevy dealer and ordering couple of hundred cars and then 6 months later filing BK. Do you really think Airbus and Boeing aren't doing "Due Diligence" on AMR's credit worthiness????

Bottom line....AA is reaping 17.5% wage and benefit concessions for every year that negotiations progress....why in the world would they have any interest in settling???

 

[strikeforce]

Hey Buck, the next time AMT's make a mad dash to save the airline.....remember the 17.5% concessions management is taking from you for stalling! In reality, WE signed an additional three year 17.5% concessionary deal in 2008! How do you like that??? Good job, TWU!

I hope the 11,000 AMT's are proud of the accomplishment of "DOING NOTHING"!!!

 

[jimntx]

You got that right! But don't forget how the executives will hurt their arms patting themselves on their backs for "having made the oh-so painful decision to file for bankruptcy" as they ask the judge to abbrogate all labor agreements,.,,,Oh and don't forget how they will ask the same bankruptcy judge to increase CEO and executive compensation so the mangement team stays "onboard and help right the ship."

You all seem to forget that the Federal bankruptcy laws were changed after the rest of the majors filed a few years ago and abrogated their labor contracts. A company entering BK court today does not get an automatic grant of contract abrogation. It is not totally prohibited, but it ain't as easy as it used to be.

Also, remember that the outrageous bonusses and payments made to executives "to retain their services" isn't automatic anymore. The company has to prove to the court that each executive has an outstanding, firm offer from another corporation before they can be paid extra to stay. And, even then the judge is allowed to say, "Well, let 'em take the other offer. Their services to you so far have resulted in your company showing up in my court." That alone may keep us out of bankruptcy court.

I'm not taking a side on whether or not we should strike if released from mediation because I'm already 66, and I would draw my little bitty pension from AA whether from them or from the PBGC. I just hope it doesn't happen until after Jan. 24th of next year when I will have my 10 years and be eligible for retiree travel and medical benefits. (That, of course, assumes that the company survives a strike.)

 

[FWAAA]

You all seem to forget that the Federal bankruptcy laws were changed after the rest of the majors filed a few years ago and abrogated their labor contracts. A company entering BK court today does not get an automatic grant of contract abrogation. It is not totally prohibited, but it ain't as easy as it used to be.

Sorry, but Old Age is showing itself again We all didn't forget anything; you're mis-remembering things. You're talking about bankruptcy act changes that followed the 1983 Lorenzo abrogation of CO employee contracts in its first bankruptcy. AFAIK, the 2005 amendments didn't change anything (not one single thing) relating to contract abrogation. US, UA, DL and NW did not get "automatic" abrogation. If AA files a petition under Ch 11, it will face the same tests as those airlines did. And it will be easy for AA to show that abrogation is necessary if the parties can't negotiate concessions.

Also, remember that the outrageous bonusses and payments made to executives "to retain their services" isn't automatic anymore. The company has to prove to the court that each executive has an outstanding, firm offer from another corporation before they can be paid extra to stay. And, even then the judge is allowed to say, "Well, let 'em take the other offer. Their services to you so far have resulted in your company showing up in my court." That alone may keep us out of bankruptcy court.

All the execs need to do is stay (with a gentleman's wink of an "agreement") until AA exits Ch 11 and then the board can give them the undeserved windfall. This 2005 change may have placated masses, but it didn't really change anything.

 

[WorldTraveler]

Neither the present or any future presidents can change the economic realities that AA/AMR must face. The only thing a president can do is slow the actions by labor in the even of a strike - but he/she certainly cannot stop the company from seeking and gaining the cuts it now needs to even give AA a chance of survival.
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AMR will have no trouble convincing any judge to grant them the labor cost relief they need - in a process which FWAAA notes is no different from what existed for other carriers. What has changed are some protections for creditors and the time the company has to get its reorganization plan approved by the court.
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unfortunately, strikeforce, the total will continue to climb until AA is turned around. The difference is that all AA employee groups will share in the cuts.
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And yes historically the mgmt group that takes a company into BK stays there until the company emerges. Few people want to join mgmt going into a BK and no one who oversees the process of restructuring can be accepted to lead a company after it emerges.

 

[FWAAA]

One thing about bankruptcy is that we will finally see EXACTLY what AA wants and was never able to acheive in negotiations.
I have said on quite a few occasions that AA should have filed when it was the popular thing to do regarding airlines. However, I do not believe that AA chose NOT to go that route because they truly didn't want to screw creditors, shareholders and employees. That's nonsense. They chose NOT to file because they did not want to lose ALL control of running the company.
They assumed employees would bend over as much as humanly possible because "we are lucky to have jobs."
They were ever so grateful when we all folded and voted in force fed concessions. Now they do not want to even come close to restoring what was taken 8+ years ago.

Nobody knows exactly why Arpey fought like he did to force the concessions instead of filing for Ch 11 protection, but I suspect that it's for the reasons that he himself has related: he has a naiive, moral objection to corporations filing for bankruptcy if there's a way to achieve the results voluntarily without the hammer of the bankruptcy court. This article summarizes his view:

http://www.thestreet.com/story/10852291/1/american-airlines-ceo-how-we-do-things-differently.html

So maybe now they will file Chapter 11 because employees are not buying their poverty defense anymore.
So be it!

But I would like to ask everyone to fully understand what Chapter 11 means. The contract as you know it will be decimated in every way shape and form. Pensions will be frozen no doubt. Don't be surprised if the new contract reduces ALL beneifts and wages. Don't be surprised if BUMPING is also removed because the company says it costs too much to pay proteced members $12500.
I have spoken to several mechanics who truly believe a bankruptcy judge will at least give us the last offer on the table. WRONG!!!!!!!!!!!!! You can be sure OH will emerge as a spin off and line mechanics will be paid like 3rd party contractors.
Just please be prepared for the changes that accompany bankruptcy. If you think it's bad now, just wait.
DO NOT let ANY union official tell you we will be better off in bankruptcy.

I agree completely. Anyone who thinks that AA will pay UPS/WN/FedEx wages in Tulsa to conduct regularly scheduled heavy overhaul is in complete denial. On the other hand, AA could easily pay those wages to you and others in high-cost line cities if some of the overhaul happened in SAL where $2/hr to $5/hr wage are paid to the employees (I wouldn't call them "technicians"). In fact, my prediction is that line AMTs at AA would see a pay raise during bankruptcy even while nearly everyone else suffers more concessions (pay rates and/or work rules).

When I say "LET EM FILE", I do so because I am tired of their threats and greed. File and be done with it.
Do not be surprised that even after bankruptcy, AA will contuinue to lose money because current management sucks.. They could go bankrupt every three years and as long as you have an inept management, they will never be profitable.
Personally I would retire and take a couple of years "before 60" penalty. I imagine those who can, will bail out. I am fortunate in that respect.
Those who can't, need to accept what will be rammed down their throats.
As for the pilots, SCOPE will gone with the stroke of a pen and both they and FAs will find themselves flying more hours with less time off.

All in all, Let AA file..When they still lose money, they can no longer blame labor..But of course they will try.

Here's where I disagree with you. You claim that management sucks and predict that management would still lose money after a bankruptcy wrings more costs out of AA (thru increased productivity and/or wage rate cuts).

I realize that you hate Arpey and the rest of senior management. You hated them on May 1, 2003 for slashing your pay and your hatred for them increased dramatically about three years later when the PUP/PSP plan began to payoff in a big way. But if you could pretend for a minute that you aren't an underpaid mechanic but instead were a neutral observer, I think you might see that what management has done for 8+ years is sorta impressive. How so?

AA managed to cram wage cuts down the employee throats without spending money on bankruptcy lawyers, accountants, investment bankers and other parasites. At UA, those costs were about $660 million over their three year bankruptcy odyssey.

Because management didn't file for bankruptcy, the stock was not wiped out and climbed from $1.25/sh in early 2003 to $41/sh in January, 2007. Even though your options did not compensate you for your concessions (which would be mathematically impossible), your options were worth a $16,000 gain in January, 2007, or about five years worth of profit-sharing at the rates AMR paid in the late 1990s (when $3,000/year was the average). Yes, that gain is a pittance compared to the concessions, but it's far more than the aggregate gain to US, UA, CO, DL or NW employees in their recent piddly profit sharing payments.

AA cut its wage expense by a smaller percentage than the other airlines, so the fact that it has lost money and the others have turned profitable shouldn't be a surprise to anyone. AA's cost structure is higher than any other US airline. As annoying as WT is in the way he says it, he's right that the others have been able to grow and prosper during the past couple of years while AA has continued to shrink and lose money during that same span.

Inept management? They've managed to scrape by during the past eight years better than I could have. I'm certain they did better than you or Owens could have. They've been scraping by and keeping enough cash on hand (mostly by borrowing and furniture burning plus some new stock issues) to stay in business. Without filing for bankruptcy and terminating the pilot pensions. Not many other US-based airlines in that club these days.

Has Arpey mismanaged and made mistakes? Certainly.

He waited far too long to order new 738s. Orders should have begun in 2004 or 2005 after the concessions. Oil spiked in the summer of 2005 (Katrina and the other hurricanes) and has climbed rather steadily since then with only a couple of dips in the past six years. Yet he waited to resume 738 deliveries. That cost AA probably more than a billion dollars in fuel costs so far and each day, that total extra expense for fuel climbs higher and higher.

Other mistakes? He naiively assumed that the represented employees would not make such a big deal about his PUP/PSP payoffs. After all, he and the other execs took huge paycuts in the fourth quarter of 2001, long before Carty demanded concessions from the rank and file. Because the stock-based variable comp did not pay off in 2001 or 2002 or 2003 or 2004 or 2005 (which equaled huge pay cuts for the execs - much larger percentages than suffered by the rank and file), Arpey didn't think that payoffs in 2006 and subsequent years would be such a big problem.

Other mistakes? Perhaps not filing for Ch 11 and further reducing labor costs (and dumping the MD-80s and AB6s sooner) will turn out to be a big mistake. It prevented AA from joining with another legacy with valuable franchises like UA or NW.

No doubt there are lots of other mistkes. But losing money as evidence that he sucks? Not so much. AA has higher costs than its competition. Because AA didn't gut pay as much as the competition.

When AA files and reduces its wage expenses by $600 million (or more - perhaps even a billion dollars) per year, making money will be easier. Of course, if oil goes to $150/bbl or higher again, all airlines will once again be in the same boat and AA would probably lose money (like its competition).

 

[eolesen]

No single raindrop feels it is responsible for the flood.

It's much easier to hate the CEO and management than it is to realize that AA has a cost problem, and it's not just fuel related.

What the AA employees went thru, as severe as it may seem, is nothing compared to what employees at other financially distressed airlines went thru.

Frankly, you guys claim to have been gang raped, when all you really got was an unwanted pat on the ass.


I certainly hope AA doesn't have to file because bankruptcy is the ultimate scarlet letter of corporate failure. DL, UA, CO, US are all failed companies that had to use a measure of last resort to recover from years of bad decisions.

But the other reason I hope they don't is because it won't be pretty for the airline's workers.

The naivety around how painless it will be for nAAtive employees is simply amazing. Equally amazing is the whitewashing some former non-union employees from bankrupted carriers are giving it.

The ex-TW folks already know what's in store. Might be worth listening to a few people who've been on the trip down Bankruptcy Lane, instead of listening to the folks who right now are only speculating about how bad it might not be.

 

[Bob Owens]

No single raindrop feels it is responsible for the flood.

It's much easier to hate the CEO and management than it is to realize that AA has a cost problem, and it's not just fuel related.

What the AA employees went thru, as severe as it may seem, is nothing compared to what employees at other financially distressed airlines went thru.

Frankly, you guys claim to have been gang raped, when all you really got was an unwanted pat on the ass.


I certainly hope AA doesn't have to file because bankruptcy is the ultimate scarlet letter of corporate failure. DL, UA, CO, US are all failed companies that had to use a measure of last resort to recover from years of bad decisions.

But the other reason I hope they don't is because it won't be pretty for the airline's workers.

The naivety around how painless it will be for nAAtive employees is simply amazing. Equally amazing is the whitewashing some former non-union employees from bankrupted carriers are giving it.

The ex-TW folks already know what's in store. Might be worth listening to a few people who've been on the trip down Bankruptcy Lane, instead of listening to the folks who right now are only speculating about how bad it might not be.

Adjusted for inflation TWA guys were earning more after TWA went BK than they are now for AA.

AA in some cases got more outside of BK from their workers than UAL did through BK.

 

[WorldTraveler]

oh, I can assure you that AA is stopping nowhere near $600M in what it extracts from labor in BK.
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It is complete foolishness to think that ANY AA employee (except perhaps the execs) will get a pay raise during BK... may I remind you that AA will cease contributing to its pension plans at the latest and perhaps before when it - likely - files to terminate said plans.
Companies typically do not fund pensions during bankruptcy.
While you refuse to acknowledge it, each of those airlines did provide stock and cash to their employees as a compensation post-BK for their loss of pension benefit accruals during BK. And some airlines - you know which ones - also provided cash bonuses to help offset the paycuts. So the loss that those employees incurred is not near as you would like to make us think they are. No one who has been through BK doubts how painful it was... the question is whether those companies have turned their companies around and provided a stable job for their employees now - and whether they made any attempt to help overcome the cuts their employees endured.
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Isn't it more than just a little bit interesting that the one set of cuts which AA did outside of BK that mirrors what its competitors did in BK was to cut employee expenses and yet it is the area of employee costs where AA remains the most uncompetitive?
AA's fuel bill is not disproportionately out of line with other carriers. In fact, PMUA's fuel CASM was higher than AA's. Throw in CO's fuel efficient fleet and UA looks a lot better - but fuel efficiency is not AA's problem.
Leasing costs are not AA's problem.... their fleet costs are very much in line with the rest of their US peers.
What is not in line is AA's labor productivity... AA's pay rates are not dramatically out of line with the rest of the industry - yet. But after a BK judge and AA execs get their way at reducing AA employee wage rates to low cost carrier levels PLUS tear up the productivity-killing provisions of AA's labor contracts, AA's labor costs will indeed be well below the rest of the industry. And it will be a LONG TIME before AA employees - who took some of the same pay cuts as the rest of the industry - will be paying the profit sharing that other airlines have handed out several times during the past few years.
So, I wouldn't at all crow that AA mgmt has done such a great job - because the costs that they have attacked outside of BK are still the ones where they are not competitive.
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What AA will do is trade high labor costs for a much more fuel efficient but very expensive new fleet - and they will still have to pay down the debt they have accrued over the past 10 years - or dump the underlying assets.
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As much as you and others want to try to say how bad it is at other airlines, the simple fact is that AA employees ALREADY went through 75% of the same cuts that other employees went through - and AA employees are going to go through it again. Only US employees have endured the same fate - other than CO in the decades before but most of those people never made it to the 2000s.

The simple fact is that there is a management supportive chorus that wants to argue for how bad it was ELSEWHERE as if to somehow justify that what AA employees are going to endure should be AOK.
No one is buying it now and they won't buy it as the cuts kick in.
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AA mgmt had ten years to turn the airline - moral objection to BK or not. The moral failure is in not doing what they said they could do without BK -and now subjecting many parties to yet another round of cuts which makes it all the more possible that AA will not be able to restructure - and likely will be a much smaller airline with few of the strategic strengths that built AA and which every airline must have in order to survive.
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Keep whistling how great AA mgmt has been while deriding those other mgmt teams in the industry who did what had to be done - as nasty as it was - but managed to turn their operations around.
When AA joins the rest of the network industry in having taken a trip through BK, I'm sure it will be ok - or at least we had to do it because everyone else did.
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The ultimate scarlet letter is that AA has been run into the ground and likely will never regain the position of grandeur it once enjoyed in the industry.
Don't worry, though. There are plenty of other examples in airline industry history that AA can emulate in the downward spiral... and there are also those who managed to figure out how to profit from others misfortunes.
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The question at this point is not how deep AA will have to cut in order to restructure but what AA and its poor employees will look like once they are through - and how the rest of the industry has managed to cash in on AA's failures.

 

[FWAAA]

Don't fall for the BK doom & gloom. All the guys preaching BK are trying to soften the AMT's to agree to more concessions. I'm not buying it! Do these guys really believe Airbus & Boeing would ratchet up production and incur substantial costs making hundreds of airplanes so AMR can go BK. Please don't insult my intelligence...E....World Traveler...and any other AA lover out there.

Buck, that would be like going to your nearest Chevy dealer and ordering couple of hundred cars and then 6 months later filing BK. Do you really think Airbus and Boeing aren't doing "Due Diligence" on AMR's credit worthiness????

Could very well be that Boeing and Airbus will applaud AMR for filing Ch 11 when that happens. They might even pressure Arpey to git er done sooner than later. Why? Lenders about to loan a company billions of dollars like to see low costs instead of high costs. They also like to see low levels of debt and lease obligations owed to others. A bankruptcy filing would take care of both of those, better enabling AA to make the payments on its new planes.

So AA files a Ch 11 petition, rejects the remaining MD-80 leases and negotiates a reduction to the debt encumbering the owned MD-80s (and the 763s and the 757s and the older 738s and the 777s). All of a sudden, AA's got lower employee wage expense AND lower airplane ownership costs, making it more likely (in the eyes of Boeing and Airbus and the other new lenders) that the new debt and new lease payments for the new planes will be paid on time.

When an individual discharges their debts in bankruptcy, it can be tough (or impossible) to borrow lots of money at low rates for a few years. Eventually, all is forgiven if the individual pays their bills on time for the subsequent 10 years. But when a corporation reorganizes under Ch 11, lowering their expenses, they can easily borrow billions and incur huge lease obligations at favorable rates right away.

Had AMR filed for Ch 11 protection in early 2003, it could have rejected alll the AB6 and MD-80 leases and ordered fuel efficient replacements right away. Other legacies have ordered new planes in bankruptcy (or immediately upon Ch 11 exit) such as USAir. Not doing that may go down as a huge management failure when the history books are written.