Fri, May 16, 2003
Success 'Still Far From Assured'
Although much of the latest news for AMR, parent of American
Airlines, has been reasonably good -- concessions from major
unions, concessions from creditors, concessions from leaseholders,
financing arrangements' coming into place -- the airline may still
find that its interests are better-served from behind the curtain
of bankruptcy protection, the new CEO, Gerard Arpey
(below), said Thursday.
He didn't use those exact words, of course. What
he said was, "We continue to move through the most challenging
period in our history, and our success is still far from
assured."
That "challenging period" is the post-911 period, when travel
has become a hassle for business types and an undesired risk for
vacationers; when fuel prices have risen, and stayed relatively
high; when a war in Iraq slowed things down; and when a
little-understood and deadly virus has captured the imaginations of
national press and international health organizations.
In other words, costs are still pretty high -- and revenues are
pretty low.
Chapter 11, from the airline's point of view, carries a lot of
advantages, most-especially the ability to ignore existing debt
while negotiating it down to pennies; and the ability to walk away
from unprofitable contracts -- with labor, especially. Chapter 11
reorganization allows a real 'reorganization' -- witness US
Airways, remaking itself into a big user of regional jets, after
negotiating many creditors down to 2¢ on the dollar, and
transitioning many pilots (and their pay scales) to CRJs from
757s.
The reorganization has to come -- whether it is through natural
processes (a few airlines go out of business or merge) or the
unnatural act of maintaining court-enforced industry overcapacity,
until virtually every airline is forced to stiff its creditors,
downsize its workforce, and renegotiate its contracts -- from those
with ramps and gates, to employees.
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