Reports Say World's Largest is About to Go Chapter 11

A Reuters report quotes "a banking industry source" as saying about the airline industry generally, and American Airlines specifically: "Bookings are terrible. It's a liquidity imperative to file as soon as possible."

The airline officially says it's trying to not join USAirways, United and Hawaiian in the Chapter 11 Club; but no one is giving favorable odds. Structured in essentially the same way as United, the giant premium airline faces nearly all United's problems, plus the problem of having to make good on its debt payments. United, which nevertheless lost well over $300 million in the last reporting month, is able to cut fares to induce riders, because its creditors are on hold. US Airways recently reduced its debt burden, too: its unsecured creditors stand to get just a couple sents on the dollar -- the debt service is reduced.

With the war's keeping so many travelers at home, and the September 11 aftermath still being felt (as well as an industry downturn that predated the terror attacks), the fast recovery of old-style premium airlines is getting long odds.

Add to American's troubles the fact that industry overcapacity is insured by Chapter 11 filings, and it's a foregone conclusion that American, and other airlines on the same model, will continue to fall. After the premium, hub-and-spoke airlines are all operating under Court supervision, the remaining airlines will be forced to join them, or face extinction -- and the government, through the Bankruptcy Courts, will be running the whole bloated system.

FMI: www.amrcorp.com