American Airlines files for bankruptcy protection
FORT WORTH, Texas (KABC) -- The parent companies of American Airlines and American Eagle are filing for Chapter 11 bankruptcy protection.
AMR Corp. and AMR Eagle Holding Corp. announced the filing Tuesday.
American, the only major U.S. airline that didn't file for bankruptcy protection after the 2001 terrorist attacks, said it's seeking protection to reduce its costs to remain competitive.
The airline said it will continue normal flight operations during the reorganization.
In addition to mounting debt, American Airlines said the company's employees have higher-than-average pay and benefits.
"If you look at our labor cost and compare it roughly to the average of the other big legacy carriers, the difference between our contracts and theirs is about $800 million a year," said American Airlines CEO Thomas W. Horton.
Analysts say that's because American is the last of the legacy airlines in the U.S. to file for bankruptcy protection.
Chapter 11 allowed the other major airlines to cut billions of dollars of debt and restructure their labor contracts.
With its bankruptcy filing, American is now expected to demand more concessions from its unions.
"The main reason that American filed for Chapter 11 is to reduce labor costs, so the employees are going to take a pay cut eventually and they're also probably going to see their pension plans cut in half or eliminated," said aviation bankruptcy expert Jim Martin. "I think we're going to see grumpy employees."
Travelers say American's descent into bankruptcy doesn't really faze them.
"I've seen them go into bankruptcy protection before, and they've been fine. Most of them come out of it," said Simi Valley resident Michele Jeffery.
A big question many travelers may have right now is, "What happens to my frequent flier miles?"
American Airlines officials are telling customers not to worry.
In a written statement, the company wrote:
"The AAdvantage miles that you've earned are yours and will stay yours. Likewise, your Elite Qualifying Miles and your Elite Status."
The airline's employees won't be the only ones hit by the bankruptcy filing. American Airlines stock plummeted Tuesday 84 percent. At the end of trading, it was worth 26 cents a share. It is expected to go down to zero eventually.
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