AMR Files for Bankruptcy; Good for Airline Industry?

In an attempt to reduce its labor costs and debt load, AMR (AMR), the parent company of AMerican Airlines, has filed for bankruptcy.

The airline will continue operating, but the bankruptcy may allow it to drive a harder bargain with unions too reduce costs. AMR has had trouble making deals with unions representing its employees; bankruptcy court could give the company more power to secure more favorable union contracts. AMR was the only one of the major airlines not to go through bankruptcy in the past decade.

“Going forward, AMR will attempt to renegotiate aircraft leases with the lessors � asking for lower rates on their aircraft. AMR will also begin to renegotiate with its pilots under bankruptcy protection, and the pilots will likely see a restructuring of their pension plan,” notes Dahlman Rose analyst Helane Becker.

Becker thinks the move could help the entire industry.

“AMR Corp. is the third-largest airline by capacity of the US carriers and represents around 17% of industry capacity at the end of 3Q11. We would view this filing as a positive for the group, due to the fact that during restructuring, AMR should remove unnecessary aircraft/capacity from the industry and will allow AMR’s competitors to keep load factors and pricing higher.”