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American Airlines files for bankruptcy

 
 
Reply Tue 29 Nov, 2011 03:39 pm
http://www.boston.com/business/articles/2011/11/29/american_airlines_files_for_ch_11_protection/

From all I've heard from the radio commentators, this was a strategic and largely needless move by AA to enable some belt-tightening and maybe even union-busting. Analysts on NPR this morning were saying that while it's true that the company is not in good financial shape, it's a long way from insolvency.

Comments?

 
JPB
 
  3  
Reply Tue 29 Nov, 2011 03:44 pm
@Lustig Andrei,
I read it as union busting.
0 Replies
 
engineer
 
  1  
Reply Tue 29 Nov, 2011 03:53 pm
@Lustig Andrei,
I heard on NPR this morning that they had $20 billion in liabilities and $15 billion in assets and while they could continue to go on for some time they were burning cash like mad and it would be better for go into reorganization now than hold on until they were in extremis. The article also mentioned that many of American's competitors (Delta for example) have already restructured and as a result have much less generous pension plans than American.
Lustig Andrei
 
  1  
Reply Tue 29 Nov, 2011 04:05 pm
@engineer,
Yeah, that's true. It was stressed that AA was the last of the old-time 'heritage' airlines to go the Chapter 11 or 12 route.
farmerman
 
  3  
Reply Tue 29 Nov, 2011 04:10 pm
@Lustig Andrei,
Secured and unsecured creditors and employees are the ones who get fucked. Went through this three times in my career and each time I was into some large company (like an insurance company or a mining equipment company) for services we did for them and they went Ch 11 and in one case Ch 7 (total insolvency).

Its often a scam and my only lessons were to never get too far into a company to run up large amounts of back invoices.

hawkeye10
 
  1  
Reply Tue 29 Nov, 2011 04:42 pm
@engineer,
Quote:
I heard on NPR this morning that they had $20 billion in liabilities and $15 billion in assets and while they could continue to go on for some time they were burning cash like mad and it would be better for go into reorganization now than hold on until they were in extremis


They had enough cash to coast another year.....just goes to show how the definition of "bankrupt" has changed, it used to mean that one could not pay their bills, now it means that one does not want to pay their bills.

At least for the corporations...the rules are much different for we peons.
0 Replies
 
spendius
 
  1  
Reply Tue 29 Nov, 2011 06:16 pm
@farmerman,
Quote:
Its often a scam and my only lessons were to never get too far into a company to run up large amounts of back invoices.


And now nobody knows which companies are safe.
hawkeye10
 
  1  
Reply Tue 29 Nov, 2011 06:31 pm
@spendius,
spendius wrote:

Quote:
Its often a scam and my only lessons were to never get too far into a company to run up large amounts of back invoices.


And now nobody knows which companies are safe.
It bears keeping in mind that in the Great Recession the credit markets ground to a halt because no one knew which banks were safe....not knowing who would end up keeping their word nobody wanted to do any deals.

Up until two weeks ago AMR was assuring everyone that they would not file bankruptcy claiming that they did not need to. Today they did. AMR's assurances turned out to be worthless, which is more the norm today than the exception when dealing with the corporate class.
0 Replies
 
roger
 
  1  
Reply Tue 29 Nov, 2011 06:44 pm
@spendius,
I'm afraid that is going to be one of the bigger problems businesses are going to have to deal with. When I was keeping books, I sometimes approved or placed orders up to around five thousand dollars. Our vendors never flinched. In another couple of years, who knows - they might all be demanding cash on the barrelhead.
0 Replies
 
Linkat
 
  1  
Reply Wed 30 Nov, 2011 12:27 pm
@Lustig Andrei,
Also to end some lease contracts. AA has more older planes including some that they lease. These planes are not as efficient with gas use. With the increases in gas prices, this puts them at a financial disadvantage over other airlines that have newer models which are much more efficient in gas use. They will be able to cancel lease contracts and then re-negoitate prices and also obtaining newer planes to lease.

Think of it this way - this will also help the environment.
hawkeye10
 
  2  
Reply Wed 30 Nov, 2011 12:45 pm
@Linkat,
Linkat wrote:

Also to end some lease contracts. AA has more older planes including some that they lease. These planes are not as efficient with gas use. With the increases in gas prices, this puts them at a financial disadvantage over other airlines that have newer models which are much more efficient in gas use. They will be able to cancel lease contracts and then re-negoitate prices and also obtaining newer planes to lease.

Think of it this way - this will also help the environment.
I will need to try this trick the next time I want to get out of a old car and into a new car....All these years I have been a sucker, I have always paid off the old car notes as promised. I threw all that money away!

Why did no one tell me that this is not how it is done in America?
Linkat
 
  1  
Reply Wed 30 Nov, 2011 12:46 pm
@hawkeye10,
Awesome
0 Replies
 
Mame
 
  1  
Reply Wed 30 Nov, 2011 01:10 pm
@hawkeye10,
Sounds like you need to buy Kevin Trudeau's book, 'Free Money'. He claims there are billions out there that belong to you or that you can access. Only $29.95 on tv.
0 Replies
 
Lustig Andrei
 
  1  
Reply Wed 30 Nov, 2011 01:10 pm
@hawkeye10,
Right on. Next time I discover that I'm driving an old clunker which is "polluting the environment", I'll just get a newer, more energy-efficient vehicle and see if the IRS will let me deduct the difference in price as a "green" investment in a safer environment.

Awesome indeed.
hawkeye10
 
  1  
Reply Wed 30 Nov, 2011 01:20 pm
@Lustig Andrei,
Lustig Andrei wrote:

Right on. Next time I discover that I'm driving an old clunker which is "polluting the environment", I'll just get a newer, more energy-efficient vehicle and see if the IRS will let me deduct the difference in price as a "green" investment in a safer environment.

Awesome indeed.
No no no, listen to the airline people talk....what they say is that they are getting out of the clunkers because they suck too much gas. I dont think they give a tinkers damn about the environment, it is the fuel checks they write that has their dander up. I read yesterday that the oil future traders are figuring that if Israel attacks Iran then the price of crude will go up to $175 a barrel, I am so relieved that I am not going to be stuck with my 17 mpg Jeep at those prices, I am going to give it back and get a hybrid.
0 Replies
 
roger
 
  1  
Reply Wed 30 Nov, 2011 01:30 pm
@Lustig Andrei,
Sure, all it needs is a catchy tag line. How about "Cash for Clunkers"?
0 Replies
 
Finn dAbuzz
 
  1  
Reply Fri 2 Dec, 2011 01:03 pm
Here is fairly one-sided op-ed piece from the NY Times that praises ARM's CEO for resigning (without severance) because he disagreed with the bankruptcy move.

http://www.nytimes.com/2011/12/01/opinion/at-american-airlines-a-departing-ceos-moral-stand.html?_r=1

It certainly is a twist to see a CEO resign, without the benefit of a Golden Parachute, but the author's cynicism is certainly selective.

I have no reason to believe Mr. Arpey is not a principled individual and I commend him for not seeking severance. He is a very wealthy man however, and is not departing ARM without some benefits (e.g. a pension worth $4.5M). Still, no matter why he resigned, a greedier man would have insisted upon and most likely receive some sort of parachute.

While I don't question the sincerity of his difficulty with the idea to "simply walk away from your circumstances," having sat at board and senior executive meetings over the years, I suspect this was not the only reason for his resignation.

Mr. Arpey had been resisting the suggestions to file for bankruptcy protection for some 8 years. After three years of losses and 2011 projected to result in a $1 billion loss for ARM, the suggestions took on a greater sense of urgency, particularly since competitors that earlier had availed themselves of the bankruptcy protection route returned to profit in 2010.

ARM's labor costs were almost 10% higher than its competitors and the Airline has indicated the divide is something like $800 million. That's not chump change.

Arpey had been seeking concessions from the unions since 2006; with no success, and there was no reason to believe that if he won the argument with his board yet again, that negotiations would have been more fruitful.

A company cannot sustain $1 billion annual losses for long.

His having lost this most recent round of debate, can only be considered a major defeat, and once CEOs suffer major defeats at the hands of their boards their tenure is in jeopardy...either because the board has lost faith in them or their egos can't stand the loss. This is a very important dynamic in the situation which the author of the op-ed piece chose to ignore.

The author of the piece makes it clear what he thinks of America's business leaders by suggesting Arpey is the last American CEO to have integrity. This is an absurd comment even though we have seen too many examples of the worst, such as Jon Corzine of MF Global, Stan O'Neal of Merrill Lynch, Bruce Karatz of KB Home, Franklin Raines of Fannie Mae, and Dick Fuld of Lehman Bros.

During the last four years of his leadership, ARM has lost a lot of money, and he was unsuccessful in addressing the company's highly uncompetitive labor costs.

If we concede that the bankruptcy protection route is, in some way, unethical or immoral (albeit clearly legal), and Arpey was correct to resist it, what was the likely future of ARM? He had 8 years to chart a path for ARM that would avoid bankruptcy and still result in a profitable company. He failed to do so and so unless one believes it is impossible to turn a profit in a principled manner then the only conclusion that can be reached is that Arpey was an ineffective CEO and, arguably, should have stepped down sooner.

There is likely no shortage of people with some responsibility for ARM’s current situation and that runs from the Executive floor to the Labor Unions, but Arpey had the reins, was handsomely compensated for holding them, and deserved to take this fall.

The fact that the board asked Arpey to stay on is typical corporate PR. Boards rarely if ever have any desire to rub a CEO’s nose in the dirt, and they will typically issue press releases that suggest that if there was a problem, it was a minor one. Usually the dumped executive gets to say he is interested in new challenges, but having lost the battle, and remaining firmly against the plan there was no way that he could remain CEO. It appears that whether through integrity or ego (or more likely a combination of both) Arpey realized this and took the most honorable way out. Good on him.


0 Replies
 
 

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