AMR Corporation, parent of American Airlines, filed for Chapter 11 bankruptcy protection today, a move it says will allow the airline to reorganise its debt structure.
The decision to file coincides with an announcement of the retirement of chairman and CEO Gerard Arpey. He will be replaced by Thomas Horton.
The airline says it expects to continue normal operations during the Chapter 11 process, a procedure which allows companies to continue while wholesale changes are made to improve the financial footing of a business.
A statement says:
"We took this action in order to achieve a cost and debt structure that is industry competitive and thereby assure our long-term viability and ability to continue delivering a world-class travel experience for customers."
The Wall Street Journal says the company has around $4.1 billion in "unrestricted cash and short-term investments", allowing it to pay suppliers and other partners during the Chapter 11 procedure.
The airline filed a third quarter loss in November, blaming fuel expenses which have jumped 40% year-on-year.
Horton has spent 22 years with the airline, most recently as president of both AMR and AA. Today's move is the first time in its history the airline has had to file for Chapter 11, making it the last of the major so-called legacy carriers in the US to do so.
The move follows last week's disappointing loss in the US courts as it saw four our of five of its antitrust claims against Orbitz Worldwide and Travelport thrown out.
Horton says:
"American serves 260 airports in more than 50 countries and territories, and we are committed to maintaining a strong presence in worldwide markets.
"I am confident American will emerge even stronger as a global leader known for excellence and innovation, a travel partner customers seek out, and a carrier that serves communities throughout the world."
So does the Chapter 11 filing mean it's game over for American Airlines' direct-connect push and its battles with Sabre and Travelport?
"I would say that remains to be seen, to be determined," says travel attorney Mark Pestronk.
In other words, with Horton in and Arpey out, a reorganized American Airlines can decide whether it needs to alter its current distribution strategy.
In prior airline bankruptcies, carriers have used Chapter 11 proceedings to reject union contracts and office leases, but they never have tossed out GDS contracts, Pestronk says.
At any rate, American Airlines will have several months to decide about GDS contracts, Pestronk says, adding that the bankuptcy court for the Southern District of New York must decide on contracts before confirming the reorganization plan at the end of the proceedings.
The travel attorney says American Airlines' antitrust lawsuits against Sabre and Travelport would not necessarily be impacted by the bankruptcy filing because the airline is the plaintiff in the cases.
Of course, American's financial maneuverings could spur a settlement and new contract agreements with the GDS companies, if that is the approach that Horton wants to take.
Travelport declined to comment on AMR Corp.'s bankruptcy filing, and a Sabre spokeswoman says travel agents will still have access to American Airlines' content and no near-term changes in the business relationship are expected.
"We are not going to comment on any potential implications of AA’s bankruptcy filing regarding the airline’s litigation against us or our relationship with AA," says the Sabre spokeswoman, Nancy St. Pierre.
The airline's debt structure will be part of the reorganization plan and the airline would have more time to pay on a reduced debt load.
In the bankruptcy filing, AMR Corp. says it has $29.5 billion in debts and $24.7 billion in assets.
Travel-related company which are among the 50 largest creditors include Hewlett Packard ($30.8 million), which is building American Airlines' new reservation system; Boeing ($15.3 million); DFW International Airport ($7.3 million); Sky Chefs ($7 million); BCD Travel ($2.7 million) and Carlson Wagonlit Travel ($2.5 million).
Note: Dennis Schaal contributed to this story.