Is the American Bankruptcy the Best Airline Bankruptcy Ever?

Tickers in this article: AAMRQ.PK DAL LCC UAL

CHARLOTTE, N.C. ( TheStreet) -- The American (AAMRQ.PK) bankruptcy appears on track to wind up as perhaps the airline industry's most successful Chapter 11 reorganization, not only because it led to an expected merger but also because of a series of unique outcomes likely benefiting shareholders, creditors, retirees and employees.

Among those outcomes of the bankruptcy, which was filed Nov. 29, 2011, are these: Shareholders will likely receive an interest in the new company; retirees could retain access to continuing health care, although it will no longer be free; the ongoing negotiations will impact the amount available for equity holders; American froze its employee pension plans, rather than terminating them; and its plan of emergence has support from its unionized workers, which strongly backed the merger with US Airways (LCC) that was announced on Feb. 14.

At the moment, American's "operations are humming, purring like a kitten," said a person who has been involved in the bankruptcy discussions and who asked not to be identified. "(The two carriers) have got the potential, if this is executed properly, to get meaningful synergies."


Of course, the question of whether the new American will overcome the profusion of problems that confront an airline merger remain to be answered. No doubt the ultimate judgment on the bankruptcy will be shaped by what happens in the future. But so far, in terms of managing through a bankruptcy, the American team headed by CEO Tom Horton is getting high marks.

"American did a lot of things it needed to do in terms of restructuring cost," the person said. "When everybody is distracted in bankruptcy, trying to run a company, a thousand things can go wrong. But these guys kept the momentum up. They kept their eyes on the ball in terms of running the thing."

The American team derived particular benefit from two factors. One was the huge aircraft order the carrier placed in July 2011 for up to 925 aircraft. It meant the future would inevitably bring the fleet flexibility America has lacked as well as cost reductions associated with reduced fuel and maintenance costs.

The order was critical for the American team, the person said. "Before they filed, they got everybody lined up. And then they got the airframe guys and the engine guys to stand behind that and make it work, (creating) momentum so they could emerge very competitive."

The team also benefited from the positive operating environment for airlines, which throughout the bankruptcy have generally been able to profit even in spite of rising oil prices, largely as a result of diminished capacity and a new pricing model heavily reliant on ancillary revenue from fees. In this sense, it helped American to be the last to restructure.