American Airlines' parent company, AMR Corp., filed for Chapter 11 bankruptcy on Tuesday morning and its chief executive Gerard Arpey has stepped down.
The Fort Worth-based carrier said it will continue to operate a normal flight schedule for American Airlines and its regional subsidiary, America Eagle, while it is reorganizing in bankruptcy.
The airline named its current president, Tom Horton, as the company's new chief executive.
"This was a difficult decision, but it is the necessary and right path for us to take -- and take now -- to become a more efficient, financially stronger, and competitive airline," Horton said.
Read our Tuesday morning interview with new CEO Tom Horton
"The future on the other side of this restructuring we think is very bright," Horton said at a morning news conference. "For American Airlines, it will be business as usual."
The decision to file bankruptcy came shortly after the company failed to reach new contract agreements with its pilots union and other labor groups. Just two weeks ago, American made a comprehensive offer to the pilots after talks had intensified but the offer was rejected.
Horton pointed to the cost disadvantage American has compared to other legacy carriers, such as United Continental and Delta Air Lines, both of which went through Chapter 11 reorganizations in the last decade.
"If you look at our labor costs and compare it roughly to the other big legacy carriers, the difference between our contracts and theirs is about $800 million a year," Horton said.
AMR said it has $4.1 billion in cash and as a result, does not need to obtain debtor-in-possession financing to maintain operations while under bankruptcy protection.
"This year, we're going to pay $2 billion more in fuel than we did last year," Harton said.
The company has had only two profitable years in the past decade, its stock has slipped to an eight-year low, closing at $1.62 on Monday.
AMR was also facing some large debt payments. The company had $1.8 billion due by the end of 2012. The net debt at the end of the third quarter was $16.9 billion.
And when $7.9 billion in underfunded pension benefits and $2.5 billion in other long-term liabilities are added, the company has close to $30 billion in debt and other long-term obligations.
"We are now at a point where we need to turn the page and move forward," Horton said.
At Tuesday morning's meeting of the Tarrant County Commissioners Court, Tax Assessor Ron Wright said the county had already filed tax liens against 365 of American's planes to protect the county as the debts are discharged.
County officials filed the liens three weeks ago against those planes based at DFW, Wright said.
"When it's a corporation that big and there's a possibility of bankruptcy, we move to act in the taxpayers' best interest," he said, adding, "Obviously, we hoped they would stave off bankruptcy."
In a letter sent to AMR employees, Arpey said the company's board had asked him to stay on as chief executive but that he chose to retire.
"After careful consideration, I concluded that my remaining in those roles would not be best for the company," Arpey said in the letter. "In my view, executing the Board's plan will require not only a reevaluation of every aspect of our business, but also the leadership of a new Chairman and CEO who will bring restructuring experience and a different perspective to the process."
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