Dominant American Airlines Bankruptcy No Miami Gamechanger
Written by Scott Blake on December 1, 2011
By Scott Blake
American Airlines’ future was tossed into uncertainty Tuesday with the company’s Chapter 11 bankruptcy filing, but officials at Miami International Airport remained optimistic that its "crown jewel" carrier will survive the process without interrupting its many Miami flights.
Miami-Dade County Aviation Director Jose Abreu, who manages the airport, said, despite confidence that American will emerge from Chapter 11, that airport administrators must monitor the situation because of the carrier’s importance to the airport and Greater Miami as a whole.
"Miami is profitable" for American, Mr. Abreu told Miami Today. "Whatever they do, it likely will not affect Miami."
Mr. Abreu said Miami is American’s top hub for international flights, which tend to be more lucrative than domestic flights.
In addition, he added, history shows that major carriers typically have reorganized and come out of Chapter 11, which allows debtors to continue operating while following a court-supervised debt repayment plan.
"For those that have restructured in the past, their hub airports really have not suffered," Mr. Abreu said.
The parent company of American Airlines — Miami’s longtime dominant carrier and primary link to Latin America — on Tuesday filed for Chapter 11 protection from its creditors in US Bankruptcy Court in New York.
AMR Corp.’s move to reorganize raises uncertainties over American’s future operations, but both American and Miami International officials were quick to say that it will be business as usual for Miami’s dominant carrier — at least for now.
The bankruptcy filing also covers American subsidiary American Eagle Airlines, which together handle about 68% of Miami International’s passenger traffic, airport officials said.
Fort Worth, TX-based AMR said that throughout the bankruptcy process American and American Eagle expect to:
nFly their normal schedules.
nHonor tickets and reservations, and make exchanges and refunds as usual.
nMaintain the AAdvantage frequent flyer and other customer service programs.
nProvide employee wages and benefits without interruption.
nPay suppliers for goods and services.
American, the nation’s third-largest carrier, singled out its labor costs as a factor in its decision to try to reorganize.
The company has "made clear with increasing urgency in recent weeks" that "we must address our cost structure, including labor costs, to enable us to… secure our future," Thomas Horton, American’s newly appointed CEO and president, said in a statement.
Mr. Horton noted that American’s main competitors restructured their costs by filing for Chapter 11 status years ago, which left American with a "substantial cost disadvantage."
The situation, he added, has become "increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges."
Tuesday’s move follows weeks of speculation that American was headed for bankruptcy protection after recording a string of quarterly losses, including last month reporting a $162 million loss in the third quarter.
In the bankruptcy filing, among the list of American’s creditors is Miami-Dade County, which is owed $25 million, and the county’s Aviation Department, which is owed $3.7 million.
American’s $25 million debt stems from Miami International’s North Terminal renovation and expansion project, which was designed with American in mind and is nearly complete, said Miami international spokesman Greg Chin.
"When the county assumed the North Terminal project from American Airlines in 2005, there were more than 300 claims by contractors still owed payment from American," Mr. Chin said.
"The county negotiated the total claim amount to $105 million, which American has been paying towards in installments," he added. "They now owe the $25 million."
Mr. Abreu said American has assured him that it will repay the amount.
American’s $3.7 million owed to the county’s Aviation Department, which manages the airport, is the current billing total for landing fees, aircraft parking, rent, utilities and cargo rent.
"None of this amount is more than 30 days old and most of it was due in the last 10 days," Mr. Chin said. "American has a consistent record of paying its bills on time."
Mr. Chin said it is "highly unlikely" that American will abandon its Miami routes during the bankruptcy process because those routes are among the company’s most profitable — if not the most profitable — in its system.
Also, Miami International does not have any long-term leases with American, Mr. Chin said, with the current lease agreement having only a 30-day cancellation provision.
Mr. Abreu said the ability for the airport to cancel an agreement with any carrier within a month frees up airport gates and other facilities that are used by any outgoing carriers.
He said American currently uses nearly 50 gates in Miami but, in the unlikely event the airline goes out of business, those gates would become available to other carriers in a month.
Miami is one of American’s five hub airports, with the airline heavily using Miami to link North America with Latin America.
From January through September, American alone carried more than 18 million passengers into and out of Miami. Together, American and American Eagle operate more than 300 flights a day through Miami, according to airport officials.
In a letter Tuesday to Mr. Abreu, American said the bankruptcy filing eventually will allow the airline to better position itself to compete.
"Today, American Airlines is conducting normal business operations, without interruption, throughout the 250 cities and more than 50 countries and territories we serve, and we will continue conducting our business as usual throughout the reorganization process," Laura Einspanier, American’s vice president — corporate real estate, wrote to Mr. Abreu.
"We will continue evaluating our operations and service, assuring that our network is as efficient and productive as possible, and we will keep you fully informed of our progress in this regard," Ms. Einspanier wrote.
The Allied Pilots Association, which represents American’s roughly 8,000 pilots, said Tuesday that the 18-month timeline for restructuring will "almost certainly involve significant changes to the airline’s business plan and to our contract."
Dave Bates, the association’s president, noted that pilots’ union agreed to significant pay cuts and other concessions in 2003 to help American avoid a bankruptcy filing at that time.
However, business conditions for American since then have resulted in "a perfect storm" that will force the union back to the bargaining table, Mr. Bates said.
"During restructuring, we must bargain effectively under duress and implement a plan that highlights our pilots’ leadership and participation," Mr. Bates said in a statement. "Our goal must be to build working relationships with other creditors and investors to position our airline for a better future."
A number of the US airline industry’s major carriers filed for Chapter 11 bankruptcy reorganization in the aftermath of the Sept. 11, 2001, terrorist attacks, often with the intention of restructuring and lowering their labor costs, said bankruptcy attorney Jay Sakalo.
Those airlines emerged from Chapter 11 status and some carriers in the process eventually merged, said Mr. Sakalo, a partner in the bankruptcy restructuring group at Miami law firm Bilzin Sumberg.
Regarding American, he added: "It’s fairly clear what they’re trying to accomplish, which is restructure labor costs. But I think it’s too early in the process to say what else may happen."To read the entire issue of Miami Today online, subscribe to e -Miami Today, an exact digital replica of the printed edition.