With $4 billion cash in hand, why did American Airlines’ parent company declare bankruptcy in November?
Taking a page from its competitors, American decided the billions in concessions and two-tiering its unions had given since 2003—plus the millions extracted from governments in tax breaks and subsidies—wasn’t enough.
Executives chose to dump worker pensions and retiree health care so they could purchase new planes and lift their share price.
“Taking a long-term view, the American bankruptcy is a very positive thing,” a Boeing executive told Reuters. The aircraft maker expects billions of dollars in plane orders from American once its court-ordered restructuring is complete.
“It’s like they decided they don’t want to pay the mortgage so they can go out and buy a couple of hot new cars,” said Bob Owens, an American mechanic and president of Transport Workers Local 562 in New York.
American also wants to lay off 13,000 workers—16 percent of the workforce. It will try to end pensions and retiree health care for 130,000 current and former workers, offloading $9 billion in unfunded pension obligations to a federal insurance agency.
After clawing out $1.8 billion in concessions in 2003, American says labor costs must drop by another 20 percent.
The airline industry has seen more than 150 bankruptcies since the industry was deregulated in 1978, with at least 22 since September 11, 2001.
Hostess, the maker of Wonder Bread and Twinkies, declared bankruptcy in January as well.