Travel News

Behind the Scenes of the American Airlines Bankruptcy

Locations in this article:  Dallas, TX

Peter sat down with Terry Maxon, who broke the story of the American Airlines bankruptcy as the aviation reporter for the Dallas Morning News, to find out how this decision was reached and the financial outcome for the airline and consumers.

Peter Greenberg: I never thought it would happen. And I never thought it would happen because American Airlines Chairman Gerard Arpey told me directly, “We have never filed for bankruptcy. We will never file for bankruptcy.” And now the same person who told me they would never file has essentially lost his job. Having broke the story of the bankruptcy, what do you make of this Terry?

Terry Maxon: The Dallas Morning News found out Monday evening that American Airlines would be filing Tuesday morning. I think Chairman and CEO Gerard Arpey’s departure was probably a moral stand. He said he disagreed with the corporation when the decision was made.

PG: He didn’t want bankruptcy as part of his legacy.

TM: He didn’t want bankruptcy to be part of American Airlines’ legacy. It’s kind of a mixed message. I think Arpey understood it was necessary, but choose not to participate.

PG: It’s very easy to look back in hindsight and say we knew that was going to happen. At the same time, I did a two-hour special on American Airlines for CNBC when American was the largest airline in the world. It was an airline that you never thought would ever get to this precipice.

TM: I was talking with aviation consultant Michael Boyd who said that in this case you blame their decision 100 percent on fuel and not on labor or the current state of the economy.

If AMR paid this year the prices they spent on fuel two years ago, they probably would have made over $1.5 billion. Instead, they’re on target to lose about $1.2 billion this year.

Investment analysts and observers have noted that if things continue as they are, eventually AMR and American airlines are going to run out of money. They saw a liquidity squeeze sometime in 2011––maybe in the middle of the year, maybe later in the year. If you find that it is going to be inevitable to file, why not file when you’ve got a lot of money in the bank? In American Airlines’ case, there is about $4 billion.