My First Thoughts on the American Airlines Bankruptcy

I’ve stayed on the sidelines of this discussion for quite a while now.  But I do have some strong feelings, and figured it was time to jot some of them down.

I’m an AA loyalist.  I’ve flown half a million miles on AA, my father over a million.  I’ve earned almost 3MM lifetime with AA.

I was proud when AA was the only legacy airline not to file for bankruptcy.  They seemed to be able to weather the storm by trying to restructure internally.  And, for a while, it was okay.  However, their competitors got stronger in bankruptcy, shedding contracts and leases.  In some significant areas, AA had fallen behind.  Not everywhere, but their labor cost and fleet were hurting them.

I feel like AA made some pretty reasonable offers to the unions.  It was apparent there would need to be some drastic cuts.  The union refused to come to terms, and AA filed for bankruptcy.

The bankruptcy process has already helped AA accelerate the replacement of some of it’s fleet with more fuel efficient planes, which is a critical part of the process.

The first term sheets are coming out now, and AA is looking to shed 13,000 jobs.  This will surely be a painful process, but it beats all 74,000-ish AA employees being out of work.  And, if AA gets purchased by someone, they’ll eliminate the positions anyway.  Better to try and solve this on their own, in my opinion.  I don’t really want to see AA merge with USAirways.

I’ve already voiced some of my thoughts on Milepoint about the terms AA is proposing.

The harsh reality is that the job cuts won’t be enough.  Pensions and medical benefits for retirees are being eliminated in the new proposal.  I don’t think anyone’s happy about that, but it’s an unsustainable model.  Many businesses realized this long before now.  AA is late to the party to try and fix this, but still has time to get it right.

At this point, it doesn’t really matter if it’s management’s fault or the union’s.  There’s one opportunity to fix it now, and both sides need to buckle down and get this done.

I believe AA will come out of bankruptcy stronger than before, an able and willing competitor for the likes of United and Delta.  I may be a bit optimistic, but I think it’s unlikely they get acquired.  If I’m right, I suspect this will be very good for AA customers, which in turn will be good for employees and shareholders.

AA already has better customer service, and in some areas a better product, then UA and Delta.  Add to that a competitive cost structure and a renewed fleet, and AA will once again be a force to be reckoned with.