American to Follow United’s Path?

The Dallas Morning News is reporting that an American Airlines chapter 11 filing may come as soon as May. Most observers had previously said end of 2003/early 2004.

Normally I’d assume this was just American’s posturing to convince their employees to give in to concessions. But the piece suggests that this is the conclusion of the pilots union, not the airline.

United may have waited too long to enter bankrupty, with only $800 million in available cash on hand. That gave tremendous leverage to the institutions offering debtor-in-possession financing.

While American has about $2.7 billion, they also have very large debt payments coming up. American could choose to restructure those payments off into the future, or they could decide simply not to make the payments — going bankrupt instead in order to conserve their cash for restructuring.

The wildcard is a war with Iraq. If that happens, and a government bailout doesn’t follow (please don’t let it follow..!), American’s losses could accelerate, making Chapter 11 inevitable.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »