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Wednesday, April 25, 2012

American Airlines: The Way Bankruptcy Is Supposed to Proceed


American Airlines is in Chapter 11 bankruptcy supervised by a bankruptcy judge in federal court following normal procedures. American’s goal is to emerge from bankruptcy as a profitable concern.  All of American’s stakeholders – unions, creditors, management, etc. -- are represented and are fighting each other tooth and nail, as they should. American’s management wishes to abrogate union contracts that have made it the highest-cost carrier in the business. Management is trying to extract work rule concessions from reluctant unions. Unions are fighting to protect their contracts and pensions and minimize layoffs.  Another carrier, U.S. Air, is circling overhead, trying to lure stakeholders into a U.S. Air-American Airlines merger.

No matter what, jobs will be lost but probably not more than ten percent. Either a stand-alone American or an American merged with U.S. Air will emerge from bankruptcy, and all the interested parties will have defended their legitimate interests as best they can before an impartial judge. If all goes well, American can survive and make profits.

The American Airlines bankruptcy shows how the GM and Chrysler bankruptcies should have proceeded. Instead the of federal government grabbing the bankruptcy proceeding in a biased way towards the unions and to the disadvantage of creditors or potential third-party bidders, GM and Chrysler could have gone through a normal bankruptcy and emerged with lower costs, free from government diktat, and able to make  their own decisions.

The American bankruptcy case again exposes the emptiness of Obama’s claim that “he saved Detroit.”


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