Success 'Still Far From Assured'

Although much of the latest news for AMR, parent of American Airlines, has been reasonably good -- concessions from major unions, concessions from creditors, concessions from leaseholders, financing arrangements' coming into place -- the airline may still find that its interests are better-served from behind the curtain of bankruptcy protection, the new CEO, Gerard Arpey (below), said Thursday.

He didn't use those exact words, of course. What he said was, "We continue to move through the most challenging period in our history, and our success is still far from assured."

That "challenging period" is the post-911 period, when travel has become a hassle for business types and an undesired risk for vacationers; when fuel prices have risen, and stayed relatively high; when a war in Iraq slowed things down; and when a little-understood and deadly virus has captured the imaginations of national press and international health organizations.

In other words, costs are still pretty high -- and revenues are pretty low.

Chapter 11, from the airline's point of view, carries a lot of advantages, most-especially the ability to ignore existing debt while negotiating it down to pennies; and the ability to walk away from unprofitable contracts -- with labor, especially. Chapter 11 reorganization allows a real 'reorganization' -- witness US Airways, remaking itself into a big user of regional jets, after negotiating many creditors down to 2¢ on the dollar, and transitioning many pilots (and their pay scales) to CRJs from 757s.

The reorganization has to come -- whether it is through natural processes (a few airlines go out of business or merge) or the unnatural act of maintaining court-enforced industry overcapacity, until virtually every airline is forced to stiff its creditors, downsize its workforce, and renegotiate its contracts -- from those with ramps and gates, to employees.

FMI: www.amrcorp.com