Essays on American Airlines Bankruptcy Case Study

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The paper "American Airlines Bankruptcy" is a perfect example of a business case study.   American Airlines is one of the biggest airlines in the US and the second-largest in the world in terms of passenger miles transported. The airline has its headquarters in Texas. It has a wide domestic and international network with destinations to countries in four continents. American airlines started as American airways in 1930 (Reed, 1993). It came into being through reorganisations and acquisitions that created a conglomeration of more than 80 small airlines. It was renamed American Air Lines in 1934 after it was acquired by businessman E. L Cord.

After the Second World War, American Air Lines acquired a company known as “ American Export Airlines. ” It renamed it as “ American Overseas Airways. ” This airline operated in the European market (Sterling, 1985). American Airlines is famous for its invention and pioneer of the hub-and-spoke system after the 1978 airline deregulation in the United States. This spurred its dramatic growth. The decade leading to the September 11 attacks was the best for the airline as it created the Global Alliance One World, which opened routes worldwide for the airline and increased its capacity (Merced, 2011).

However, the decade after the September 11 attacks was not promising for the airline as it underwent a dramatic slump that led to its filing for liquidation protection in November 2011 How American Airlines ended in Bankruptcy The “ AMR Corporation, ” which is the parent company of the American airlines filed for insolvency defence in November 2011, seeking to decrease its labour costs, as well as shed a debilitating debt weight (Merced, 2011). “ AMR corporation” was the only remaining major legacy airline to file for liquidation security after all other major legacy airlines filed for bankruptcy protection following the aftermath of the 9/11 attacks, which had an extremely adverse effect on airline travel (Merced, 2011).

The reluctance of “ AMR Corporation, ” which operates the American airlines to file for bankruptcy, had left the airline in a vulnerable condition. Throughout the bankruptcy process, the airline has remained in operation just like other airlines, and its flight and flier programs have not been affected (Merced, 2011). The company’ s board decided to file for bankruptcy protection with a view of restoring its financial strength, operating efficiency and profitability and its profitability.

Bankruptcy protection was meant to help the company achieve a competitive cost structure. The financial health of AMR Corporation has been eroding in the years leading to the filing of bankruptcy protection (Merced, 2011; pp. 1). The company posted annual losses between 2007 and 2010. In 2010, the losses hit $487 million and in the first nine months of 2011, the losses had more than doubled to $982 million. By September 30, 2011, the company has assets worth $24.7 billion and $ 29.5 billion in debts.

The shaky financial picture necessitated a bankruptcy protection American airline was a very profitable carrier in the 90s. However, the events that led to its filing for bankruptcy started in 2011. In 2011, the management of American airlines decided that the company should acquire struggling Trans World Airlines. Trans World Airlines filed for bankruptcy after the acquisition deal was signed (Merced, 2011; pp. 1). American airlines paid for all Trans World Airlines assets in cash amounting to $500 million.

The carrier also assumed the operating leases and debts that were valued at $3billion, which was a good decision from an economic perspective because it increased the capacity and reach of American Airlines (Merced, 2011, pp. 1). The deal saw American airlines gain 175 gates, 190 aircraft, and 173 landing slots. Through this acquisition made economic sense, it came at the wrong time because five months later, one of the deadliest terrorist attacks affected America. Two planes belonging to Trans World Airlines were used. Although American airlines could weather that storm due to its healthy financial status, September 11 attacks influenced negatively on the airline industry because of the steep decline in travel and led to massive losses in the airline industry.

In this case, it is clear that the management did not initiate the event that signalled the start of the decline of American Airline. In fact, if the terrorist attack had not happened, American Airline would be in a better position because of the competitive advantage it gained after the merger with Trans World Airlines (Merced, 2011; pp. 1 ).

References

Doganis, R. (2002). Flying off course the economics of international airlines.

London: Routledge

Merced, M. (2011). American airlines parent files for bankruptcy. Retrieved from http://dealbook.nytimes.com/2011/11/29/american-airlines-parent-files-for-bankruptcy/?_php=true&_type=blogs&_r=0

Reed, D. (1993). The American Eagle: The Ascent of Bob Crandall and American Airlines. NY: St. Martin's

Sterling, R. J. (1985). International directory of company histories. MA: St. James Press

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