The last domino has fallen. American Airlines, the last of the previous generation of top airlines not to file for bankruptcy, caved in last week and filed for chapter 11 protection. Analysts cite a history of high costs, inefficient operation, and an overall lack of flexibility in a changing business environment. America’s third largest carrier now faces restructuring, and a likely merger. The story, while no surprise to airline analysts, is an interesting study in business bankruptcy law.
Several years ago, airline mergers were quite commonplace. Delta did it, purchasing Northwest Airlines to ensure its survival. UAL purchased Continental as well, allowing that business to survive.
A bankruptcy, and then a merger—this is the pattern for survival when it comes to big global airlines. However, is it too late for American? As the other airlines were struggling for survival, American held out, touting its independence and stability while up-and-comer airlines streamlined business, cut costs, and sold cheaper tickets.
Southwest has come out of nowhere in recent years, maintaining efficient cost control and economical operation, often undercutting American from a price standpoint. Airline ticket websites like Expedia.com started creating aggregated price lists for consumers instantly, putting the cheapest option at the top. American Airlines was never at the top of the list—so nobody flew American.
American’s fleet consists of, on average, 15 year-old aircraft. Maintenance costs are high. Fuel consumption is inefficient. In short, their fleet is more expensive to run than everybody else’s. Those maintenance costs went right to the consumer—most of whom chose to fly the friendly skies elsewhere.
Labor negotiations have dragged on for nearly half a dozen years. With American’s highly inefficient cost control, the airline hasn't been able to stay competitive with wages and benefits. The unions are unhappy.
Now in a position where neither customers nor employees are happy with the company, American’s towering debt has made the company nonfunctional.
The answer? It’s the same with a $24 billion dollar business as it is with a sole proprietorship in Long Island: un-payable debt equals bankruptcy.
The lessons for any business owner are clear. It’s vital to maintain equipment and keep it up to date. It’s no less important to roll with the times and cut costs when necessary. Most of all, pride goes before destruction: American Airlines’ holding out from chapter 11 bankruptcy for too long only increased its debt and made it a less attractive merger candidate.
If you or your business may be facing bankruptcy, you need a lawyer. Retaining counsel provides you with the legal knowledge you need to navigate the dicey waters of bankruptcy law. Call The Green Law Group today at (800) 284-0144 and get pointed in the right direction.