American Airlines' Bankruptcy

Having $4 billion in the bank is not your typical definition of broke. That’s why American Airlines’ parent company AMR surprised a bunch of people — particularly, one presumes, the five Wall Street analysts who still rated the company’s shares a “buy” — when it filed for bankruptcy on Tuesday. Its comfy nest egg aside, American isn’t facing any looming debt payments. The company said it didn’t need emergency financing, like most bankrupt firms do. It fact, it said that its cash on hand along with cash being generated by its operations was more than enough to continue to pay off vendors and business partners on time and in full. What’s more, American has no plans to call off its planned purchase of 460 planes over the next decade. Nor does it think it will have any problem getting the $13 billion it needs in financing to do so. Where was the cash crisis that put the company over the edge?

So why are more companies filing for bankruptcy when it doesn’t appear they have to? In the case of American Airlines, the company said in a press release the main reason it was filing for bankruptcy was to “address our cost structure, including labor costs.” American and its unions had been negotiating for a while and had come to no agreement. Other airlines have used bankruptcy as a way to force its workers to take lower paychecks and benefits. American Airlines wants the ability to do that, too. And it’s not just the airline industry. Car parts manufacturer Delphi Corp. was accused of unfairly using the bankruptcy process to eliminate most of its U.S. workforce and ship those jobs overseas.