What if ... American hadn't avoided bankruptcy in 2003?

Labor and management united to save the airline then; but those moves have led to a wider gap between them


Mr. Glass was executive vice president and chief human resources officer at US Airways Inc. during two trips to bankruptcy court between 2002 and 2005.

The good part about bankruptcy is that companies can lower their debt and costs, he said.

"The problem is that bankruptcy leaves a lot of carcasses around," he said. "You have shareholders who are wiped out. You have employees whose contracts are severely modified and end up being incredibly disgruntled and unhappy coming out of it.

"You have a slew of other vendors and outside people whose contracts have been abrogated or severely modified. You don't create a situation where you've got a lot of constituents on your side when you go into bankruptcy," Mr. Glass said.

In addition, airline management has to consider the possibility that the reorganization will result in their being thrown out of the company.

"Those are all the reasons that nobody in their right mind would knowingly want to go into bankruptcy," Mr. Glass said. "It's just not a desirable place to be."

Moral questions

Officials on both the union and management side with American also see a moral issue.

"It amazes me that bankruptcy has lost its stigma in business," said Mr. Schricker of the pilots' union. "It used to be, a company went bankrupt and all these senior managers went away. Now it's like bankruptcy is just a business strategy - and that's not what America is about."

Mr. Brundage, the American Airlines executive, agreed.

"In some people's minds, they simply see bankruptcy as a business tool," he said, "and I think if you have a very short-term horizon, you probably can look at it as a business tool. ... If you look at bankruptcy as a failure of a business and not good for its long-term existence, then it's hard to quantify the intangibles associated with that."

Mr. Brundage said no one can say whether bankruptcy was a good idea for the other carriers until more time passes.

They will eventually have to deal with unions that will want their pay and benefits increased.

"I say we haven't had enough time play out yet to really understand what the implications are for the business long term," Mr. Brundage said.

"I hope we're proven right here, because we are the outlier."

THE ROAD NOT TAKEN

Based on what happened at the four major U.S. carriers that filed bankruptcy petitions in recent years, one can guess how AMR's constituencies would have been affected by a filing:

LABOR

The airline probably would have asked the bankruptcy court to freeze or terminate pensions. Salaries and some benefits probably would have taken bigger hits. On the other hand, employees might have gotten stock in a reorganized company.

INVESTORS

The 156 million shares of AMR then outstanding would be worthless, instead of their current market value of around $3.5 billion.

LENDERS

Secured lenders probably would have gotten equity in a new AMR. Unsecured creditors probably would have received only a portion of the money owed them. Aircraft lessors probably would have had to accept reduced payments, and older aircraft might have been returned to their owners.

EXECUTIVES

Any incentives based on the existing AMR stock would have been worthless, but AMR probably would have offered retention bonuses - both money and new stock - to keep executives through the reorganization.

BANKRUPTCY DETOURS

Of the nation's 10 largest airlines at the start of 2001, five took refuge in bankruptcy court this decade. One of them, Trans World Airlines, went into bankruptcy court as part of a plan to be bought. The others resorted to a Chapter 11 petition to survive. Here's a timeline:

Jan. 10, 2001: Trans World Airlines files for bankruptcy; American Airlines announces it plans to buy TWA's assets.

Aug. 11, 2002: US Airways Group files for bankruptcy.

Dec. 9, 2002: UAL and its United Airlines unit file for bankruptcy.

March 31, 2003: US Airways emerges from bankruptcy.

Sept. 12, 2004: US Airways files again for bankruptcy.

May 19, 2005: US Airways signs a merger agreement with America West Holdings.

Sept. 14, 2005: Delta Air Lines and Northwest Airlines file for bankruptcy on the same day.

Sept. 27, 2005: US Airways emerges from bankruptcy as the America West merger becomes effective.

We Recommend