August 21, 2012 AA Got it Wrong
Last week AA’s petition to the bankruptcy judge to throw out their contract with the pilots was rejected. This is a situation that is pretty much unprecedented in bankruptcy court. Traditionally, firms in bankruptcy are given wide latitude to restructure their obligations. Bankruptcy courts have recently seen an influx of “prepackaged” bankruptcies. These are not true bankruptcies, but the firm has decided that their current cost structure is not to their favor. The firms have decided that bankruptcy court is the best way to renegotiate their contracts. Bankruptcy court is supposed to give firms a second chance, not provide a negotiate edge to the firm.
It was bound to happen that bankruptcies court would start pushing back. Bankruptcy courts are becoming less of a rubber stamp for the firm and the creditors committee. This is a good thing; the DOT does not really appear to understand the airline industry they are tasked with regulating in regards to economic concepts. The only government influence over airlines has been though the bankruptcy courts. Now it appears the courts seem at least willing to hear out other groups, pilots, traveling public, ect. For AA this is not a good thing, though it should be good for everyone else. As stated previously, US Airways is positioning itself as a merger partner to take over AA. The court at least appears to be willing to listen to US and others. Overall this does not bode well for AA’s plan to continue to as a standalone airlines.