Add Another One to the List: American Airlines Parent Files Bankruptcy

November 29, 2011

Political economy, Political Theory


American Airlines

Another one bites the dust.  In what seems like a never ending downfall for our economy, another major corporation files bankruptcy.  This morning, American Airlines parent, AMR Corp., filed Chapter 11 bankruptcy, which, in simpler terms, calls for the reorganization of the corporation and accommodations for its debts.

Chapter 11 Bankruptcy

American has been deeply in the red and was the only major U.S. airline to lose money last year.  In fact, American Airlines has lost $4.8 billion since 2007 and has only reported one quarter since then in which it was in the black.  The corporation, which used to be the largest airline in the world but has since dropped to third in the U.S., has cited high labor costs and rising jet fuel prices as main reasons for the filing.  Another factor may also be that American was the only airline that did not seek bankruptcy protection after 9/11 and it decided not to merge with any of its airline competitors during the decade-old craze of airline realignment (NCAA conferences anyone?).

Fortunately, especially for those travelling home during break via American Airlines or their subsidiary airlines, American has stated that it will operate under normal flight schedules and will still honor already booked tickets and reservations.  To do so, American will have to reach into its pool of $4.1 billion of cash reserves to support the corporation during this time.

Another Corporation Files Bankruptcy?

The two larger U.S. airline corporations are United Continental and US Airways.  United Continental posted third-quarter profits from 2010 of $653 million and US Airways posted a $76 million profit for that same quarter, while American lost $162 million during the third-quarter of 2010.  American has claimed, though, that labor contract rules force them into spending millions of dollars more on operations than other airlines have to spend, which leads me to the question of fairness in the business world.  Is competition fair and what would Rawls have to say about it?  Is there a fair equality of opportunity in business?

Bankruptcy Filing Court Papers

In my opinion, competition is fair, but not equal.  I feel that since everyone has a chance in the business world, it is fair.  However, it is not equal.  Larger corporations usually have more control over the market and can severely “outplay” competition, especially smaller business, which can lead to monopolies (although antitrust laws do their best to prevent such monopolies).  Furthermore, the business world is unequal in that corporations sign contracts with one party that may be different than with a different company, which happened to American, although it was nobody’s fault but their own.  American did a bad job negotiating contracts with the unions for the pilots, flight attendants, baggage handlers, etc., and now it is paying the price for that mistake by having to pay more than its competitors, which ultimately helped lead American into bankruptcy.

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5 Comments on “Add Another One to the List: American Airlines Parent Files Bankruptcy”

  1. tylerhoffman1 Says:

    I agree with the author that business competition in America (some would call it Capitalism) is fair but not equal. Big cooperations and companies do typically have more market share and therefore an unfair advantage in competition, but anti-trust laws try to combat that. Although it is unfortunate and damaging to the economy that American Airlines is going through a reorganization, it is hard to sympathize for a company that engages in capitalism and calls their own shots. Like the author said, American Airlines is responsible for the labor contracts they made, whether they were good deals for them or not, and now they must live with their contracts and agreements. The system for businesses in America is fair because it allows ANYONE the opportunity to compete for market share, but is sometimes not equal because some businesses can persuade the masses and government easier than small businesses can.

  2. nluongo Says:

    I think our system today does a pretty good job of providing equality of opportunity to businesses. However, it does not ensure equality to all businesses competing and it shouldn’t try to. If the government were to somehow make laws stating that all businesses had to be the same size then we would run into the same problems that we encountered talking about equality of outcome for all citizens. Plus, if a company is larger than others it is usually because they were more successful and people liked their product more than their competitors. Of course, when a monopoly develops then the system doesn’t function because competition no longer occurs, but barring that I don’t think that anything should be done to help companies like AA.

  3. rfieds Says:

    I agree with the author in that the playing field is always fair in business. However, it can never be equal. Some companies are bigger than others as a result of earned and unearned advantages. Just because companies are bigger in market share does not mean that their ways of getting there were unfair or unethical. We live in a competitive market with anti-trust laws to prevent the rise of unfair, colossal monopolies. To claim that this environment of business is not fair is a mere excuse. Knowing that Rawls stands for all benefits to the least fortunate groups, I think that Rawls would claim that any form of monopoly against others is an unfair advantage. I think Rawls would be clearcut and unwavering in his claim that monopolies should be illegal and anti-trust laws should be severe. However, if we were to abide by this–or if the government were to follow through with severe anti-trust laws–we would essentially be socialists. Making each company the same size of the next is not only more unfair than our current situation, however, it would put the economy on an even bigger decline than we have witnessed in the past few years. Larger companies are the way they are because of the people they have and the ways they go about business. They are simply better at it and should not be penalized for that. I completely agree that the business world in America is fair because it allows everyone an opportunity at market share in public companies. It remains evident that the business world is unequal because of the ability of big business to control parts of the general public and sometimes parts of the government.

  4. ianbaker2041 Says:

    First of all, check your numbers. You say that “the two larger U.S. airline corporations are United Continental and US Airways”‘; this is not true. By number of passengers carried annually, it goes Delta Airlines, United Airlines (counting Continental), Southwest Airlines (counting AirTran), American Airlines, and then US Airways. In terms of passenger miles flown, American Airlines is the largest in the world with Delta not far behind at 2nd. US Airways doesn’t even make the top 10 in the world here, beat out even internationally by Qantas, Lufthansa, Emirates, British Airways, and Air France. It’s a small point, but it matters.

    In general, I’d say that competition is fair in the United States. The government places limits on monopolies (I know how this works from my dad who works for a Fortune 500 company) and ensures that everyone follows the same rules. From there, the one offering the best service wins, and that’s how the airline industry is, too. Faced with very smart mergers between Delta/ Northwest and United/ Continental, cheap flights from Southwest, and convenience offered by nonstop local airlines, American is going to struggle to stay competitive in the market. Yes, high labor costs play into it, but at the end of the day, American did agree to those contracts. They did not have to do that if they knew that they would be simply unable to pay them (as it seems they are).

    At the same time, I know how volatile the airline industry can be. I have only a couple hours of flight training on small, single engine planes, but I know that gas and maintenance costs add up quickly. Fuel burns even faster in jet engines, which must ignite quite a bit of expensive jet fuel to keep the turbines running even while idling on the ground (APUs for the win on startup!). For this reason, some costs that airlines incur are not due to their own fault. Delays on the ground run airlines through millions. If an airliner leaves late, the chances are the airline won’t make a dime on that flight thanks to higher fuel costs. In fact, airlines try to put only as much fuel as is needed on flights so that they can save weight-and money. How do we deal with situations like this, which almost certainly play into American’s financial difficulties?

  5. ldahbour Says:

    What would Rawls have to say about it? Is there a fair equality of opportunity in business?

    I feel Rawls’ take on this issue would only consider which airline has the least advantaged the best off. Assuming that AA has to spend more to maintain its workforce then hopefully that extra money is making AA employees better off than UA employees or Delta employees. Although the company as a whole is not well off, the labor union is, which in this case, is the least advantaged. So the AA conditions are preferred over the UA conditions. As far as Fair Equality of Opportunity is concerned, I don’t think that it is applicable to this case. No group is being prohibited from a certain office or position in either case. Rawls would oppose AA changing the workers conditions if they made them not as well off. If the net effect of this bankruptcy is not in the favor of the workers, which is likely, then Rawls would not approve of AAs move.

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