Boeing, Airbus Await Outcome of American’s Restructuring

 - December 5, 2011, 12:06 PM
American considers its commitment for more Boeing 737-800s "rock solid." (Photo: Boeing)

Orders for hundreds of Boeing and Airbus narrowbodies stand subject to revision following AMR Corporation’s Chapter 11 filing last week. However, both manufacturers remained sanguine about the extent to which the reorganization of the company and its American Airlines subsidiary might affect their respective contracts.

Jim Albaugh, Boeing Commercial Airplanes CEO, predicted some short-term consequences, even though American said it considers plans to add current-generation and re-engined versions of both manufacturers’ narrowbodies “rock solid.”

“Long term, I think [the reorganization] is going to be a positive,” Albaugh said during a November 30 investors’ conference in New York. “Shorter term, we think they’re going to want to come back and renegotiate some lease terms, and we want that to be successful.” 

Although not yet a firm order, the agreement with Boeing calls for American to take delivery of 100 airplanes from the current 737NG family starting in 2013. The order for the remaining 100 Boeing jets would call for first delivery of the new CFM Leap-1B-powered 737 MAX in 2017.

“When we entered into our recent agreements with American, we were confident that these assets at issue will be core to their operation in almost any scenario,” said Boeing in a statement. “We have no reason to doubt that today.”

Although Airbus would not comment to AIN about American, Reuters reported that John Leahy, Airbus COO for customers, said that AMR had assured Airbus it would “confirm” its contract and that fleet replacement would stand at the center of its recovery efforts. 

Airbus had expected to deliver the first of 130 current-generation A320-family airplanes in 2013, followed by the first of another 130 A320neos in 2017. Schedules call for deliveries to run into 2022.

The only major U.S. airline company to avoid bankruptcy over the past decade, AMR finally succumbed to pension-funding burdens and high fuel costs, while its main rivals shed labor costs under Chapter 11 and subsequently engaged in consolidation.

AMR said American Airlines and American Eagle will continue to operate normal flight schedules, maintain its frequent-flyer programs, honor all employee wages and benefits and carry on with all their code-share relationships.

Under its Chapter 11 filing in the Southern District of New York, the company listed assets of some $24.72 billion, $29.55 billion in liabilities and $4.1 billion in cash. AMR lost $162 million in the third quarter and has posted losses in 14 of the last 16 quarters.

“This was a difficult decision, but it is the necessary and right path for us to take—and take now—to become a more efficient, financially stronger, and competitive airline,” said new AMR chairman and CEO Thomas Horton, who replaced Gerard Arpey on the day of the bankruptcy filing. “Our very substantial cost disadvantage compared to our larger competitors, all of which restructured their costs and debt through Chapter 11, has become increasingly untenable given the accelerating impact of global economic uncertainty and resulting revenue instability, volatile and rising fuel prices, and intensifying competitive challenges.”