Case Study

Sample Case Study on American Airlines Bankruptcy

American Airlines Bankruptcy

American Airlines bankruptcy is considered by many industry observers as a step that was long overdue. This company was among the few major airlines in the US that had always avoided bankruptcy. However, the company had to succumb to a path that is trodden by most of the other airlines in the US.

Why file for bankruptcy?

According to some industry observers the move to file for bankruptcy was necessitated by claims and losses. American Airlines made losses worth $2.1 billion in 2008, $1.5 billion in 2009 and $471 million in 2010. In addition, the company was having managerial, PR and maintenance issues. Pilot union was also demanding for the signing of a contract which included provisions for job and salary security provisions.

Employees were also bitter due to the inability of the AA to make a promising deal. Customers were also irritated by inappropriate engagement in public rants by flight attendants. There were also cases where several planes were forced to land urgently due to issues that arose from insufficient inspection such as loose seats.

There was also a time when some passengers of the airline were hospitalized due to a turbulence encounter during Proofreading-Editingflight. All these issues combined contributed to the need to file for a bankruptcy.


There are experts who say that filing for bankruptcy was a strategy used by the American Airlines to enhance its performance. Some airlines analysts such as Jeff Kaufman were surprised by the timing of this move.

According to Jeff, the company had sufficient cash that would pay for the losses and keep the company running for another year. However, he notes that filing for bankruptcy was a sensible move because of several factors. These include the high fuel cost, tough negotiations with labor union and loss of the business customers of the company to competitors.

Until 2006, the American Airlines remained the largest carrier in the world. Mergers pushed this company to a third position in terms of the miles that paying passengers fly after the United Continental and the Delta Air Lines.

The future

According to the management of the American Airlines, filing for bankruptcy was never a preference of this company. However, for the company to ensure its competitive future it had to file for bankruptcy. The management said that the move gave the firm resources required to order for more planes such as 460 jets and the Airbus. This would enable the company to replace its current 247 MD-80 planes which are fuel guzzlers.

The cash reserves of this company combined with cash from the current ticket sales provides the needed funds for reorganization. Thus, the airline will not need the debtor-in-possession loan required by Chapter 11.

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