American Airlines Bankruptcy Is Approved With Chapter 11 Filing, Merger With US Airways Next?

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American Airlines parent company AMR Corp. (NYSE:AMR) filed for Chapter 11 Bankruptcy on Tuesday 11/29/2011. Once the bankruptcy filing was discovered the stock trading on the Russell 1000 stock index experienced a flash crash pause. By 4:00pm EST the stock had plunged nearly 84% or a $1.36 from it’s original starting price all the way to 26 cents.

The new flash crash rules were placed in May 2010 to prevent stocks from plummeting out of control. The decision was made to put these rules in place when the DOW dove about 900 points in just a small amount of time. AMR stock was triggered for a flash crash pause when it had fluctuationed more than 10% within a 5 minute time period.

Many stock traders felt this was a perfect example why the flash crash regulations should be removed from stock trading. People that wanted to sell AMR stock after learning about the Chapter 11 Bankruptcy proceedings were locked into staying in the stock and people that wanted to cash in on making negative bets on AMR were locked out of profiting as well. Over at the Wall Street Journal one person interviewed, Adam Sussman, research director at the TABB Group stated, “After the flash crash, it was clear that the SEC needed to do something”…”just one example why a single-stock circuit breaker is not the best solution.”

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Some are speculating that American Airlines parent company might be looking to merge with US Airways Group Inc (LCC) to try and increase their route size and reduce their overhead expenses. American Airlines is the last major airline to file for bankruptcy protection. All other airlines such as US Airways, Delta and United Airlines have already filed for Chapter 11 to reduce their costs, overheads and protect them from the debt they had. The Chapter 11 Bankruptcy in airlines was started in 2001 after the terrorist attacks took a major toll on the financials of major airlines.

A couple things that have probably encouraged an American Airlines Bankruptcy are big changes in the top level management and a failed union negotiation to reduce labor cost and increase productivity. The CEO of AMR was Gerard Arpey who is 53 years old who will be going to Emeral Creek Group. The new CEO for AMR will be Thomas Horton who revealed American Airlines will remain operating as normal.

Even though America Airlines has ensured customers that things will be operation as normal, flights won’t be disrupted and money paid to the company is safe, people were rumbling on social media. Twitter was spreading short tweets of fear for airline passengers saying they wanted refunds and some were glad they regularly used other airlines to fly. With all the chatter in social media the new Chief Executive Officer at AMR should probably looking at quashing misconceptions and fears of the newly announced American Airlines bankruptcy.

 

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