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American Airlines Bankruptcy: Chapter 11 Reorganizations

American Airlines is hopeful that its Chapter 11 bankruptcy reorganization plan will help the company emerge from the bankruptcy quickly and more profitably.

In a Chapter 11 bankruptcy, a debtor may continue to run the business during the bankruptcy. The debtor must negotiate a reorganization plan with creditors and file that plan with the court. Generally, a Chapter 11 plan provides for the repayment of loans over an extended period. The plan must list all of the claims against the debtor, how each debt will be paid and how the business will carry out the reorganization plan.

Under its Chapter 11 reorganization plan, American Airlines plans to cut 13,000 jobs, but also to focus on growth. For example, the company has recently ordered nearly one thousand new mid-range aircraft. It is also enhancing five hubs to improve service and business.

Meanwhile, American has attempted to negotiate with labor unions for certain cuts related to pilots, ground workers and flight attendants. American Airlines would like to reduce its labor costs, which, according to American, are millions of dollars more than those of Delta or United Airlines.

Negotiations have been relatively unsuccessful, causing American Airlines to request court authority to break its union contracts. Under U.S. bankruptcy law, companies may break union contracts if those contracts have prevented the companies' success.

Solutions for Businesses in Debt

Businesses struggling with debt often choose to file Chapter 7 or Chapter 11 bankruptcy. If your business is considering bankruptcy for debt relief, a bankruptcy attorney can help you decide which option is right for you.

Chapter 11 bankruptcy allows a business to continue to operate during the bankruptcy and can help a business reemerge from bankruptcy as a healthy, profitable company. However, it can be more expensive and time-consuming than Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, the business must sell non-exempt assets to pay back creditors. It emerges from bankruptcy debt free, but may need to close up shop.

American Airlines' situation is unique as it is a large corporation dealing with unions and billions of dollars in debt. However, in this economy, its financial distress is not unique. Chapter 11 can offer hope to businesses facing significant debt that would prefer not to shut their doors.

Source: USA Today, "AMR's American Airlines Wants to Emerge From Bankruptcy Quickly," David Koenig, Mar. 26, 2012.

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