Finance Case Studies American Airlines

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Executive Summary – American Airlines

The future of American Airlines remains uncertain after a lieu of mistakes and misfortunes. American Airlines’ parent company, AMR, filed Chapter 11 bankruptcy in November of last year after recording net losses of $2.1 billion, $1.5 billion, and $471 million in 2008, 2009, and 2010 respectively. Also, with AMR’s previous CEO declaring retirement, new CEO Tom Horton was named. In the wake of their financial predicament, American Airlines is also having PR, managerial, and maintenance problems. The pilot union is demanding an industry standard contract that includes salary and job security provisions. The inability of AA to negotiate a deal, along with thousands of job cuts, has left many American Airlines’ employees bitter. In recent months, flight attendants have engaged in very inappropriate public rants and rude behavior consequently causing delays among flights and irate customers. In addition to the behavioral issues, several planes have had to make emergency landings due to loose seats and other incidents of insufficient inspection. In July, five AA passengers had to be hospitalized after encountering turbulence during a flight. American Airlines’ fleet of aircrafts has an average age of 15 years. These aged carriers are inefficient energy consumers and multiply costs. American Airlines has openly declared their opposition to a merger with US Airways, although, the final decision rests with AMR and negotiations are still in progress.

A merger between American Airlines and US Airways would decrease competition among the market and contribute to a rise in flight prices. However, with the existing mergers already controlling the market, it seems that the merger is inevitable if American Airlines wishes to stay afloat. A merger with US Airways would mean a new network not previously accessible. Also, successful pilot contracts similar to Delta’s are more likely to be agreed upon. Although AA ordered a fleet of new...
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