American Went Bankrupt to Undercut Union

Healthy companies use bankruptcy to cut labor costs: Stephen Gandel

By Kevin Spak,  Newser Staff

Posted Nov 30, 2011 1:51 PM CST

(Newser) – American Airlines has $4 billion in the bank, doesn’t need emergency financing, and feels quite confident it can keep paying its vendors, business partners, and creditors in full. So where was the crisis that pushed it into bankruptcy? “It doesn’t appear there was any,” writes Stephen Gandel at Time. Well, according to its press release it was to “address our cost structure, including labor costs.” Translation: American is trying to force its union, which it’s been unsuccessfully negotiating with, to take pay and benefit cuts.

This is a growing trend, both in the airline industry and outside it. Gandel examined bankruptcy data and found that whereas from 1998 to 2002 bankrupt companies were genuinely in rough shape, from 2003 onward bankrupt companies have had an average 6% more assets than liabilities, “meaning they were far from insolvent.” The UAW has urged Congress to step in, saying bankruptcy is being abused. “I’m not 100% sure that’s the case here,” says Gandel. "But it sure seems that way.”

Passengers check in at an American Airlines ticketing counter at Dallas Fort Worth Airport Tuesday, Nov. 29, 2011, in Dallas.
Passengers check in at an American Airlines ticketing counter at Dallas Fort Worth Airport Tuesday, Nov. 29, 2011, in Dallas.   (AP Photo/Richard W. Rodriguez)
American Airlines' jets sit at the gate Tuesday, Nov. 29, 2011, at Sky Harbor International Airport in Phoenix.
American Airlines' jets sit at the gate Tuesday, Nov. 29, 2011, at Sky Harbor International Airport in Phoenix.   (AP Photo/Matt York)
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