American Airlines Parent AMR Says It's Broke, Files for Bankruptcy

American Airlines parent company AMR Corporation (NYSE: AMR) became the latest airline to file for Chapter 11 bankruptcy in what it said is an attempt to become more competitive with the other major airlines.

American Airlines said that it has enough cash to continue regular operations. The airline was in talks with unions over their benefit packages but those talks failed to reach the desired results of the airline. American Airlines' competitors used Chapter 11 bankruptcy to cut costs after the slowdown that followed the September 11 terrorist attacks.

The company said in a press release that it "took this action in order to achieve a cost and debt structure that is competitive in the airline industry so that it can continue delivering a world-class travel experience for its customers."

Although American Airlines had long sought to avoid a similar fate, its competitors used their bankruptcy protection to shed costs, then took part in mergers that created bigger flight networks. The airlines with the larger flight networks have been better able to attract corporate customers who are willing to pay a premium for the added convenience.

Chairman, Chief Executive Officer and President of AMR and American Airlines Thomas W. Horton said that the company is "committed to maintaining a strong presence in worldwide markets. I am confident American will emerge even stronger as a global leader known for excellence and innovation, a travel partner customers seek out, and a carrier that serves communities throughout the world."

ACTION ITEMS:

Bullish:
Traders who believe that American Airlines bankruptcy will make the company more competitive might want to consider the following trades:

• A stock like Delta Air Lines (NYSE: DAL) could see its share prices fall if it sees a major competitor become better able to compete on price and routes offered. Traders could buy AMR (AMR) stock or short Delta Air Lines if they see a stronger American Airlines emerge from bankruptcy.

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