Phoenix Bankruptcy Law News

New Board of Directors for Bankrupt American Airlines?

AMR, parent company of American Airlines, may emerge from bankruptcy on its own two feet. However, it will probably do so with a new board of directors and new management team.

A group of AMR's most significant bondholders, including Pentwater Capital Management and JPMorgan Chase & Co., said it won't support a stand-alone restructuring unless a new board is appointed, according to Reuters. The move represents yet another hurdle for CEO Tom Horton and his team.

It's been a year since AMR filed for Chapter 11 bankruptcy. In general, debtor companies close off branches of the business, sell certain assets, and renegotiate their contracts in order to cut costs and return to profitability. In some cases, however, the debtor company will merge with another company in order to pool their resources and emerge from bankruptcy.

Ever since the filing, US Airways has been pushing for a merger between the two airlines. However, Horton has stated that a merger may not be in the best interests of American. According to Horton, US Airways actually needs the merger more than American does.

Instead, Horton has claimed that a stand-alone restructuring, rather than a merger, is the best move for American. In order to emerge from bankruptcy on its own, American will have to cut its labor costs -- a move that has been met with considerable opposition from AMR's worker unions.

Now the company's most important bondholders have set up another obstacle for Horton and his team. The move isn't unusual. Entities that gain a controlling stake in a company through bankruptcy often appoint new boards. The new boards don't always get rid of the incumbent managers, but it's a possibility.

"The board will ... be responsible for selecting a management team," the bondholders said in their letter. "We expect the board to share our view that an important criteria for selecting the leader of that team will be a demonstrated ability to maximize shareholder value."

If Horton and his management team can convince AMR's shareholders of their leadership credentials, they may still be at the company's controls during the restructuring.

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