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American Airlines does what GM and Chrysler should have done

American Airlines does what GM and Chrysler should have done

Obama saved GM and Chrysler, Obama saved GM and Chrysler.  Republicans wanted the companies to die quickly.  That’s pretty much a central Democratic Party talking point this election cycle.

Of course, it’s complete nonsense.  GM and Chrysler were “saved” by Obama with a bailout to preserve the position of auto unions.  The companies could have survived just fine, and in fact better, had they filed for Chapter 11 like almost every major airline has done.

The latest example is American Airlines which filed Chapter 11 protection this morning when it could not get union concessions sufficient to make it competitive:

American Airlines parent AMR Corp. (AMR)filed for bankruptcy after failing to secure cost-cutting labor agreements and sitting out a round of mergers that dropped it from the world’s largest airline to No. 3 in the U.S.

With the filing, American became the final large U.S. full-fare airline to seek court protection from creditors. The Fort Worth, Texas-based company, which traces its roots to 1920s air-mail operations in the Midwest, listed $24.7 billion in assets and $29.6 billion in debt in Chapter 11 papers filed today inU.S. Bankruptcy Court in Manhattan.

“They will have to go through the whole process that their peers have gone through,” John Strickland, an aviation analyst at JLS Consulting in London, said today in a telephone interview. “It’s painful but probably necessary. They have fallen behind what others have done.”

American Airlines will emerge more competitive and in the long run will be better off.  Just like GM and Chrysler could have done.


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Chances are good that GM and Chrysler will have to file for bankruptcy eventually anyway.

The cost of the bailout of the GM has risen to $23.6 billion. Wikipedia states that GM employs 209,000 workers. That is $112,000 per employee. Of course, as Prof Jacobs points out, it is silly to think that jobs at GM would have gone from 209,000 to zero if we had let nature take its course. If there had been a one third decrease in the work force, the cost per job “saved” would be $300,000. And does anyone think that the bailout did anything but forestall the inevitable downsizing and corporation reform? So our kids and grandkids pay to keep the swollen workforce at GM for a few years.

As I read through the Bloomberg piece on the banks & the Federal Reserve, I kept asking myself .. “where is the news ?” It was written in a manner that made you think the authors were hyperventilating the entire time that they wrote it, but it kept coming up short.

We had these huge sums of money like $1.2 trillion and then the “killer” .. they made $13 billion in profit over two years. My quick math has that as 1.08% profit over two years (even lower if you use that $7.7 trillion number). These bankers should be deeply ashamed .. what a pathetic return.

If you consider that the Federal Reserve isn’t really owned by the government, and that taxpayers didn’t pay a dime (as opposed to GM, Chrysler, AIG, Fannie Mae, Freddie Mac, Solyndra, etc. etc.), I am at a loss to explain “where the ‘there’ is ?”

MaggotAtBroadAndWall | November 29, 2011 at 10:26 am

You’re probably going to catch heat from the left for this post.

GM and Chrysler DID file for bankruptcy. The cronyism came when the government abused it’s position as the DIP financier and accepted terms no other DIP financier would. In addition, the unions got much more favorable terms in the reorganization of Chrysler at the expense of the senior secured creditors.

Also, Evercore Partners, founded and run by former Clinton administration Assistant Treasurer, Roger Altman, a super bigwig in the NYC Democrat Party apparatus and major supporter of Obama, together with Alix Partners, tried to bill the taxpayers $130 million for “advising” GM during the bankruptcy process. Even the Trustee was outraged and denied the claim. (I’m not sure how much the Trustee awarded them in the end.)

While the cost of the GM and Chrysler bailout are huge, to me its beside the point. The most important thing about the whole fiasco is that the “saving” of the two companies necessitated the destruction of 150 years of established contract law. Now bondholders no longer hold seniority for debt repayment. And amazingly the John Roberts led Supreme Court upheld this travesty.

Fort Worth should count its blessings. The corporate bankruptcy process is one of the true success stories in American business finance and jurisprudence. By investing themselves in “crony capitalism” GM and Chrysler “management,” their union leaders, and Wall Street banking and brokerage houses along with their partners in government condemned Michigan, Detroit, New York City, and New York State, a multitude of supporting businesses and industries, and gigantic swaths of surrounding region to a slow, very real, economic death.

We cannot rid ourselves of these people too soon.

Tuesday Truculence, or why didn’t I win the lottery?…

AMR Corp., the parent company of American Airlines, has filed for bankruptcy protection after failing to secure cost-cutting labor agreements with their unions. It’s what GM and Chrysler should have done, except that Obama meddled to save their feathe…

amr is in trouble.
the only one that didn’t declare (of the majors) after 9-11.
they sold off eagle recently (I worked for them) and its up in the air on how eagle will do, they were pretty much the profitable arm of amr.
but they closed a good mtx base in 2007 (bangor maine, where I am) to follow a walmart contract in XNA airport, and then got screwed on union labor costs.
they are in all in trouble.

I wondered why no one discussed Chapter 11 for GM and Chrystler as well, it seemed crazy at the time, like no one knew bankruptcy protection doesn’t mean the end of a company. Now it all makes sense, bankruptcy means you can break union contracts… For once I totally agree with the Obama conspiracy theory, mainly because it’s the only one that makes sense.

    StephenMonteith in reply to Awing1. | November 30, 2011 at 5:11 am

    Someone did. In December of 2008, when the Big Three were all sitting in front of Congress with their hats in hand, Romney penned an article in the New York Times entitled “Let Detroit Go Bankrupt”. No one talks about it, of course (except for Democrats in Michigan), because it would spoil the “Romney is Pro-Bailout” nonsense.

There is a bigger scandal with Chrysler than bailout. After that, Obama gave Chrysler (a 23 billion dollar company) to a socialist country for NOTHING which screwed all of the Chrysler dealers. Below is the attorney’s document describing it:

My former employer has filed for Chapter 11. The industry has been a disaster since deregulation. My pension looks unlikely, but I do alright, hope my former colleagues the very best.

Bankruptcy is the perfect solution for our country’s deficit problem. Only reducing the costs of government will solve that problem. Democrats want to increase taxes but their “solution” only gives them more money to spend and thus increases the deficit.

Bankruptcy will also allow the government to revise union contracts and benefits.

We will have to wait for a conservative government for any of this to take place, however.