American Airlines CEO Rejects Bankruptcy: “I’m Not Going To Do It”

American Airlines CEO Doug Parker is ruling out bankruptcy since COVID-19 is a different crisis than downturns in the 1990s and 2000s that saw airlines file for Chapter 11.

“Bankruptcy’s failure and I’m not going to do it,” Parker said. “We don’t look at that as an option.”

American’s debt – higher than Delta Air Lines or United Airlines – prompted concerns even before COVID-19, which has exacerbated financials. Then Boeing’s CEO speculated a major U.S. airline would go out of business.

“While some like to play the game of ‘Gee who might be in trouble?’ I think we’re all going to be fine,” Parker told the Bernstein Strategic Decisions Conference. “I don’t think you’re going to see any airlines go by the wayside as a result of this crisis.”

Parker drew a distinction that COVID-19’s obliteration of demand affected a structurally strong U.S. airline industry. That is unlike the weak 1990s and 2000s where an airline shutdown alleviated excess competition.

“Their capacity would go away and all of a sudden your revenues would go up,” Parker said.

“That’s not the case here,” he said. “It’s all about demand. We need demand to come back.”

American’s new bookings started outstripping refunds in mid-May, and it now has eight consecutive days of positive booking trends in all fare categories. “People are now sitting down and making plans, not being stimulated by a fare to go tomorrow,” Parker said.

But that growth is from a low base. American and peers are preparing for a smaller future, prompted by a drawn-out recovery but also wanting to remove marginal capacity. That ensures what they do fly generates strong profits to quickly pay down debt.

Parker expects the total U.S. airline industry will be 10-20% smaller in summer 2021.

“The effect is going to be as though a large airline went away,” he said. American is retiring 100 aircraft, mostly widebodies, while Delta is removing 18 777s. Fleet retirements cumulatively equate to “a really big airline.”

American is forming a debt repayment strategy to preserve shareholder value rather than use Chapter 11 to reduce debt but wipe out stockholders. “I don’t think people should view bankruptcy as a financial tool,” Parker said.

American’s former South American partner LATAM filed for Chapter 11 in the U.S. this week. But unlike American, LATAM struggled to receive government support and has fewer liquidity options due to limited unencumbered assets.

Parker does not think other airlines are expecting consolidation. “There’s no one trying to push anybody else out of business,” he said. But airlines may look for gains.

American wants to leverage its Dallas/Fort Worth and Charlotte hubs, two of the industry’s three largest, for incremental profits. United reckons it will have a stronger recovery since its largest hubs are in major business areas: Chicago, New York, San Francisco and Washington D.C.

Southwest Airlines told pilots it expects to keep up tradition of squeezing weak competitors. Ultra low-cost carriers – Allegiant, Frontier and Spirit – will position their leaner fares as pragmatic during a recession.

But first American has to get through the slower revenue period. Avoiding bankruptcy is also a personal crusade for Parker, who has been in the airline business for over 30 years, including the last 18 as CEO of American Airlines, U.S. Airways and America West.

“One of the things I’m most proud of is that I’ve never worked for a bankrupt airline,” Parker said. “In the airline business that’s actually a real accomplishment.”