DALLAS ― AMR Corp., the bankrupt parent of American Airlines, is racing to renegotiate aircraft leases and bag what experts believe could be hundreds of millions of dollars in savings.
The airline effectively has until Jan. 27 to inform a court about its lease plans, thanks to a bankruptcy statute giving a company 60 days to make decisions on such deals. American, which declined to comment about its lease plans, will need to have a working plan for which leases it wants to keep, alter or reject.
The process is fraught with questions about AMR’s future fleet needs. And lease holders, eager to preserve contracts signed in better days, are sure to balk when faced with the prospects of accepting lower lease rates or AMR’s rejection of outdated and unwanted airplanes.
“There’s a lot of negotiation, and some of it is playing chicken,” said Adam Pilarski, senior vice president at AVITAS, an airline consulting company that also works with aircraft lessors and lenders.
Aircraft leases are likely to be the biggest trimmable cost after labor for AMR, which filed for Chapter 11 on Nov. 29 in New York, citing uncompetitive labor costs as a key disadvantage in an industry that wrestles with overcapacity and high fuel costs. American is the third largest U.S. carrier.
Aircraft and equipment leases amount to around a third of AMR’s roughly $30 billion in liabilities.
Airlines often order aircraft from a manufacturer but lease the planes from a third party as a way to spread the risk of owning costly aircraft.
Bankrupt companies can reject leases on aircraft and engines or renegotiate leases with lower rates. AMR stands to save hundreds of millions of dollars by renegotiating leases, several experts said, citing comparisons with what other airlines did with leases in Chapter 11.
The company must renegotiate with lease holders while keeping enough planes — and the right models — in the air. AMR will need to consider factors ranging from the age of its jets to long-term plans for its fleet. That means lease holders with more fuel-efficient planes may hold more leverage.
“You look at age of aircraft, fuel consumption costs, how many miles are on each aircraft, and what your plans are for upgrading your fleet,” said bankruptcy attorney Kris Hansen, who is not involved in the case but worked on Delta Air Lines Inc’s. bankruptcy.
“Each airline has a full team who does a thorough profitability analysis,” Hansen said.