American Airlines’ decision to file for bankruptcy protection Tuesday was a long-avoided last resort for the struggling carrier, but the move isn’t likely to have lasting consequences for Miami and the company’s presence as a major employer and dominant air carrier.
What could take a hit: civic and charitable causes that the airline supports, more than 9,000 American Airlines employees in South Florida whose pay could be affected and vendors who do business with the carrier.
The Fort Worth-based airline is responsible for about 70 percent of the traffic at Miami International Airport, which is one of American’s five domestic hubs. American funnels most of its Latin American connections through MIA, and Latin American routes contributed about 20 percent of American’s $22 billion in revenue last year.
George Hoffer, who teaches transportation economics at the University of Richmond, said those profitable Latin American routes should insulate MIA from American’s cost cutting.
“I would predict you would have the least impact of any of the hubs,” Hoffer said. “The profit contribution from the international flights are so much more” than the domestic routes.
José Abreu, director of Miami-Dade Aviation department, said money-making hubs of other legacy airlines that went into bankruptcy and emerged — Delta, United, US Airways and Continental — have not suffered much.
“There may be some reduction and adjustment in domestic feeders, but I don’t believe there will be any international flight reductions,” Abreu said. “They’re going to look at the routes and see where they’re most profitable. Their network for MIA is awesome. All the international flights are full.”
Those international connections — in large part via American — have proven a boost to Miami, said Beacon Council President Frank Nero.
“What we are in our competitive position in the marketplace is due in large part to American,” Nero said. “Their reach to Latin America, domestic routes and Europe is what has really helped transform this community in the last 15 years or more into an international city for both tourism and business.”
The Beacon Council, Miami-Dade’s economic development agency, has teamed since 2009 with the county’s tourism bureau and American Airlines to aggressively market the destination. The airline has contributed $500,000 a year toward the program and it was unclear Tuesday whether American would continue to participate in the short term.
In response to a question about that and other programs in Miami, local spokeswoman Martha Pantín sent a statement from the company that says the bankruptcy process will help sustain contributions over the long term.
“In the near term, however, it is likely that we will have to make difficult choices about our philanthropic investments and activities,” the statement said.
Nero said the marketing program will continue, whether American can contribute for now or not.
“American has been there during hard times and good times,” he said. “I anticipate that that will continue to be the case going into the future. Whether it will be for the immediate short term remains to be seen.”
Pantín said late Tuesday that the airline’s partnership with the Miami Heat for naming rights to the AmericanAirlines Arena, worth $42 million over 20 years, would continue, though a spokesman at the airline’s headquarters warned that all actions going forward must be approved by the bankruptcy court.
The filing also triggered a flurry of paperwork sure to raise anxiety across South Florida’s large network of American employees and vendors. Foreign and domestic suppliers were instructed how to get on a list to collect money from American, and parent company AMR said it plans to begin labor talks under the auspices of a federal bankruptcy court in New York. American is one of the five largest private employers in Miami-Dade County.
Miami-Dade, which operates Miami International Airport, is listed as being owed $29 million by the carrier, making it the second largest creditor outside of AMR’s lenders.
Any debt currently owed by the airline to its creditors most likely will not be paid until the reorganization plan is approved, said Phillip Hudson, a bankruptcy attorney with the Miami office of Arnstein & Lehr LLP. Those creditors include local firms that handle baggage, clean cabins, provide in-flight food or help transport passengers.
“Any pre-petition debt for the moment cannot be paid,” Hudson said. “There is a bubble of debt out there and all-size companies are affected — the small companies that provide smaller services and the larger companies with larger contracts.”
American Airlines has not released its full list of creditors in court filings, but at least two South Florida entities are among the company’s 50 largest creditors: Miami-Dade County and World Fuel Services.
Eulen America, a Miami-based company that provides airlines with ramp workers, baggage handlers and security personnel, also has contracts with American Airlines.
Miami International Airport has bet heavily on American Airlines and American Eagle, which account for more than 68.3 percent of the airport’s total traffic for the year-ended Sept. 30, 2011.
In 2005, the county agreed to take over responsibility from American Airlines for completing the construction of the North Terminal after the project bogged down in cost overruns and delays. American agreed to pay $105 million to settle claims and still owes $25 million of that to the county. The next $10 million installment is due in July 2012.
American also owes MIA $3.7 million in rent and fees, according to the bankruptcy filing.
“American is never late in its payments,’’ said Anne Syrcle Lee, chief financial officer for Miami-Dade Aviation. “Over 90 percent of that is less than 30 days old.’’
Kurt Krummenacker, vice president and lead analyst for the U.S. airport sector at Moody’s Investors Service, said AMR’s bankruptcy filing “certainly heightens our concern for the credit strength of the [Miami] airport. That said, all the other legacy carriers have filed in the last 5 to 8 years and in each case … it’s translated into very, little impact on the airports.”
That’s what Miami-Dade Aviation officials expect..
“We have no indication they’re doing anything but restructuring their debt and renegotiating the union contracts, making themselves more nimble and responsive, so we don’t feel there’s any exposure in terms of the airport,” said Lee, who added that even in the “worst-case scenario” that the carrier would curtail service in MIA, other carriers would step in to take over service.
“Every time somebody has filed bankruptcy — even the spectacular instances of PanAm and Eastern — the routes were taken over and the flights continued,” Lee said.
At the airport Tuesday, the only sign of the news was actual news crews searching for passengers to interview.
Most of those travelers seemed nonplussed, concerned only that they could still make their flights and use their frequent flier miles.
“My only concern is that my flight is still departing on time,” said Mo Khan, 30, who was flying to New York with his wife and young son. He said that he chooses airlines based on reliability and pricing, and as long as that stays consistent, he’ll continue to use the airline.
American executives emphasized passengers should not notice a difference with reservations, frequent-flyer miles and routes remaining untouched for the foreseeable future. AMR has about $4 billion cash in its coffers, which executives said should make the restructuring easier on operations.
Tourism officials said that American has a solid track record of commitment to Miami that they expect to continue. The airline added flights in Miami during the recession, a key move since 98 percent of visitors to the area come by air.
Rolando Aedo, chief marketing officer for the Greater Miami Convention & Visitors Bureau, pointed out a recent push by the airline to expand in South America and the airline’s massive order in July of new fuel-efficient planes.
“We see the new routes, we see the huge investments,” Aedo said. “This is a company we feel has a very, very bright future for this community.”
Craig Kreeger, head of customer service for American, said Miami will remain an important hub after American’s bankruptcy.
“We look forward to continuing to focus on our key markets,” Kreeger said. “Miami remains a key cornerstone in a large part because it is a key gateway for Latin America.’’
He also noted that cost reductions are likely through the American system, but the company has not offered any details. “We anticipate some trimming to become more optimal.”
Most American Airlines workers at MIA wouldn’t talk about the bankruptcy filing, but one 12-year employee said he didn’t fear for his job.
“This is a solid company,” said Harish Nayak, a fleet service employee. “It’ll clean up and get profitable. If the company benefits, we benefit.”
Miami Herald staff writers Deborah Acosta, Jonathan Silman and Toluse Olorunnipa contributed to this report.
Source: Miami Herald