SAN ANTONIO, 29 Nov. 2011. “Until today, American Airlines was the only American airline that hadn’t declared bankruptcy,” admits Wayne Plucker, industry manager of Aerospace and Defense at Frost & Sullivan out of San Antonio. The news of American Airlines filing for bankruptcy protection has really been coming for some time, he says, and provides much-needed leverage for contract negotiations. They can no longer live with existing labor contracts, which have likely put them in a non-competitive position and contributed to losses quarter after quarter, he adds.
The effect of the filing on avionics is complex, Plucker continues. “It’s going to give them leverage to drop some of their less profitable routes–something they haven’t been able to do because they weren’t in a position before.” With bankruptcy protection, it becomes a business decision, rather than an FAA position. It provides leverage to drop routes into smaller location. “There has already been talking about getting rid of the American Eagle fleet,” he says. Whether there is a buyer for the fleet, this recent move puts it on hold; but, “that is still their intent,” he adds.
“It puts the fleet in a difficult position; it’s hard to envision retrofit avionics in that fleet unless it sells to a company that is out of bankruptcy in commuter market,” Plucker explains. “If the acquiring company wanted to make cockpits compatible for crews swapping from one airplane to another, it could drive some avionics retrofits.”
Most of the American Eagle aircraft aren’t the most efficient at this point, Plucker admits, especially compared to newer Bombardier and Embraer aircraft. He notes that unless the sale comes with a guarantee of routes for years to come, it’s difficult to envision a lot of desire to refit those aircraft.
American Airlines “were going to require a boatload of Airbus and Boeing aircraft,” Plucker says. “Bankruptcy protection doesn’t make those contracts go away, and there are potential penalties for not picking up those aircraft. But, bankruptcy gives them some protection; they have new leverage by virtue of doing that. What that will mean in the long term is hard to say.
The company also has a fleet of McDonnell Douglas airplanes that are not as efficient as other craft, Plucker adds. “The question is whether they keep the routes they are using them on or drop the routes. If they keep the routes, Airbus A320s could pick up that load and offer increased capacity.”
Frost & Sullivan (http://www.frost.com/prod/servlet/svcg.pag/AD00 ) offers a wealth of aerospace and defense reports, including avionics-specific insights.
