Don’t Worry About The American Airline Bankruptcy

Signing up for credit cards through partner links earns us a commission. Terms apply to the offers listed on this page. Here’s our full Advertising Policy.

AA Bankruptcy

A lot of folks have emailed me after hearing about the American Airline bankruptcy filing worried about their American Airlines miles and flights.  The short answer is don’t worry. For most industry watchers, it was always a question of “when” not “if” American Airlines would be in bankruptcy.  The timing is certainly interesting for me since I crossed over 1 million American Airline miles yesterday and earned lifetime gold status on American Airlines!  I only flew ~25,000 of those miles on American Airlines.

It is important to distinguish between a reorganization bankruptcy where a debtor (person or a company who owes money to a creditor) asks the courts to help reduce, eliminate, or restructure debts versus a liquidation bankruptcy where the future is bleak, the company stops operating,  and the debtor’s assets are sold to pay off creditors.

The big difference between the two types of bankruptcies is that a company which files a Chapter 11 reorganization bankruptcy, like AMR (the parent company of American Airlines) expects to survive and ultimately emerge from bankruptcy whereas a company which files for Chapter 7 liquidation bankruptcy is essentially saying that there is no hope of success and that the company is better of selling its assets to pay off its creditors.

American Airlines is reorganizing its debt and like United, Delta, and US Air, will likely emerge stronger after the bankruptcy.  That’s because the airline will renegotiate contracts bully employees into working for less and will extract concessions from its creditors.  In my opinion, ex-CEO Gerard Arpey did the honorable thing by not declaring bankruptcy just because American Airlines’ competitors had a cost advantage.

Declaring Chapter 11 bankruptcy is a rite of passage with US Airlines and gives talk show hosts, journalists, and bloggers something to do. 😉  Delta, US Air, and United Airlines have all declared bankruptcy previously and nothing really changed for flyers.

No one lost the miles in their accounts, tickets previously booked were honored, and the planes took off and landed during the entire time those airlines were under bankruptcy protection.  I strongly believe that the same thing will happen with American Airlines.

But all bets are off if American Airlines decides to liquidate.  In that case, American Airlines can refuse to honor the tickets you’ve booked, refuse to let you redeem the miles in your account, and not refund you the amount paid for your tickets since you are an unsecured creditor.  But I don’t suspect American Airlines will liquidate.  Even if American Airlines were to liquidate, I suspect that the AAdvantage program would be one of the prize assets, because it would be very profitable,  and members would be well looked after.

On the other hand, this could be the sign that we’re in for some goodies from the folks at Citi!  With most folks worried about the AAdvantage program, Citi may step up the credit card bonuses on the AAdvantage cards to get folks to sign up for them.

Bottom Line:

Many US airlines have declared bankruptcy as a way to be more competitive.  AMR’s reorganization filing is just that – a way to be as competitive as the other airlines which have previously declared bankruptcy.

I don’t recommend avoiding American Airlines or redeeming your American Airline miles just because of the bankruptcy filing.  Of course, it makes sense to have miles in many different accounts, but I wouldn’t rush to spend American Airline miles if you can get a better redemption value by using another program’s miles.  And I wouldn’t buy a more expensive ticket on another airline just to avoid flying American Airlines.

Or like me on Facebook or follow me on Twitter.


Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

Join the Discussion!

Comments are closed.