Bankruptcy as a competitive strategy

Let me see if I understand this. AMR, the parent company of American Airlines, is declaring bankruptcy because it's the right time. All of its competitors have already done so. In the process, they shed expensive debt and pesky labor contracts, resulting in lower operating costs.

The Wall Street Journal reports that [t]he company decided a filing now would be from a relative position of strength by avoiding a tangled relationship with creditors who might want to control how the company restructures itself. Unlike many other companies that have sought bankruptcy protection in recent years, AMR didn't file for Chapter 11 with a reorganization plan in place supported by creditors. Instead, AMR must develop its plan during bankruptcy proceedings.

Filing for Chapter 11 reorganization will cost AMR millions of dollars in legal fees. The corporation, however, has $4B in cash.

Meanwhile, the company's employees are still bitter about the millions in stock bonuses paid to the executives who made lead the company to $10B in losses in the past decade. Granted, AMR stock plummeted 84% today. It may take a while for new AMR CEO Thomas Horton's 300,000 shares to be worth his effort to trim $1B from the the employees' pension fund.

[Update 11/30/11: upon further reflection, I realized that AMR shares will become worthless as the result of the bankruptcy and reorganization. As a result, the executives who received stock grants that vested after this filing will be out of luck.

[Update 12/1/11: The New York Times editorializes that  Mr. Arpey may be the only airline C.E.O. who regarded bankruptcy not simply as a financial tool, but more important, as a moral failing. Arpey held out against bankruptcy. When AMR's board overruled him, he left, with no severance and his stock holdings nearly worthless.

“Our bankrupt colleagues all made net profits, good net profits last year, and we didn’t,” Mr. Arpey told me a few months ago. “And you can mathematically pinpoint that to termination of pensions, termination of retiree medical benefits, changes of work rules, changes in the labor contracts. That puts a lot of pressure on our company, not to be ignored.”