A perfectly reasonable question, especially if you're among the thousands of pilots, flight attendants, machinists and baggage handlers who might wind up without a job once the carrier reorganizes its finances. The short answer is that companies do not have to be insolvent to file for Chapter 11 - they only have to show that in the future it might not be able to meet its obligations. American apparently can make that case - the airline has lost money in 13 of its last 14 quarters - despite having $4 billion in the bank. Time senior writer Stephen Gandel explains:
In the case of American Airlines, the company said in a press release the main reason it was filing for bankruptcy was to "address our cost structure, including labor costs." American and its unions had been negotiating for a while and had come to no agreement. Other airlines have used bankruptcy as a way to force its workers to take lower paychecks and benefits. American Airlines wants the ability to do that, too.
Earlier this year, bankruptcy expert Lynn M. LoPucki and political scientist Joseph W. Doherty co-published a study analyzing the bankruptcies of 102 large companies that filed from 1998 to 2007. The professors were mostly looking at the fees the firms were charged by their bankruptcy advisers. But they collected all types of data, including the companies' reported assets and liability at the time of their filing. Here's what I found when I looked at the data: The companies that filed for bankruptcy in the last five years of the study were in considerably better financial shape than the companies that filed for bankruptcy in 1998 to 2002.
I wouldn't hold my breath for any changes in the bankruptcy laws. Large corporations like the rules just fine - and their minions in Washington will see that things stay as they are.