Bondholders of $450 million in American Airlines aircraft will ask a U.S. bankruptcy judge for a court order to ensure they get paid. The holders claim the 143 planes they’re invested in have been ‘neglected’ and will lose too much value.
U.S. Bank, who is the agent for the bondholders, will argue in a New York bankruptcy hearing on Thursday that the airliners have been neglected and hundreds of repairs needed have not been made.
‘They fear that this and other costs could force the value of the planes to sink too low to cover the bonds.
U.S. Bank is seeking to bolster safeguards for the bonds under bankruptcy rules designed to protect secured creditors from declines in the value of collateral.
It wants to file a top-priority bankruptcy claim to ensure bondholders are paid ahead of other creditors, to offset any decrease in value from AMR’s alleged delay in making nearly 500 repairs to cabins, engines and plane structures.
U.S. Bank believes it would fetch just $501 million – including $40 million of previously frozen cash collateral to which it seeks access – if it seized and sold the planes. That’s barely above the $491 million in principal and interest that it said bondholders are owed.’
American Airlines parent company AMR is opposing the request, saying U.S. Banks’s claim “borders on — if not crosses the line of — being frivolous.”
U.S. Bank says they are justified, saying AMR recently missed a $36 million interest payment, and that many of the planes could be mothballed if the carrier merged with a healthier rival.
American placed a huge order for some 450 new planes in 2011, and it is expected they will retire much of their older fleet as the planes get delivered to the carrier.