Bond Holders of American Airlines Planes Demand Payment, Say Jets are Neglected
Bondholders in American Airlines aircraft such as the MD-80 (pictured) say these planes have been neglected and necessary repairs have not been made.
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.
Reuters reports:
‘They fear that this and other costs could force the value of the planes to sink too low to cover the bonds.
Most of the planes are older-model aircraft, including Boeing 757s and MD-82s and MD-83s made by McDonnell Douglas. Payment on the bonds is due on Oct. 15.
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.
Category: Airnation
AA playing hot potatoe with creditors. Wonder who will get their money and who will get hosed.
Phil, the more and more news i receive about AA and their absolute disregard for doing the “right thing”, the more i hate them. What do you think will happen in this new situation AA is trying to “worm out” of?
One might think the Bank is nuts for assuming AA’s old MD80s and 757s will have any resale value, but surprisingly they do! AA currently has 200 MD80s in their fleet, with manufacture dates between 1986 and 1999 (most don’t realize that Boeing–who bought McDonnell Douglas in 1997–delivered the last MD83 (N984TW) to TWA in December 1999, which was sold to AA in 2001). These newer MD80s (between 13-19 years old) do have a LOT of value, and will be sold to carriers in foreign countries.
If the aircraft have bad maintenance records, their resale value will be very poor. And let’s not fail to realize the fact that AA is still flying these “improperly maintained” aircraft right now! Scary…
Are these figures correct 450M for 143 acft.
When these ageing machines are sold on to “third world operators” the engine and airframe hours will probably be re-set to zero – especially if the records are incomplete.
Thanks heavens setting fire to kerosene is a fairly reliable process !
I hate to speculate about whether or not AA is intentionally trying to screw anyone, but in bankruptcy unsecured creditors are usually SOL. I’d just hate for AA to owe me money right about now.
Makes sense Phil… I bet these creditors are feeling like Kingfisher’s pilots!