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Airline Trimmed Costs During Business Bankruptcy

Posted on February 19th, 2014

Business owners in Phoenix, Arizona, are all too aware of the effect a struggling economy has had on their cash flow and accounts receivable payments. Business owners across the country who made the difficult decision to pursue a business bankruptcy have saved their companies by using the business reorganization process to drastically cut costs. For example, American Airlines reduced its labor costs by  approximately $1 billion before it emerged from its Chapter 11 filing late last year.

 

Saving a business sometimes means making difficult and painful decisions. American Airlines filed a Chapter 11 commercial bankruptcy over two years ago and has used it as an opportunity to renegotiate new agreements with its labor unions. The result has been a reduction in the airline’s payroll and benefits costs for its mechanics and flight attendants.

 

American sent notices to the Transport Workers Union announcing its plan to release about 3,000 workers at its maintenance base back in November, 2012 and then followed through.  Notices are required under the federal Worker Adjustment and Retraining Notification Act to alert the union of impending mass layoffs. The purpose of the notification to the union is to give it time to help workers affected by the layoffs to begin the search for employment or retrain to acquire new skills.

 

Companies work with their bankruptcy attorneys to formulate a business reorganization plan that will allow them to be competitive in their industries as they emerge from bankruptcy. Complex business bankruptcy issues may call for reductions in labor costs to improve a company’s cash flow. The mass layoffs needed to achieve those cost reductions may appear to be in conflict with the best interests of individual workers and the local communities; however, keeping a company operating during and after a business bankruptcy benefits more workers and communities than allowing the company to fail completely.

 

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