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November 29, 2011 2:54 PM

Four Firms Help AMR Fly into Chapter 11

Posted by Brian Baxter

AMR Corporation, the Fort Worth-based parent of American Airlines, filed for bankruptcy in Manhattan on Tuesday as part of a plan to ease a heavy debt load and slash labor costs that also saw the holding company's current president, Thomas Horton, succeed retiring chairman and CEO Gerard Arpey.

Once the largest airline in the U.S., American is now the country's third-largest domestic carrier as a result of a round of consolidation and mergers in the aviation industry. Rivals United Airlines and Continental Airlines combined their operations through a $3 billion merger in 2010, two years after Delta Air Lines acquired Northwest Airlines in a $3.63 billion stock swap.

The increased competition, coupled with the rising cost of jet fuel and American's failure to reach a new labor deal with pilots, created enough turbulence to send AMR into bankruptcy. Prior to Tuesday, American's parent was the only major U.S. airline company to avoid filing for Chapter 11 protection. In its 22-page bankruptcy filing, AMR lists assets of $24.7 billion against liabilities of almost $29.6 billion.

AMR has turned to four law firms—Weil, Gotshal & Manges, Debevoise & Plimpton, Paul Hastings, and the Groom Law Group—to advise it during bankruptcy proceedings.

Weil business finance and restructuring partner Stephen Karotkin, who guided General Motors through its bankruptcy case two years ago, is leading a team from the firm serving as lead debtor's counsel to AMR that also includes bankruptcy bigwig Harvey Miller and partners Alfredo Perez and Stephen Youngman. Weil has previously handled IP and antitrust litigation matters for AMR, including successfully defending American Airlines in an antitrust case filed by the U.S. Department of Justice a decade ago.

Debevoise, which is serving as special counsel to AMR, is itself a longtime legal adviser to the company. The firm's aviation practice chair, John Curry III, served as cocounsel to AMR over the summer on a massive $38 billion purchase of 460 planes from Airbus and Boeing. The firm has also handled 9/11–related property damage and personal injury claims for AMR, as well as advising the airline on the acquisition and subsequent restructuring of assets from TWA in 2001.

Paul Hastings is also serving as special counsel to American's parent in connection with its Chapter 11 case. The firm has previously handled product liability and mass tort litigation on behalf of AMR, defending it in personal injury and wrongful death lawsuits filed following the crashes of American Eagle Flight 4184 in Roselawn, Illinois, in 1994, American Eagle Flight 3379 in Morrisville, North Carolina, in 1994, and American Airlines Flight 965 in Cali, Colombia, in 1995. Paul Hastings has also represented AMR in labor and employment matters.

The Groom Law Group is a Washington, D.C.–based shop specializing in employment law. The firm has been representing AMR in both labor negotiations and its efforts to restructure its pension obligations.

Gary Kennedy serves as AMR's general counsel and chief compliance officer. Kennedy has worked for the company in various capacities since coming aboard in 1984. He became general counsel in January 2003.

AMR's stock price has fallen in recent months amid widespread speculation about a possible bankruptcy filing—the latest blow to a company that has suffered more than $10 billion in losses over the past decade. AMR's fleet currently consists of more than 900 aircraft, including about 620 commercial jets. In August, AMR turned to Vinson & Elkins to advise it on the planned spin-off of regional carrier American Eagle, which is included in the AMR bankruptcy filing.

According to data analyzed by The New York Times, AMR's Chapter 11 filing is the second-largest bankruptcy case ever by a major U.S. airline, trailing only a 2002 filing by UAL. The former United Airlines parent spent just over three years in bankruptcy, emerging from Chapter 11 in February 2006.

Kirkland & Ellis, which served as lead debtor's counsel to UAL during its bankruptcy, reaped more than $100 million in fees for its work in that case. Delta, which filed for bankruptcy in September 2005 and emerged from Chapter 11 in April 2007, saw lead debtor's counsel Davis Polk & Wardwell bill more than $40 million in fees for its restructuring work.

The firms advising AMR now stand to collect similarly lucrative fees.

Yet to be determined: Which of the many firms expected to vie for the coveted assignment as counsel to AMR's official committee of unsecured creditors will get the nod. Competition for the appointment is likely to be fierce. After Phoenix-based regional carrier Mesa Air Group filed for bankruptcy in 2010, The American Lawyer reported on the feeding frenzy of 27 firms scrambling to advise unsecured creditors in the case.

Morrison & Foerster prevailed in that beauty contest, billing roughly $2.1 million for its work, and Mesa Air emerged from bankruptcy earlier this year.

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