American's decision to seek shelter from creditors comes just four months after the AMR
Airbus walked away with the majority of the orders and pushed its rival into a change of strategy by successfully wooing a gold-standard Boeing customer that had not bought European for years.
Boeing salvaged part of the deal by agreeing to match Airbus and refresh its best-selling 737 jetliner with new engines to produce fuel savings, rather than take a few more years to leapfrog Airbus with a radically new plane.
But the change came too late to allow its designers to finish off plans and prices for the revamped 737 MAX, forcing Boeing to settle for a provisional and nonbinding deal.
Under the U.S. system, a bankruptcy court can reaffirm or reject contracts that involve spending the company's money during the roughly 18-month breathing space for reorganization afforded by Chapter 11.
It is generally hard to persuade a court to allow a company to take on significant new obligations until it comes up with a solid restructuring plan.
The court would be extremely reluctant to approve entering into a new agreement at a time when the shape and direction of the reorganization plan is uncertain, said Stephen Selbst, a partner at New York law firm Herrick, Feinstein LLP.
Nor is it a foregone conclusion that purchases of Airbus jets will be given the green light. Courts must be satisfied that creditors will not be damaged and bear in mind the risk that damages must be paid if the contract is halted later.
The Boeing case is unusual because in order to counter the Airbus sales coup in July, Boeing was forced to settle for a tentative agreement with AMR that has a weaker status in court.
It throws a spanner in the works for sure, said Dana Lockhart, a former finance chief for Airbus Americas. Taking on a post-petition obligation of that magnitude is dead on arrival.
Lockhart has sat on a number of airline bankruptcy creditor committees, including the last panel to include both Airbus and Boeing: the 1989 Eastern Airlines case.
AMR's provisional order for 100 revamped 737 MAX aircraft is potentially worth $9 billion at list prices. American did, however, place a firm order of $8.5 billion for current-generation 737s.
Airbus's share included a firm order for 130 A320neos worth $9 billion and 100 existing A320 jets for which it will arrange leases. There are also uncertainties over the status of the leases in Chapter 11, but the issue is not yet seen as critical.
In practice, airlines in restructuring are allowed to proceed with binding orders, and a decision to ban deliveries has been restricted to a handful of cases like the 1991 Pan Am bankruptcy.
All this will happen at a slower pace than if AMR had not succumbed to bankruptcy, brought down by the high costs and soaring fuel prices that forced it to buy efficient new jets.
The American orders are so central to the business plan that neither manufacturers nor the airlines would want to see them blown up, Lockhart said. The best thing to do is to agree mutually to kick the can down the road.
With earlier models of planes due to start reaching AMR in 2013, industry sources say it is possible some deliveries will be deferred.
The 737 MAX is due to enter service with new engines in 2017, and this order will only be signed once AMR emerges from Chapter 11.
Boeing is under pressure to finalize contracts for the 737 MAX so that it can keep up sales momentum and start the annual 2012 order race on equal terms with Airbus, which has an unassailable lead for 2011. Boeing has 700 provisional orders for the MAX.