Skift Take

American Airlines is cleaning up a lot of loose ends as it prepares to emerge from bankruptcy.

American Airlines has agreed to pay $24.9 million to settle $162 million in potential fines that were proposed by U.S. safety regulators.

American called the payment “a reasonable resolution” to the Federal Aviation Administration’s claims that it had violated safety regulations involving electrical wiring on planes and other issues.

The airline’s parent company, AMR Corp., disclosed the settlement Thursday in a filing with the federal bankruptcy court in New York.

Airlines frequently negotiate with the FAA to reduce potential penalties. A spokeswoman for American said the airline was pleased with the settlement over a claim that FAA had lodged during AMR’s bankruptcy reorganization.

“This settlement recognizes the many changes, including enhancements to our maintenance and engineering processes, increased training, inspections, and audits that have taken place at American over the past several years that address past FAA concerns,” the spokeswoman, Andrea Huguely, said in a statement.

American, its American Eagle regional-flying affiliate and two other AMR subsidiaries denied wrongdoing. But, they said, the outcome of litigation with the FAA can be uncertain and the settlement was good business judgment.

The settlement is subject to the bankruptcy court’s approval. AMR expects to emerge from bankruptcy protection and merge with US Airways Group Inc. by the end of September.

Among the complaints covered by the settlement was the 2008 grounding of American’s fleet of McDonnell Douglas MD-80 aircraft — and the cancellation of thousands of flights — over electrical wiring. The FAA said that American’s crews had failed to follow proper procedures in restraining electrical wires on many planes, raising the risk of fires and fuel-tank explosions.

In 2010, the FAA proposed a record penalty of $24.2 million in that case. The airline insisted that passenger safety was never compromised and that the FAA’s charges were overblown.

The FAA was investigating American for possible violations of other safety rules when AMR filed for bankruptcy protection in November 2011. Last summer, the agency filed a claim in bankruptcy court for up to $162.4 million. The FAA had not even notified AMR about some of the charges, but the agency rushed to beat a deadline for filing claims and becoming a creditor.

The FAA’s biggest claim — $39.3 million — involved allegations that American used Boeing 757 jets on flights before proper inspections and repairs were finished. A claim of $28.8 million involved charges that American didn’t follow Boeing’s recommended procedures for overhauling the main landing gear on about 30 jets, and a $27.6 million claim involved work on the engines of different Boeing planes.

All were investigated as civil cases. The FAA said in the settlement agreement that it didn’t find criminal wrongdoing or evidence strong enough to suspend American’s operating certificate.

FAA officials declined to comment Thursday.

The potential penalties covered alleged safety violations from 2007 through 2011. About $156.5 million involved American Airlines, $5.3 million dealt with Eagle, and $647,000 involved two other AMR subsidiaries. Of the settlement, $24 million covers cases at American.

American will be credited for $4.7 million being held by the U.S. Postal Service and the Defense Department.


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Tags: american airlines, faa, safety

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