Iconic U.S. carrier American Airlines (AA) has come under fire from unions for holding on to plush London townhouse during their recent cost cutting measures.
The struggling company’s $30bn in liabilities recently forced them to file for bankruptcy after they couldn’t agree a reduced pay deal with their pilots. The details of the swanky London pad were spotted in the company’s bankruptcy paperwork and unions were quick to blast bosses for hanging on to the prime real estate.
Image by skinnylawyer, via flickr
The problematic property, located in London’s über-desirable Kensington district, was bought in the more prosperous 90s and has served as home to several of AA’s most important execs. Situated in Cottesmore Gardens, Britain’s 10th most expensive street, the ritzy residence boasts some rather posh neighbours including an earl and an ex-chief executive of one of Europe’s biggest corporations. Estimates of the plush five-bedroom pad’s value have ranged from £12.5m to £20m.
To sell, or not to sell?
Changes in the Airline industry have not been kind to AA which has long had a reputation as a high-quality carrier with great service. The relentless rise of fuel prices coupled with aggressive pricing by competitors has seen the company fall on hard times. Over the past few years AA have embarked on a rigorous cost-cutting exercise to try and return the ailing business to profitability. This has involved some significant concessions by employees and union leaders have reacted angrily to news of the valuable London asset. They feel the property should have been sold as part of the pre-bankruptcy austerity program.
President of the Transport Workers Union of America (TWU), James C. Little launched a scathing attack on AA’s upper management:
“In the current economic downturn, many Americans have lost their houses. In this bankruptcy, AMR’s executives should lose their house… However, the typical pattern for this company is workers keep it afloat through concessions, bring in outside work and boost productivity while managers pocket hundreds of millions in bonuses and live posh lifestyles. This would have been Marie Antoinette’s favorite airline.”
The TWU, which has 200,000 members, represents 30,000 AA employees and is, incidentally, one of the creditors who will lose out if AA is declared bankrupt.
Since the news of the property broke AA has confirmed that it may consider putting it up for sale. In a recent statement AA said:
“As we work through our Chapter 11 reorganization, we are focused on achieving a competitive cost and debt structure and will, of course, review our use and ownership of this and all our real estate as part of that process.”
On the up…
However, selling the property may not technically be the best business decision. While the company is struggling to make a profit it seems like this house is likely to only increase in worth. Knight Frank (a top London property agency) have revealed that prime London properties have been bucking the trend of stagnant UK property prices. In 2011 swanky London property values have risen by an impressive average of 12% and 39.5% since they bottomed out in March 2009 during the worst of the recession. Funnily enough, the main reasons for this growth can be attributed to the Eurozone crisis and the economic uncertainty caused by the Arab Spring. In these troubled times wealthy foreign investors have come to see prime London property as a pretty safe bet.
Unfortunately for homeowners in the rest of the UK, this trend doesn’t seem to extend beyond London with prices remaining fairly level for most of the country. But hey, at least they’re not going down.
Do you think AA should sell the property? Other than prime London properties, which investments look like a safe bet at the moment? Share your thoughts in the comments box below.
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December 15, 2011
business, news