Continental Airlines Files for Chapter 11

From Associated Press

Continental Airlines Holdings Inc. filed for protection from creditors under federal bankruptcy laws today, blaming the move on a stunning rise in fuel costs and heavy debts accrued in the free-spending 1980s.

It was the first bankruptcy court refugee in the airline business since the dramatic leap in fuel prices caused by the Persian Gulf crisis, and underscored the financial beating taken by all airlines because of a weakening economy, with fewer passengers flying and booking tickets.

The move also marked a rapidly deteriorating situation for Continental, once the nation’s biggest airline operator, which only a few weeks ago rejected the bankruptcy court option.

Continental officials said that they expect to operate normally through the holiday season and that passengers will notice no difference in service.


“Essentially, we’re allowed to treat the traveling public, travel agents, tour operators, just as if the bankruptcy hadn’t occurred,” said Paul P. Welsh, a Continental attorney. “There will not be anyone stranded.”

Based in Houston, Continental is best known as the child of one-time airline entrepreneur Frank Lorenzo, who built it into a major force in the airline industry through aggressive price-cutting and debt-financed expansion after a previous stint in bankruptcy court seven years ago.

The airline filed for protection under Chapter 11 of the federal bankruptcy laws in Wilmington, Del., where it is incorporated. Under Chapter 11, a company gets a reprieve from debts while it works out a way to pay the bills and tries to re-emerge from court protection as a healthy business.

As part of the bankruptcy filing, Continental said it agreed to sell its prized Seattle-to-Tokyo route to American Airlines for $150 million, pending approval of the court.

Today’s filing marks the second bankruptcy court stint for Continental. In 1983, amid a bitter labor dispute with the airline’s unions, then-Chairman Lorenzo plunged the airline into bankruptcy court, scrapped union contracts and hired low-cost replacements for workers striking at the time.