Buried deep in American Airlines’ Chapter 11 bankruptcy filing is a striking asset – a town house in one of London’s most expensive residential streets that property experts say could be worth up to $30-million.
The five-bedroom house in London’s high-end Kensington district is a throwback to the airline’s expansion two decades ago and stands a 10 minute walk from the former home of Princess Diana, with gentry and diplomats as neighbours.
UK regulatory filings show the house has been used as a residence for senior executives, including the current chairman and chief executive Thomas Horton, since the airline bought it in the early 1990s.
Listed as “London Residence LON6526,” the five-floor house is one of eight owned properties declared by parent company AMR Corp. when it asked for protection from creditors on November 30, sagging under $30-billion of liabilities.
The plush residence in Cottesmore Gardens – recently named Britain’s 10th most expensive address by property firm Zoopla – could become a thorn in the airline’s side as it fights its way through bankruptcy. Corporate restructuring usually involves sacrifices by staff, retirees and creditors.
Robert Mann, an airline consultant with RW Mann & Co., who is a former fleet planning executive at AMR, said the ownership of the house is far from the biggest problem the airline is facing but added it would raise eyebrows and should probably be sold.
“As part of an overall debt-clearing exercise, yes it probably should be sold and leased back if they really want to stay there. If you can realize 17 million bucks, you ought to do it.”
Confirming ownership of the house, American Airlines said it is used by the senior official in charge of its international business “and for corporate functions from time to time.”
Contacted last week, it initially declined to say whether it planned to keep the house, but in response to further Reuters queries said its ownership of the property was being reviewed.
“AMR can confirm that it’s a property it purchased in the 1990s when property values were lower,” the airline said.
“However, 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.”
A union representing 30,000 workers at American Airlines and American Eagle expressed outrage over the property.
“In the current economic downturn, many Americans have lost their houses. In this bankruptcy, AMR’s executives should lose their house,” said James C. Little, president of the 200,000-member Transport Workers Union of America, which is on the airline’s creditors’ committee.
“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 favourite airline.”
Many large companies own or rent property for executives posted overseas, though AMR’s filing lays considerable stress on efforts to cut costs before filing for bankruptcy.
In its request for Chapter 11 protection, AMR said it had already shed billions of dollars in cumulative annual costs over the past 8 years to cope with the “relentless pressures of ever intensifying competition and rising fuel prices”.
The airline said it had pursued “every effort short of Chapter 11 to reform its cost structure”.
Lined by cars such as Porsches and Range Rovers, Cottesmore Gardens in west London is a quiet side street.
The airline’s house would be worth between £12.5-million ($19-million U.S.) and £16-million if it came to the market today depending on the internal state of repair, said Kit Allen, a director of house sales at property consultancy Savills.
A source at international real estate group Knight Frank said the house could fetch as much as £20-million.
“This is a very discreet enclave that is ideal for high-profile residents wanting to live in relative anonymity,” said the source, who asked not to be named.
The street houses a private school and the most recent electoral records show the Cottesmore Gardens set includes an earl, the former chief executive of one of Europe’s largest companies and a prominent former investment banker.
Disgraced Canadian media tycoon Conrad Black was a neighbour until 2005 when he reportedly sold for £13-million.
A Reuters reporter who visited the property on Dec. 1, found no one at home. A few steps lead up to imposing black double doors below a renovated facade in immaculate condition.
The property appears to be a normal family home, with a high-spec kitchen in the basement and a living room, complete with chandelier, on the first floor.
AMR Corp. filed for creditor protection after failing to win a deal with pilots to pare labour costs.
Employees were notified on the day of the bankruptcy filing that future retirees can no longer get a lump sum distribution because the pension plan is underfunded.
The airline has started rejecting leases for aircraft and is trying to relieve itself of two real estate leases including one for a terminal at Chicago Midway airport.
Apart from the group’s Texas headquarters, its credit union and a handful of reservation offices, nearly all the airline’s offices and airport facilities are leased rather than owned.Report Typo/Error