American Airlines parent AMR Corp., seeking to cut labor costs and shed aircraft leases in bankruptcy court, is also weighing the sale of a luxury London townhouse used by executives.
The townhouse at 16 Cottesmore Gardens in London’s affluent Kensington neighborhood is used by the airline’s head of international business and for events, said Sean Collins, a company spokesman. AMR bought the property in 1992, according to U.K. Land Registry documents. It was listed among $24.7 billion in company-owned assets in AMR’s Chapter 11 filing in New York last month.
Cottesmore Gardens is the 10th most expensive street in the U.K. with an average home value of 6.3 million pounds ($9.8 million), property website Zoopla.com said in June. The townhouse was renovated by interior designer Nina Campbell, who has worked for Rod Stewart and Prince Andrew, according to newspaper reports. American paid 2.85 million pounds for the house in 1992, the Evening Standard newspaper reported at the time. The property is about a half-mile from Kensington Palace, where Prince William and Kate Middleton live.
“The townhouse is a lot like the corporate jets that the executives at GM and Chrysler were forced to give up during their reorganizations,” said Richard Tilton, a director of real-estate auctioneer Sheldon Good & Co. and a lawyer specializing in bankruptcy sales for 30 years. “Symbols of corporate suite excess are not likely to survive a Chapter 11 reorganization that is supposed to be fair and equitable.”
AMR singled out industry-leading labor costs as one reason for the company’s bankruptcy. The airline, based in Fort Worth, Texas, is expected to alter labor contracts to reduce expenses and boost productivity, shed aircraft leases, drop routes and possibly terminate its employee retirement plans and turn them over to a U.S. pension agency during the reorganization, analysts and bankruptcy attorneys have said. The airline may also sell the townhouse, according to Collins.
“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,” Collins said in an e-mail.
Cottesmore Gardens has “handsome houses” valued at 2,700 pounds to 3,000 pounds a square foot, said Richard Barber, a partner at prime real-estate broker W.A. Ellis LLP. Homes in the postal code where the townhouse is located average 1,600 pounds a square foot, broker Hamptons International estimated.
Reuters reported earlier today that the house may fetch as much as $30 million.
AMR has fallen 92 percent this year and the company is set to post its fourth straight annual loss. Analysts had forecast a loss in 2012 as well.
The townhouse has been a good investment for American with London luxury homes becoming a haven for international investors in the wake of the credit crunch and with the threat of another downturn looming in Europe. Prime central-London prices have advanced about 40 percent since the market’s low in March 2009, broker Knight Frank LLP said in a Dec. 13 report. Luxury houses and apartments in central London rose by an average of 12.6 percent from a year earlier, Knight Frank said.
Conrad Black’s former London home was once linked to American’s building when the two were used as a Catholic youth hostel starting in the 1940s. The last planning application for a home at No. 16 was approved in 1987 and shows six bedrooms, six bathrooms and two half bathrooms, a drawing room, library, elevator and conservatory.
Black owned the London mansion next door at 12-14 Cottesmore Gardens before selling it for 13 million pounds to help cover his legal bills, according to U.K. newspaper the Independent. Black, who renounced his Canadian citizenship to become a British subject, was made a member of the U.K.’s House of Lords before his 2007 conviction for fraud.
American’s ties to London trace back to 1982, when it began flying between Dallas-Fort Worth and the city’s Gatwick Airport. In May 1991, it bought Trans World Airlines Inc.’s routes to London-Heathrow from New York, Los Angeles, and Boston for $445 million. The airline expanded its London ties in the ensuing decades, and American and British Airways Plc are now the dominant carriers between London and North America.
With $4.1 billion in cash, AMR has said it expects to have enough to fund operations during its entire time in bankruptcy. Outside financing is “neither considered necessary nor anticipated,” according to a statement after the company sought court protection from creditors owed about $30 billion.