- The Washington Times - Wednesday, February 5, 2003

Amercan Airlines is edging toward bankruptcy with losses of $5 million a day while the company’s management pleads with unions for billion-dollar wage concessions. A bankruptcy for AMR Corp., parent of American, the world’s largest airline, would be a clear signal that the airline industry and the economy it generates are shrinking.
“Our financial results make it abundantly clear that American’s future cannot be assured until ways are found to significantly lower our labor and other costs,” the airline said in a statement after meeting with union leaders yesterday at company headquarters in Fort Worth, Texas.
If American Airlines follows United Airlines and US Airways into bankruptcy, it would be the third major air carrier to file for Chapter 11 protection in less than a year.
American Airlines President Donald Carty asked union leaders for $1.8 billion in wage concessions a year. The airline also is trying to cut $2 billion in non-labor costs.
“The key thing is their employees,” said Ray Neidl, an airline analyst for the Wall Street investment firm Blaylock & Partners.
If unions refuse to grant the wage concessions American Airlines seeks, AMR Corp. “could be in bankruptcy by next winter, or even sooner,” Mr. Neidl said.
The company is reducing the number of its flights and the size of its fleet. It also plans to close two of its 10 domestic reservation centers, cutting more than 900 jobs in Norfolk and Las Vegas.
Since the September 11 terrorist attacks, the company has furloughed about 2,400 flight attendants. It expects to furlough another 750 by May 1, company officials said.
Mr. Carty has said the airline must reduce costs by $4 billion a year before it can regain profitability.
AMR posted a net loss of $1.5 billion in the fourth quarter, almost double its losses of $798 million in the same quarter a year earlier. For the year, it lost $3.5 billion.
David Stempler, president of the Air Travelers Association, said fliers can expect to see even fewer flights per day in smaller markets and the use of smaller planes as AMR tries to reduce costs from flying the bigger jets.
In the Washington area, the number of American Airlines flights per day increased in the past year at Ronald Reagan Washington National Airport and Baltimore-Washington International Airport. Most of the increase at Reagan Airport resulted from a switch to smaller American Eagle regional jets.
At Washington Dulles International Airport, the number of flights per day dropped in the past year from 29 to 22, which includes both mainline and regional jets.
Mr. Stempler said American Airlines employees might offer better service now. “Even though many of them may be upset, they know that their careers depend on every flight,” he said.
The airline called its plea for wage concessions “a last resort,” but did not say bankruptcy was inevitable.
Union representatives said after the meeting yesterday that they want more proof of AMR’s financial desperation before granting wage concessions. Another meeting with management is scheduled for Friday.
“We’ve been more than willing as a union to meet with the company to discuss their financial situation,” said George Price, spokesman for the Association of Professional Flight Attendants. “No one wants bankruptcy. We’ve made that very clear.”
The $1.8 billion in annual wage concessions being sought breaks down to $660 million from pilots, $350 million from flight attendants, $620 million from mechanics and ground workers, $80 million from ticket agents and $100 million from management.
Analysts anticipate sharp conflicts between labor and management. The uncertainty has pushed the stock price of AMR Corp. below $3 a share. It closed at $2.87 yesterday on the New York Stock Exchange.
For the moment, the company’s saving grace is the $2 billion in unrestricted cash it has on hand.
Even without drastic labor savings, two scenarios might save American from bankruptcy court: a strong economy in 2003 or the liquidation of United Airlines.
Analysts say an improved economy could result in increased travel demand and allow carriers to increase fares, if only slightly.
A prolonged war in Iraq, meanwhile, could cause a sharp enough rise in fuel prices and a steep enough decline in air travel to force United’s parent company, UAL Corp., to sell its assets and leave the business.
Still, analysts said either scenario would provide only a temporary boost to American, because it faces growing competition from low-cost, low-fare airlines such as Southwest Airlines and JetBlue Airways. The company said it now competes with budget airlines on 82 percent of its routes, compared with 75 percent a year earlier.
“Really, American needs cost restructuring either way, with or without United flying,” said Philip Baggaley, airline analyst at Standard & Poor’s in New York.
Factors that could accelerate the pace of labor talks include a war in Iraq, which would put added strain on the industry, and the possibility that AMR would fall short of the terms of an $800 million loan, hastening the need to repay it.
Reno Bianchi, who analyzes AMR’s bonds for Salomon Smith Barney, is critical of AMR for approaching the labor issue “very gingerly” and disagreed with the company’s apparent strategy of waiting to see what happens to United before really putting the heat on its employees.
“Our sense is that AMR runs the risk of running out of time, and we would much rather see management taking a more direct approach on this crucial issue,” Mr. Bianchi wrote in a recent report.
This story is based in part on wire service reports.

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