American Airlines bankruptcy predicted
By David Koenig
Associated Press
DALLAS — A local official at American Airlines' pilots union said the carrier could be forced into bankruptcy in late May by continuing heavy losses and dwindling cash reserves, touching off renewed debate on the financial health of the world's largest carrier.
The official's timetable for a Chapter 11 filing was refuted by his own union, but it focused new attention on the prospect of another major airline seeking bankruptcy protection.
American had raised the potential for bankruptcy this month when it asked employees for $1.8 billion in annual concessions.
Jeff Sheets, a board member of the Allied Pilots Association, based his analysis on the company's daily cash burn rate of $5 million and on the assumption that American would not operate with less than $1 billion. At the end of the fourth quarter, the company said it had $1.9 billion in unrestricted cash.
The pilots' association said yesterday it did not endorse Sheets' estimate — first posted on a private section of the union's Web site — and a spokesman for American called it "inaccurate."
That said, nobody is denying that bankruptcy is a real possibility for the carrier, which has been stung by the decline in spending by business travelers.
Analysts say American has enough cash to last until late summer, assuming passenger traffic picks up in the spring and that a possible war in Iraq does not cause leisure travelers to stop flying.
American, which has a history of poor labor relations, has opened its books to the unions to persuade them to accept the wage concessions proposed earlier this month. American wants about one-third of the concessions to come from pilots.
Consultants and bankers working for the unions are still reviewing the records, but they say it doesn't look good.
"There is a very real possibility of bankruptcy," said John Darrah, president of the pilots union, which initially was skeptical of American's claim of financial distress.
Darrah, who dismissed Sheets' prediction as a "back-of-the-envelope" calculation, said he would like to reach an agreement with the company quickly — before a bankruptcy filing — in order to protect jobs. If American were to file for bankruptcy protection, creditors and company management would likely have much more power to demand cost cuts.
"We have signaled our willingness to explore cost savings with American Airlines management," Darrah said.
Similar pledges have come from leaders of unions representing flight attendants and ground workers.
Union leaders and company officials have also lobbied for relief from federal fees and taxes for security and other purposes.
American's chairman and chief executive, Donald J. Carty, warned last week that things could get worse for the Fort Worth-based carrier if there is war with Iraq, which could reduce travel and raise jet fuel prices. Echoing comments made by other airline executives, Carty said the industry would need government help to survive if war breaks out with Iraq.
American and other U.S. carriers have struggled in the past two years with the slumping economy, reduced spending by business travelers and higher security costs in the wake of the 2001 terrorist attacks. Those factors helped push United Airlines and US Airways into bankruptcy last year.
Ray Neidl, an airline analyst with Blaylock & Partners, said American could also forestall bankruptcy by selling assets such as the American Eagle commuter airline. But without major concessions from labor, a Chapter 11 filing was inevitable, he said.
American spokesman Bruce Hicks declined to discuss the timing of a possible bankruptcy filing but acknowledged the company's financial problems — it lost more than $3.5 billion last year. "The losses this company incurred last year and early this year are unsustainable," Hicks said. "But the actions we've taken, and what we need and believe we'll get from the employee groups, will make this company competitive."
American has said it has already found $2 billion in annual savings, mostly by mothballing planes and changing its schedule.
AMR shares fell 26 cents, 9 percent, to close at $2.58 yesterday on the New York Stock Exchange.
Meanwhile, Northwest Airlines has asked pilots to accept about a 20 percent pay cut as the nation's fourth largest carrier intensified its drive to cut labor costs.
Pilots' wage scales would be rolled back to pre-1996 levels under a cost-cutting proposal from the airline, said Mark McClain, chairman of the executive council of the Northwest Airlines Air Line Pilots Association. In addition, the airline could save money with work rule changes, benefit reductions and other moves.
"My gut reaction would be that this is a very aggressive proposal," McClain said. "I've been negotiating with these guys since 1994, and this is the most aggressive proposal I've seen."
The Eagan-based airline presented its giveback proposal to the pilots' union Tuesday.
Northwest would not comment on the proposal. "We are having private discussions with all our unions about the economic realities of the airline business," said spokesman Bill Mellon.
