Bankruptcy for American may be near
By Mary Schlangenstein
Bloomberg News Service
FORT WORTH, Texas — AMR Corp.'s American Airlines, the world's largest carrier, may file for bankruptcy soon if it doesn't get $1.8 billion in concessions sought from workers, a union leader said.
The Association of Professional Flight Attendants "has reason to believe that the timing for an AMR bankruptcy may be sooner rather than later," President John Ward said in a message to members posted on the union's Web site. AMR shares fell 14 percent, the largest drop since Jan. 22.
American told workers last month it needed $1.8 billion in concessions, including $340 million from flight attendants, to stay out of bankruptcy. The carrier is seeking to cut yearly costs by $4 billion. UAL Corp.'s United Airlines, the world's second-biggest carrier, filed for Chapter 11 protection in December, and analysts expect more to follow if there's a war in Iraq.
"AMR is already at risk of bankruptcy and it can't really afford another shock like war," said James Corridore, a Standard & Poor's analyst who has an "avoid" rating on AMR.
The union's comments about bankruptcy may catch investor attention because American is sharing information in talks, he said. Ward has no specific information on a possible bankruptcy filing, said union spokesman George Price.
AMR shares fell 40 cents to $2.41 in New York Stock Exchange composite trading. Other airline shares also fell, with the Bloomberg U.S. Airlines Index falling 3.7 percent.
Losses at American have totaled $5.3 billion in the past two years as business travel declined in the recession and airlines cut fares to win back passengers. The carrier wants to slash operating costs so it can compete with growing low-fare rivals such as Southwest Airlines Co.
"American has stated time is of the essence," said Todd Burke, a spokesman for the airline. The airline wants to "quickly find mutually acceptable solutions to its situation."
In a recorded message to workers, Chief Executive Officer Don Carty said the company's employee-savings and recovery goal are "doable. But, of course, we must act quickly."
With $19.3 billion in debt outstanding, American has sought to renegotiate about $800 million it owes to avoid violating borrowing terms. Standard & Poor's and Moody's Investors Service each lowered their long-term debt ratings last month, to B- and B3, respectively. Both ratings are below investment grade.
American needs to have cost-reduction agreements with its unions in place by June, Standard & Poor's analyst Philip Baggaley has said.
The Fort Worth, Texas-based airline is negotiating with its pilots union, which was asked for $660 million in givebacks, and mechanics and ground workers, who were asked for $620 million. American will give the Transport Workers Union a new proposal for concessions today, Burke confirmed.
The company has held meetings with flight attendant union leaders, who have completed a review of the company's finances and expect to begin negotiations as early as this week, Price said.
American's unions plan to hand out leaflets at airports in eight cities tomorrow, encouraging travelers to contact their representatives in Congress and urge them to give tax and security-cost relief for airlines.
