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American Airlines Averts Bankruptcy Court Filing

The carrier says it reached deals with unions that will save $1.8 billion a year.

April 01, 2003|James F. Peltz | Times Staff Writer

American Airlines, the world's largest carrier, said it skirted a bankruptcy filing Monday by reaching last-minute deals with its labor unions that will save $1.8 billion a year.

American and its parent, AMR Corp., had set Monday as a deadline to either secure the labor pacts or file for Chapter 11 bankruptcy protection. The airline -- which lost an industry record $3.5 billion in 2002 -- said it needed to do one or the other to avoid running out of cash this year.

"By taking these decisive actions, the union leadership and our employees have demonstrated an unwavering commitment to the future of the company and have enabled us to avoid an immediate filing with the Bankruptcy Court," AMR Chairman Don Carty said in a statement.

Carty called the deals with unions representing pilots, mechanics and flight attendants "far-reaching" and said they "touch on nearly every aspect of pay, benefits and work rules."

The pilots union, the Allied Pilots Assn., settled on $660 million in cuts. The Transport Workers Union, whose members include mechanics and other ground workers, agreed to $620 million. The flight attendants agreed to cuts in wages and benefits and to other changes that will total $340 million. The rest of the annual savings will come from management, support staff and other workers.

If the talks had failed, the nation's two largest airlines would have been in bankruptcy proceedings. Second-ranked United Airlines and its holding company, UAL Corp., filed for Chapter 11 bankruptcy protection in December.

The carriers are the top two operators at Los Angeles International Airport, where together they handle about 4 of every 10 passengers daily. More than 5,000 of American's 100,000 employees are in California.

American pays more than $28 million in landing fees and rent to LAX annually, and a few months ago the carrier completed a $300-million renovation of its LAX terminal.

The airline's labor pacts were applauded on Wall Street, where AMR's stock jumped 52 cents, or 33%, to $2.10 a share in New York Stock Exchange trading.

Though American got the immediate cost savings it needed, the airline industry is grappling with the travel downturn that has reduced sales, and it's unclear how much passenger traffic will bounce back after the war ends and the economy rebounds, some analysts said.

"For the moment, it looks like they won't have to take the Chapter 11 route, but I don't think that necessarily takes it off the table forever," said Edmund Greenslet, president of ESG Aviation Services, a consulting firm in Jacksonville Beach, Fla.

Meanwhile, US Airways Group Inc. -- the No. 7 domestic airline -- emerged from its own Chapter 11 reorganization Monday. Under Chapter 11, a company keeps operating but is protected from creditors' claims while it works out a recovery plan.

US Airways, an Arlington, Va.-based carrier that primarily serves the Northeast but has daily flights from LAX, used the Bankruptcy Court to become a much smaller, lower-cost airline in hopes of staying competitive. But US Airways said it wouldn't be profitable until next year at the earliest, because of low passenger trends.

By exiting Chapter 11, US Airways received a $900-million federal loan guarantee that had been conditionally approved by the Air Transportation Stabilization Board.

As part of the deal, the ATSB got a 10% equity stake in US Airways.

Fort Worth-based American didn't apply for loan backing from the panel, which was created to help bail out the airlines after the Sept. 11 terrorist attacks.

The federal aid did little to calm the turbulence of the industry in the midst of an unprecedented financial crisis.

U.S. carriers -- awash in debt, pummeled by the weak economy and the post-Sept. 11 travel slump, and losing ground to discount carriers such as Southwest Airlines Co. and JetBlue Airways Corp. -- lost a staggering $11 billion last year.

They were dealt another blow by the war in Iraq. As the war drew closer, skittish travelers began postponing or canceling airline trips.

The trend accelerated as the fighting began, especially on international routes, where ticket sales for some carriers plummeted by 20% or more compared with a year earlier.

The airlines' costs for heightened security, jet fuel and insurance also have soared, and the carriers are demanding that the U.S. government start shouldering much of those costs or risk having one or more carriers fail, reducing service for many passengers.

Delta Air Lines Inc., Northwest Airlines Corp. and Continental Airlines Inc. also are scrambling to shave their union contracts and other costs to endure the travel slump.

Those carriers no longer can support their high cost structures as they once did by charging high fares for business travel, most analysts say.

The airlines still are "struggling with what kind of fare structure is necessary" to both generate enough ticket sales and turn a profit, Greenslet said.

In a related development, Delta, Northwest and Continental won U.S. approval for a code-sharing alliance after agreeing to give up some gates in New York and Boston and make other concessions, the Transportation Department said.

The alliance would enable the carriers to sell tickets for one another's flights and link their frequent-flier programs.

The pact was criticized by some consumer advocates and travel managers, who contend that the venture would reduce competition.

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Times staff writer Jennifer Oldham contributed to this report.

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