American Airlines Narrowly Avoids Filing for Bankruptcy

American Airlines avoided bankruptcy by the thinnest of margins Wednesday when its flight attendants reversed an earlier vote and joined other workers in accepting hefty pay cuts.

The world’s largest airline and its parent, AMR Corp., had vowed to reorganize its finances through Chapter 11 of the U.S. Bankruptcy Code unless the airline secured $1.8 billion in total concessions from its three major labor groups.

“This development is unprecedented in the history of the U.S. airline industry, and I am enormously proud of our employees,” AMR Chairman Donald Carty said.

The pilots and mechanics approved their givebacks Tuesday -- the original deadline set by American, which is facing massive debt payments and losing millions of dollars a day.

American’s 26,000 flight attendants, represented by the Assn. of Professional Flight Attendants, first narrowly voted against their new contract. But after union leaders complained of balloting problems, American let them vote again Wednesday.

With the flight attendants standing between American and a bankruptcy filing, this time they approved their $340-million concessions package, which includes a 15.6% pay cut and changes to work rules and other benefits.

That’s what many on Wall Street expected. Before the vote’s results were announced, AMR shares soared 83 cents, or 24%, to $4.23 on the New York Stock Exchange.

If American had filed for Chapter 11, the nation’s two largest airlines would have been operating under Bankruptcy Court protection. United Airlines, second in size to American and a unit of UAL Corp., has been operating under Chapter 11 since December.

Despite the labor concessions, Fort Worth-based American and other airlines face a turbulent future.

The industry will post a $3-billion loss for this year’s first quarter alone after losing more than $11 billion during all of last year, analysts estimate. AMR, which has lost some $5 billion during the last two years, is expected to post a first-quarter loss of nearly $1 billion.

The carrier is reeling from the slump in passenger travel, combined with its own high operating costs, a crushing debt burden and heightened competition from low-cost carriers such as Southwest Airlines.

Travel has dropped sharply because of the weak economy and terrorism fears, and more recently because of the war in Iraq and the outbreak of severe acute respiratory syndrome, or SARS.

To rebound, American first will have to “get the hearts and minds of its employees back again” in light of their deep wage cuts, said Michael Riley, an industry consultant and former United Airlines executive. “You can’t care for the customer if you spend all your emotional energy being angry at management.”

Indeed, the flight attendants’ vote showed deep division, with 10,761 for the cuts and 9,652 against them, their union said.

The airlines also are saddled with sharply higher costs for security and insurance in the aftermath of the Sept. 11 terrorist attacks, although they received some help Wednesday from Uncle Sam. President Bush signed a $77-billion emergency spending bill that included $2.9 billion in aid to the airlines.

Moreover, American and other airlines still face the huge problems of generating more ticket sales as well as charging fares that can earn them a profit.

Yet for now, pressure remains on the carriers to keep fares low if they hope to stimulate travel, analysts said.

“Even with the war over, the airlines are going to need to prime the pump with fairly good discount fares,” said Thom Nulty, former president of Navigant International, a major travel services firm. “The question is whether that will generate enough revenue to keep them out of more financial trouble.”