American Airlines Avoids Bankruptcy

American Airlines passenger aircraft are seen at Lambert International Airport in St. Louis, Tuesday, Aug. 13, 2002. In the past year American has overhauled flight schedules at its hubs to use planes and employees more efficiently, reduced the number of different jets it flies to cut maintenance costs and tested a new fare structure to offer lower prices for business travelers _ each move a nod to the Southwest Ailines method.
American Airlines took a huge step toward preventing bankruptcy Monday by reaching tentative cost-cutting agreements with its mechanics and flight attendants. A source familiar with the situation said the world's largest airline has also reached a deal with its pilots.

The airline has said it needs $1.8 billion in concessions from its 99,000 employees to avoid a Chapter 11 filing. Any agreements would require employee approval.

"We've reached an agreement on an economic framework," said George Price, a spokesman for the flight attendants' union. He would not discuss details, but said ratification could begin as early as Tuesday.

American said only that it had reached agreement with its 16,200 mechanics. Neither side would confirm any deal involving the pilots, but it was confirmed by the source, speaking on condition of anonymity.

The developments came as the company held negotiations with all three unions at its training center in Fort Worth, Texas. Experts said the talks were probably affected by last week's agreement between United Airlines and its pilots' union on $1.1 billion in cuts.

"I think that has helped focus their minds," said Peter Cappelli, a professor of management at the University of Pennsylvania's Wharton School of Business.

American's parent, AMR Corp., has lost nearly $5.3 billion in the past two years as it has struggles with a slump in travel caused by the weak economy and terrorism. The war in Iraq has further weakened international travel.

American has also suffered as a result of competition from low-fare carriers, which has kept fares down, reducing potential revenue. Other major airlines are also pushing employees to accept wage and benefit cuts.

Even if employees ratify the agreements, analysts said it will still be critical for AMR Corp. to secure additional financing from lenders as well as better deals from suppliers and lessors.

"That will be very important to tide them over through their current, difficult financial circumstances," said Philip Baggaley at Standard & Poor's.

The Allied Pilots Association made a proposal to American Airlines for $660 million in savings by changing work rules and making across-the-board pay cuts. The union said it was confident that would let American compete with United Airlines and US Airways, which have cut costs in bankruptcy, and with low-cost carriers.

The Association of Professional Flight Attendants submitted its $340 million cost-cutting proposal Friday.

Last week, talks hit a snag when American said it would not count savings from nearly 1,000 pilot layoffs and retirements expected this year toward the $660 million cost-cutting goal. The union believes the cuts will save American up to $150 million.

A member of the National Mediation Board was called in to help resolve the dispute. Over the weekend, the company reached tentative agreements with six groups of ground workers, totaling 2,500 employees. The company previously reached a tentative deal with 16,300 baggage handlers.