AMR Dodges Another Bullet

Updated from 1:04 p.m. EDT

After three weeks of brutal negotiations over cost cuts, American Airlines took a break Friday to congratulate itself for working out a deal to help the world's largest carrier dodge bankruptcy -- for now.

In a press conference at company headquarters in Fort Worth, Texas, officials at AMR (AMR), parent company of American Airlines, kept the mood pointedly upbeat, but the threat of bankruptcy continues to loom, analysts say.

"The view of our firm is that it will be extremely difficult for American to achieve sufficient cost reductions on lease terms to permanently stave off bankruptcy and compete in today's market without filing Chapter 11," said Jeffrey Robinson, principal at Alderman & Co., a boutique aerospace banking firm. "It may not be tomorrow, but we believe a filing is imminent in the coming months."

According Bill Warlick, a debt analyst with Fitch Ratings, AMR had $11.6 billion in debt at the end of 2002, with $9.9 billion of that in secured debt that is generally backed by aircraft. All told, AMR doled out $840 million on rental expenses in 2002, a sum that will likely remain unchanged, as unions have agreed to cut their own pay by slightly more than twice that.

Warlick said he would reevaluate the company's position now that flight attendants have agreed to the cost-cutting plan. "Our rating [on the bonds] represents our view that there's a very real risk of near-term default. A 'D' is default, and we're four to five notches above that. The company could file even with concessions in place, and even they've made that clear."

American officials recently have been preparing bankruptcy paperwork, in case a deal couldn't be reached with unions. American has already lined up $1.5 billion in financing for a possible bankruptcy filing.

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