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) -- Shares of

American Airlines




were falling Tuesday as the carrier appeared to have failed to reach a mutually acceptable contract deal with its pilots.

The lack of a deal raises the specter of bankruptcy, which has clouded the outlook for AMR shares throughout the year. Several analysts mentioned the possibility of bankruptcy in reports issued Monday and Tuesday.

About an hour before the close, AMR shares were trading at $1.92, down 22 cents or 10.5%. Shares are down 75% this year.

On Monday, American made a comprehensive contract proposal to its pilots. The carrier asked that pilots be allowed to vote on the proposal, despite an apparent lack of support from the Allied Pilots Association and, it appears, from many of the union's members.

In the

Dallas Morning News

on Tuesday, American beat reporter Terry Maxon wrote "We may be at the point now where management has gone as far as it can with a deal that doesn't go nearly far enough for the pilots to approve."

In a statement issued Monday, the carrier said that after five years of talks, "We made significant progress in many areas, (but) so far we've been unable to find enough common ground to reach a deal.

"Instead of waiting and letting more precious time slip by, the company elected to put a comprehensive proposal on the table today," the carrier said, noting that it has offered pay raises, increased job protection and growth plans but has asked for "enhanced productivity, additional operational flexibility and movement toward a more competitive benefit structure."

For instance, American has asked that pilots contribute more to their retiree medical coverage and that new hires be transitioned to a 401K plan.

A sign of potential difficulty in securing ratification is that

Dave Bates, a moderate union leader, took over as APA president in July 2010. If the carrier's proposal does not win approval from moderate leaders, who have clearly worked towards an agreement, then it would seem that more contentious pilots are not going to vote to ratify either.

The pilot's failure to approve a contract would undoubtedly lead to intense consideration of the possibility of a bankruptcy, which is one thing investors cannot stomach because it raises the possibility that shares become worthless.

In a report issued Tuesday, Sterne Agee analyst Jeff Kaufman downgraded AMR to neutral.

"Labor progress appears to be hitting a wall with pilots," Kaufman wrote. "The company continues to whittle away its liquidity, as we enter a high cash burn time of year.

"It is possible that a labor deal is reached over the next few months," Kaufman continued. "However, given the increased distance between the parties, the risk of a strategic Chapter 11 filing has increased over the past six weeks."

Meanwhile, Fitch Ratings said Tuesday that "the absence of progress this week in contract talks ... raises the risk that American Airlines will be forced into a Chapter 11 bankruptcy filing."

"While AMR's liquidity position ($4.3 billion in unrestricted cash and investments at Sept. 30) is adequate to allow the company to avoid a bankruptcy filing in the short run, we regard the achievement of competitive pilot wage and benefit levels as key to American's long-term survival," Fitch said, noting that "another year of substantial operating losses would likely drive AMR's liquidity toward unmanageable levels."

In bankruptcy, the carrier could terminate its defined benefit pension plans and significantly quickly reduce the number of inefficient MD-80s in its fleet, the ratings agency said.

The union's board was slated to meet Tuesday, while the airline's board of directors was to meet on Wednesday.

-- Written by Ted Reed in Charlotte, N.C.

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