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
, 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.
The company's stock got a boost on Friday from hopes that the $1.8 billion in wage concessions will help keep it from filing Chapter 11. Shares rose 10.4% to $4.46.
But stock analysts say the recent rally in AMR stock, which jumped 32% in three days, may be overdone and exaggerated by short-covering.
"It's a mystery why shares have rallied this much," said Jim Corridore, airline analyst for Standard & Poor's. "I'm sure there's a great deal of short-covering, and new short positions are being taken every day. But the shares have only been reacting positively to good news and not negatively to the bad news."
Meanwhile, at Friday's staff meeting, the company's new chief executive, Gerard Arpey, former chief operating officer and finance chief of AMR, said, "It will come as no surprise that there is a desperate need to rebuild trust at this company," Arpey, in his first public statement as CEO, personally thanked AMR employees for their sacrifices in agreeing to wage cuts.
Arpey added, "In the short term, we confront external factors that pose a real threat to the success of the company's consensual restructuring. By any measure, we have our work cut out for us. We are not out of the woods yet, but as the new CEO, I am up to the task."
Management also introduced the company's new chairman, Ed Brennan, former CEO of
, and thanked former CEO Don Carty for his two decades of service to the company. Carty resigned Thursday night after bungling wage negotiations with unions. Last week, employees had agreed to $1.8 billion in annual cuts to keep American out of Chapter 11, but they withdrew their agreement after Carty failed to disclose that American executives still would be paid hefty bonuses and pension plans. The act so deeply hurt relations between the company and the unions that Carty said it was best for him to leave.
"It is now clear that my continuing on as chairman and CEO of American Airlines is still a barrier that, if removed, could give improved relations -- and thus long-term success -- the best possible chance," Carty said in a statement.
Arpey, in an attempt to bury the hatchet with unions, agreed to sweeten the deal for workers if they would agree to the cost cuts. Under the new offer, employees can increase their own pay by as much as 10% if the company hits certain performance goals, and concessions are only good for five years now, instead of six.
Furthermore, the new contract is open to negotiations after three years, and some of the stronger language surrounding work rules has been eliminated, allowing for more flexibility.
The sweetened pot and Carty's head were enough to get the flight attendants union to approve the deal for wage concessions. It was the last of the three main unions to approve the deal. American Airlines had said the approval of the three unions was needed to avoid bankruptcy.