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AMR Drops 20% Amid Flap Over Bonuses

Flight attendants, angered by news of bonuses for executives, plan to revote on a key wage-cut agreement.

American Airlines once again is at the mercy of its unions.

The flight attendants' union, angered by news of bonuses for top executives, said it will hold a revote on a wage-cut agreement that the union had approved last week. The $340 million wage agreement is seen as key to keeping American out of bankruptcy.

Shares of



, parent of American, were down 20.2% at $3.99 in afternoon trading.

The union announced its plan for the revote after details of American's lucrative executive-compensation packages were revealed in a filing with the

Securities and Exchange Commission

on Friday. The executive pay packages include a special pension plan that will cover 45 top executives even if American goes bankrupt.

American's three key unions had agreed to cut their own pay by as much as 25% last week. The pilots' union and transportation workers' union don't plan to revote, meaning American's fate is in the hands of 27,000 flight attendants who have grown increasingly disenchanted with management over the last few weeks.

"Based on these latest revelations and on a number of other factors, including management's unwanted intrusion into the balloting process during the one-day extension, I sent

Chief Executive Don Carty a second letter notifying him that APFA

Association of Professional Flight Attendants intends to reballot the membership on the Restructuring Participation Agreement," said John Ward, president of the flight attendants' union, in a letter to workers.

The news soured a recent rally in AMR stock and gave airline investors fits on Monday, as shares continued to fall from the peak of $5.93 hit during Thursday's session amid optimism that bankruptcy wasn't imminent.

With flight attendants planning to revote, the company's future is again uncertain. Ultimately, experts say the timing of the vote could be a critical factor in the company's plans. "If the vote comes sooner, that raises the risk that employees will reject the wage cuts," said Kevin Mitchell, chairman of the Business Travel Coalition. "If it's later, then people will understand and maybe cool down a little bit. As over-the-top as they see those compensation issues to be, it's not in their best interest to go into bankruptcy and get a closer haircut."

Furthermore, there are questions surrounding the legality of the union's plans to revote. Even Wall Street analysts aren't sure how to handicap the current situation at AMR, whose shares are extremely speculative and have a rating of hold or sell at nine of the 12 brokerages that cover it.

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"Well, I'm not sure if we're coming to a revote like the flight attendants are saying. I don't know how legal it is. This is an uncertain period," said Ray Neidl, analyst at Blaylock & Partners. "Clearly, the flight attendants' vote is the big thing, and if they voted again immediately, it would probably be turned down, even though it wouldn't be good for employees."

Neidl said AMR has enough cash on hand to ride out this labor dispute without fear of being forced into bankruptcy. Neidl, who recently raised his rating on AMR to buy, added that once the cost concessions take place, the company will be able to stave off bankruptcy for the rest of 2003. But to be sure, in the long term, even if American gets the concessions it needs and quells the labor dispute, some analysts say there's no telling how long the company can survive in the current business climate -- let alone return to profitability.

Last week,

Delta Air Lines

(DAL) - Get Report


Continental Airlines

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Northwest Airlines


announced first-quarter losses totaling more than $1 billion. And of all the major airlines, only


(LUV) - Get Report

is profitable, as it announced on Monday.

James Corridore, a stock analyst at Standard & Poor's who is negative on AMR shares, said the wage concessions would lower AMR's cost structure, but that it still would be far too expensive to compete with low-cost carriers. And unless the industry fundamentals are to suddenly snap back, AMR will slowly find itself inching back toward bankruptcy. "If they get concessions, they'd be somewhere in the middle of the pack with costs, and that's not good enough for the long term, given industry fundamentals," said Corridore. "They're only delaying the filing."

Ultimately, what is very certain is that AMR management's relationship with its unions has broken to a point where getting additional concessions, productivity gains and flexibility will be very difficult. "At this point, AMR has drawn blood from stone. They will not be seeing any labor groups offering further concessions down the road," said Corridore. "That's why it's either get concessions, or file for bankruptcy, at this point."