Updated from 12:10 p.m. EDT

In order to avoid filing for bankruptcy, American Airlines will need to repair its broken relationship with employees. But in the end, even if that happens, experts say its ability to avoid a Chapter 11 filing is far from guaranteed, and may even be a long shot.

AMR

(AMR)

-unit American Airline's current plan to avoid bankruptcy involves getting deep cost cuts from employees. But in its five-paragraph earnings release from late Wednesday morning, you will not be able to find any mention of the labor dispute that could drive the company into Chapter 11.

Nothing was said about the only issue that really matters at this point: whether unions representing the company's flight attendants, pilots and mechanics will ratify the $1.6 billion in annual cost cuts that all three voted to accept last week. But American has gone silent as it negotiates with unions, canceling Wednesday's planned conference call to discuss earnings, and ostensibly, the fate of the company.

"We waiting to learn what the unions are going to do and with all of the other issues that have surfaced this week, we're certainly not in a position to hold a conference call this afternoon," said Al Becker, company spokesperson, who added that the call had not been rescheduled. "The board met electronically today and finished their meeting."

So while AMR investors got a good look on Wednesday at the company's first quarter, they received zero new information about how the dispute between labor and management will proceed in the next few days. According to union officials, corporate management and union leadership are ensconced in a Texas boardroom, discussing Don Carty's recent missteps and what the company's board of directors actually knew.

Unions are upset that after spending weeks in heated negotiations to cut their own pay by as much as 25%, management came out on March 31, after the vote was ratified, and revealed a plan to give executives bonuses and protect their pension under the event of a bankruptcy filing. But whether the board knew that Carty was going to file its 10-K with the

SEC

after concessions were already agreed upon is emerging as a pivotal issue.

"I put a lot of responsibility on AMR's board at this point. Did Carty tell them the truth? Or were they withholding something? Who knew what?" asked Rick Musica, vice chairman of the Miami International Association of Professional Flight Attendants, which represents 3,500 of American's 27,000 flight attendants.

Either way, Musica said the situation looks bad. "If they sent him with their OK to withhold that information, we have a deeper problem," he said. "But if Carty didn't advise the board at all, the damage

to our relationship with him is irreparable."

What Happens Now?

To repair some of the damage, Carty has apologized for his actions and cancelled bonuses for management. And over the last two days, Musica and other board members have been working around the clock in meetings to find a way out of a situation that might have no winners.

When it came time to decide what to do, 17 of the APFA's 18 board members voted to reballot members on the $340 million in concessions it narrowly approved last week. How that vote will proceed is a mystery to even union officials, which means investors who bought shares that rallied 10% to $3.80 on Wednesday are buying a company at a time when its future has never been more uncertain.

"The way I read it is that when we left Dallas yesterday, our balloting committee immediately prepared the ballots. I don't know the exact time frame -- it will take some time to determine that -- but they have still not been finalized," he said. "My focus is what happens after tomorrow. The anger will be there, but how can you fix this? No one wants to see this airline fail. This is our livelihood. We can't protect our pensions. Our goal is to right this ship. I just don't know if this is the right management team to do that. They got us to where we are today."

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Comments from union members on AMR's earnings report reflect similar sentiment, with a number saying they will reject the wage concessions out of fear they'll end up like

US Airways

employees. Just before US Airways filed for Chapter 11 last year, employees agreed to deep cuts, only to accept even deeper cuts once the company entered bankruptcy. In the end, those employees lost their pensions.

Much Ado About Nothing?

As Wednesday's earnings release shows, American Airlines is losing money at a healthy clip. The company said first-quarter losses came in at $1.06 billion, or $6.68 a share, about 60 cents wider than Wall Street expectations. Revenue was $4.12 billion, above Wall Street estimates, but below last year's $4.16 billion. Carty termed the results "truly dreadful," adding: "Our success is far from assured."

As Carty's comments suggest, the infighting over wage concessions could prove to be a moot point, and American could be forced into bankruptcy regardless of the cuts. On Wednesday's, Standard & Poor's credit rating agency said it may reduce AMR's credit rating after it underperformed rivals in the first quarter.

"Standard & Poor's Ratings Services said that its ratings on both entities remain on CreditWatch, with developing implications," said the S&P. "The pretax-loss margin of negative 25% was worse than comparable results at

Continental Airlines

(CAL) - Get Report

(negative 12%),

Delta Air Lines

(DAL) - Get Report

(negative 21%) and

Northwest Airlines

(NWAC)

(negative 15%)."

Other rating agencies have expressed concern about the company's ability to keep going, even if it gets the job cuts. In a report from last week, Fitch Ratings analyst William Warlick said the combination of a bad business environment, rising debt levels and an eroding liquidity position will not erase the company's credit problems.

In the end, experts in the aerospace banking industry say they expect American to be forced to file for bankruptcy, after all.

"They must file for bankruptcy," said William Alderman, president of Alderman & Co., an aerospace banking firm. "We may be able to come up with a scenario were they can avoid it for X number of days based on burn rate and capital, but as a firm, we think they're going to file Chapter 11, in part because the recovery is not certain, but more importantly, there was such a need for rapid labor concessions and the recent issues make it easier to achieve success through a formal Chapter 11 filing."