Bankruptcy is on the back burner as airlines report second-quarter earnings, but American parent AMR ( AMR) seemed to successfully sidestep the issue on Wednesday.

The first airline to report, American took pains to lay out its liquidity status, noting that it had $3.7 billion in unencumbered assets and other sources of liquidity as of July 7. Its earnings release included a catalogue of debt metrics, as the carrier seemingly sought to offer at least as many measures of its debt as Eskimos have words for snow.

The airline industry is reeling from a combination of low demand, harsh competition for ticket sales, volatile fuel prices and tight credit markets. On the earnings conference call, in the first question from a reporter, CEO Gerard Arpey was asked how long such conditions can continue before AMR runs out of options. "Not forever," he responded.
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However, Arpey said, "I think we've got a proven track record of meeting our obligations and dealing with difficult environment, and we have degrees of freedom that some of our competitors do not."

In a report Thursday, JP Morgan analyst Jamie Baker declared, "Chapter 11 can be averted at AMR" (given) the $3.7 billion in unencumbered assets. He said the carrier has assets that should enable it to raise more cash, even beyond the nearly $586 million raised in the past month.

"We continue to view AMR's liquidity-raising takeoff roll as just beginning," Baker said. JPMorgan has a financial relationship with AMR that includes provision or future provision of investment banking and non-investment banking services.

Baker speculated that United ( UAUA)and US Airways ( LCC)are more likely bankruptcy candidates because they lack assets that can be monetized and could violate bank debt covenants going forward, assuming the covenants are not modified.

In reports Thursday regarding American's viability, Avondale Partners analyst Bob McAdoo noted that its "share price seems to reflect potential for bankruptcy (but) we don't see that as likely, and believe shares are undervalued." Jesup & Lamont analyst Helane Becker concurred, saying "we believe the company will return to profitability in 2010" and maintaining a buy rating.

American's earnings also provided a summary view of the airline industry's peculiar situation during the second quarter. Although the world changed dramatically between first quarter 2008 and first quarter 2009, AMR earnings barely fluctuated.

Excluding special items, the 2009 loss was $319 million or $1.14 a share, while the 2008 loss was $298 million or $1.19 a share. Recalling the adage that on turning 40 you trade emotional problems for physical problems, American traded fuel cost problems for demand problems.

American noted that its second=quarter fuel costs were $910 million lower this year than last. But its yield, reflecting ticket pricing, fell by 15%. "If someone predicted oil prices would be cut in half from nearly $150 a barrel a year ago, yet the airline industry would be in worse shape, not many people would have believed it," Arpey said, in a letter to employees.

Yet based on American's earnings, the industry seems to be only slightly worse off this year than it was a year ago -- when bankruptcy talk chatter also flourished. A key difference, not reflected in earnings numbers, is that credit markets have collapsed. However, as Credit Sights analyst Roger King said recently, "airlines have been on bankruptcy watch for the past 50 years -- there's really nothing new there."

AMR shares closed Thursday at $4.30, down 1.38%. US Airways shares closed at $2.08, down 0.95%. United shares closed at $3.49, up 0.58%.

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