American wraps up deal, averts immediate Chapter 11 filing

FORT WORTH, Texas -- Flight attendants gave American Airlines a reprieve from bankruptcy for the second time in two weeks Friday, putting their faith in new management as they agreed to $340 million in annual cost cuts.

In his first full day on the job, however, the airline's new chief executive, Gerard Arpey, warned that the world's largest carrier is not out of trouble and that relations with employees remained tense.

"By any measure, we have our work cut out for us," said Arpey, who replaced Donald J. Carty as CEO late Thursday.

Carty resigned after angering workers by withholding information about executive perks while the company was negotiating with labor leaders over $1.8 billion in annual concessions. The company said that without the cuts it would be forced into bankruptcy.

With company officials and lawyers in New York on Friday preparing a possible Chapter 11 filing, the bitterly divided flight attendants' union finally agreed to cuts that management made less severe in hopes of salvaging a deal.

The flight attendants' acquiescence also followed a late-night meeting between the union's top officers and Arpey just hours after Arpey was named to replace Carty.

Unions representing pilots and ground workers approved the concessions late Thursday.

The agreements will cut American's labor costs by about 20 percent. In trading Friday on the New York Stock Exchange, shares of American's parent, AMR, closed at $4.40, up 36 cents, or 9 percent.

On Wednesday, AMR reported a $1 billion first-quarter loss.

Airlines have been hit hard by a downturn in travel caused by the weak economy, the 2001 terrorist attacks, fears of new terrorism created by the Iraq war and the SARS outbreak. Also, competition from low-fare carriers has forced fare reductions.

Friday's concessions by flight attendants capped a tumultuous series of events in which workers approved -- then threatened to nullify -- cost cuts after the company's ill-timed disclosure that it had approved executive bonuses and funding for managers' pensions.

Carty apologized for not disclosing the perks sooner, but ground workers and flight attendants threatened to call new elections anyway. The company countered by threatening to file for bankruptcy if the voting resumed.

To assuage angry union leaders and cut off new elections, the company improved the concessions package this week by shortening the length of wage and benefit cuts, and by including potential bonuses up to 10 percent. Bonuses for management would be tied to the same airline-performance measurements used to determine bonuses for rank-and-file workers.

John Ward, president of the flight attendants union, said Friday that employees would not take it on faith "that everything is going to get better."

"We are not going to be idle or silent in the face of future actions or inactions by the company that we believe will threaten the long-term viability of American Airlines," he said.

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