AMR Averts Chapter 11 Filing For Now

AMR Corp.'s American Airlines last night announced new tentative labor agreements with the flight attendants, pilots and mechanics unions, completing crucial negotiations aimed at keeping the world's largest carrier out of bankruptcy. AMR chairman and CEO Don Carty said the new tentative agreements "have enabled us to avoid an immediate filing with the bankruptcy court."

All tentative agreements must be ratified by each union's membership. Voting is expected to conclude by mid-April.

The airline acknowledged it still must "secure meaningful concessions from its vendors, lessors and suppliers," and that "the financial condition of American is weak and its prospects remain uncertain. The days ahead will be difficult, and the success of our joint efforts is not yet assured."

Industry analysts held a similar near-term positive view but were cautious on the long-term outlook. "We are highly confident that with its labor deal otherwise in place, AMR will be able to sufficiently dodge the bankruptcy bullet this year, while enjoying improved cash-burn rates and renewed access to capital," said J.P. Morgan analyst Jamie Baker in a research note issued this morning. "Absent positive improvements in the war, demand and operations, AMR could likely once again be knocking on bankruptcy's door sometime next year, along with the likes of everyone except Southwest."

Nevertheless, Baker said AMR's current ability to avoid a court-supervised restructuring provides "hope for Delta, Northwest, Continental and so forth."

Deutsche Bank Securities analyst Susan Donofrio, also in a research note this morning, said tentative union agreements at both American and United airlines may spur "an industrywide ripple effect of labor concessions that is needed in order to put the industry on a stronger financial footing in order to weather the current weak environment."