Apr 24, 2003 By David Koenig Ap Business Writer 4 min read

FORT WORTH, Texas (AP) – Struggling to regain control of a tumultuous labor situation and ward off bankruptcy, American Airlines Wednesday reported a $1.04 billion first quarter loss. The labor unrest and financial distress increases pressure on the company’s board to remove chairman and chief executive Donald J. Carty, analysts said. The board is scheduled to meet Thursday.

American canceled a Wednesday conference call to discuss its quarterly results as Carty met again with labor leaders and four Texas congressmen to try to salvage cost-cutting deals that he said American needs to avoid bankruptcy.

Workers and union leaders remain outraged after learning late last week that while they were asked to accept $1.8 billion in annual cuts, American approved executive bonuses and pension payments that would be protected in bankruptcy.

Unions representing flight attendants and ground workers plan to hold new votes on the concessions, and the pilots’ union is threatening to withhold formal approval. The flight attendants and Transport Workers Union are considering 30-day elections, which the airline considers unacceptably long.

The quarterly loss was equivalent to $6.68 per share, compared with a loss of $1.56 billion, or $10.09 per share, in last year’s first quarter. Analysts surveyed by Thomson First Call had expected a loss of $6.08 per share, or $948 million. Carty blamed the first-quarter results on weak travel demand caused by the sluggish economy, war in Iraq and the SARS outbreak. He also said high fuel prices and low fares contributed to results that were “truly dreadful.”

“All told, it’s a perilous climate and our success is far from assured,” he said in a statement.

Revenue fell slightly to $4.12 billion from $4.16 billion a year earlier, and analysts warned that the company’s liquidity is slipping.

Standard & Poor’s said Wednesday that it believes the company’s unrestricted cash has “fallen substantially” since Dec. 31, when the company had $1.9 billion. The company needs a minimum of $1 billion in unrestricted cash and short-term investments in order to meet the terms of its loans.

The Dallas Morning News reported Wednesday that AMR board members were unhappy with Carty’s failure to tell unions about the executive bonuses and pension payments. A company spokesman declined to comment on the report.

Ray Neidl, an analyst with Blaylock & Partners, said the dismal first-quarter numbers added to Carty’s problems and said the CEO’s future at the company could be decided this week.

“It puts pressure on Don,” Neidl said. “The board views him as a very valuable manager, having structured these consensual agreements, and they want to give him every chance to put this back together.” Neidl said Carty must show the board he can rescue the cost-cutting deals with unions, but union leaders have spoken harshly of his failure to tell them about the executive bonuses and pensions.

None of American’s unions have demanded Carty’s resignation, but some members of the pilot’s union board believe the CEO should go, said spokesman Steve Blankenship.

“We’re not having to do much. This guy is setting himself up to fail,” Blankenship said.

“The issue is clearly on the AMR board’s shoulders.”

But AMR’s board may be reluctant to add to turmoil by firing Carty unless unions demand his removal as a condition of approving concessions, said Ron Kuhlmann, an airline consultant at Unisys R2A.

“It was an abominable example of bad judgment,” Kuhlmann said of failing to disclose the executive perks, “but the board wasn’t paying close attention to the possibility of a blow-up either. They may decide to ride it out.”

Carty has apologized several times for not disclosing the perks sooner. The company has canceled the bonuses but not the $41 million in pension funding for 45 executives.

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AMR: www.amrcorp.com