What if ... American hadn't avoided bankruptcy in 2003?

Labor and management united to save the airline then; but those moves have led to a wider gap between them

As union leaders learned at a conference last month on the Railway Labor Act, which governs airline negotiation, Section 1113 of the bankruptcy code allows managements to get around collective bargaining, he said. That wasn't Section 1113's intent, but it was how the courts interpreted it in airline cases, he said.

Now that AMR is profitable again, the pilots' union is pushing hard to get back all the items it gave up in 2003 and more.

In addition to simply restoring prior levels of compensation, it wants pay increases that account for cost-of-living raises along the way, on the grounds that executives already are benefiting through their pay and other compensation, and that the union concessions saved the company.

"We didn't just bail out American Airlines and AMR Corp.," Mr. Schricker said. "We bailed out the leaseholders. We bailed out the debt holders. We bailed out the shareholders. We bailed out everyone."

Decades of drama

American's dance with bankruptcy was just part of a decades-long drama for the airline industry that kicked into high gear shortly after deregulation was instituted during the Carter administration.

With the federal government no longer regulating fares and markets, airlines had to adjust to a new, tougher reality, just as fuel prices soared during the Iran hostage crisis that began in 1979.

Frank Lorenzo, who had taken control of Continental Airlines Inc. in 1983, took that carrier into bankruptcy court to cut its costs and persuaded a bankruptcy judge to abrogate its labor contracts. The airline filed for bankruptcy again in 1990 and almost entered bankruptcy once more in late 1994 and early 1995.

Continental survived after a new team of managers reorganized its finances and operations.

But survival of bankrupt airlines in the 1980s and 1990s was the exception. Aviation pioneers Braniff International, Eastern Air Lines Inc., Pan American World Airways Inc. and Trans World Airlines Inc. all died in bankruptcy court.

The first Braniff emerged once in 1984, only to go back into bankruptcy two more times.

After selling its best international assets, Pan Am died in December 1991 when its reorganization plan collapsed. Eastern parked its airplanes the last time in January 1991. American bought TWA's assets after TWA filed for bankruptcy a third time in January 2001.

It wasn't pretty, but during the deregulation shakeout, consolidation in the industry was seen as a good thing by many analysts.

That was the reality when American was deciding whether to file in 2003: Bankruptcies most often left their participants sickly or dead.

But this decade's round of bankruptcy filings was different - it hit the biggest, and traditionally strongest, members of the club rather than the fading aviation giants that were on their way down or the entrants that folded during their first downturn.

With the help of bankruptcy judges, troubled airlines reorganized their finances with lower costs, including dumping pension plans on the Pension Benefit Guaranty Corp.

As a result, four of American's biggest competitors - United, Delta, Northwest and US Airways - have emerged from bankruptcy in the last few years as among the strongest carriers around.

In the third quarter ending Sept. 30, all four of those airlines had higher operating profit margins - operating profit as a percentage of operating revenue - than AMR.

Chapter 11 strategy

Coinciding with airline deregulation, bankruptcy reorganization had become a part of business strategy after a 1978 rewrite of the bankruptcy laws, said Michael Alderson, a finance professor at St. Louis University in St. Louis.

In today's business world, Dr. Alderson said, filing for bankruptcy is "a corporate restructuring device, just like a spin-off, a divestiture, an equity carve-out, a merger. ... Really, Chapter 11 reorganizations are really no different than hostile takeovers or a leveraged recapitalization as a device for improving a company."

So would bankruptcy have been a good business decision for American Airlines?

No one would agree with that.

"I don't know any company that would want to go into bankruptcy unless they absolutely had to and had tried every alternative to avoid it," said Jerry Glass, president of F&H Solutions Group, a human resources consulting firm.

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