AMR, After Third-Quarter Loss, Looks for Ways to Cut More

With another hefty loss on the books, executives and union leaders at AMR, parent of American Airlines, warned Wednesday that more difficult cost cutting will be needed to reverse the struggling airline's fortunes.

AMR executives said the airline lost $153 million during the third quarter, despite strong traffic and record-breaking passenger loads. The loss, which included $58 million in special charges, came amid punishing fuel prices and intense competition from low-fare carriers and bankrupt rivals.

``Our competitive situation remains very uncertain,'' AMR Chief Executive Gerard Arpey told analysts and reporters during a conference call. ``Other carriers will be reducing their costs by eliminating pension plans, reducing salaries and benefits, cutting jobs, terminating contracts and returning aircraft.''

At American, efforts between union leaders and management seem to be focusing on improving efficiency and productivity, rather than layoffs or cutting wages and benefits.

A joint employee-management effort focusing on productivity has produced $500 million in potential cost cuts that the company hopes to achieve next year.

Ralph Hunter, an American pilot who heads the Allied Pilots Association, told union members in a message that labor must immediately begin working with management to improve AMR's position before the airline is forced to declare bankruptcy.

``AMR's financial performance is not sustainable,'' he said. ``We are once again at a crossroads.''

But he added that any further cuts in salaries or benefits, or additional layoffs, are unacceptable. ``Our pilots have given enough out of our wallets,'' he said.

American employees approved $1.6 billion in concessions in 2003, agreeing to new contracts that don't expire until 2008, although talks will begin in May. Some analysts have speculated that the airline may be forced to renegotiate those contracts early to cut labor costs further.

``Given industry conditions, we expect management to attempt to be fairly aggressive in renegotiating labor costs lower,'' said Mark Streeter, an analyst with J.P. Morgan Securities, in a report to investors Wednesday.

As has been the case for more than a year, fuel costs were a major problem for AMR during the quarter. Jet fuel prices have risen 129 percent this year.

Had prices remained at the same level as a year ago, for example, American would have posted a $49 million profit rather than a loss.

And Arpey warned that the fuel situation will only get worse. The airline expects jet fuel to be even more expensive during the fourth quarter of this year.

``We expect a significant loss in the fourth quarter,'' he said.

AMR shares rose 40 cents, or about 3 percent, to close at $12.40 in trading Wednesday.


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