American Airlines, its business suffering as war fears ground travelers, may seek bankruptcy protection as early as next week, according to two bankers who have been briefed on the carrier's efforts to line up financing ahead of a filing.
Executives at the airline, the world's largest, worry that labor cost cuts under discussion with unions may not be enough to return the carrier to profitability, one of the bankers said yesterday.
Tara Baten, a spokeswoman for American, said that the airline, a unit of the AMR Corp., still hoped to avoid a Chapter 11 filing.
"There's been rampant speculation on this for many weeks, and the fact is that our commitment, our plan and our focus is to do everything possible to avoid bankruptcy," she said. "We continue to have face-to-face negotiations working around the clock, and we remain hopeful that we can restructure the company consensually with our labor groups, rather than in the courts."
A bankruptcy filing by American would almost certainly be the largest in aviation history, and it would follow closely on the heels of filings last year by No. 2 airline United, and by No. 6 US Airways.
Those airlines' schedules, frequent-flier programs and other operations were not immediately affected by their retreats into bankruptcy protection, and experts said travelers could expect the same if American filed.
But US Airways eventually cut back on flights and began using smaller jets on some routes, and United is now doing the same.
According to the bankers, American is looking to put together more than $1.5 billion in debtor-in-possession financing, which would allow it to maintain its operations. The potential lenders, the bankers said, are Citibank, a unit of Citigroup; J.P. Morgan Chase; and the CIT Group, a unit of Tyco International. Citibank, which issues a credit card tied to American's frequent-flier program, would be the lead lender.
One banker said that the package could be assembled over the weekend. The other said that even if American did not reach an agreement with the lenders by next week, the airline could still file for bankruptcy protection and complete the financing shortly afterward. If its financial situation looked bleak enough, American would want to file for bankruptcy protection as soon as possible to preserve its cash.
"People are being asked by AMR to work as quickly as possible," this banker said. "People are still in analysis mode. People weren't working on a timeline for next week. They were working for a little bit beyond that."
Passenger traffic has dropped precipitously for all the airlines since the United States invaded Iraq last week. American has announced plans to cut 6 percent of the seats on its international routes; even before the war began, it had planned to cut its domestic capacity by 7 percent in April.
Last week, Hawaiian Airlines, the nation's No. 12 carrier, sought court protection, even after it had negotiated $15 million in annual contract concessions from its unions.
Yesterday, American said that it had reached a tentative agreement for concessions from its 16,300 fleet service workers. The workers are one of eight groups represented by the Transport Workers Union, one of the three big unions at American.
Both the airline and the union declined to give details of the tentative agreement.
Shares of AMR closed at $1.79 yesterday, down 18 percent. The stock traded at over $26 a year ago.