=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/news/archive/2003/10/21/f= inancial1444EDT0172.DTL ---------------------------------------------------------------------- Tuesday, October 21, 2003 (AP) American Airlines revived by cost cuts, travel pickup DAVID KOENIG, AP Business Writer (10-21) 14:04 PDT FORT WORTH, Texas (AP) -- Six months after a battle over employee pay cuts nearly plunged American Airlines into bankruptcy, relations with labor groups are more peaceful and the world's largest carrier might report its first quarterly profit in nearly three years. AMR Corp., the airline's parent company, is in the middle of a makeover that has left it a much smaller, and more efficient, airline than the one that lost two airplanes in the terrorist attacks of Sept. 11, 2001. American, which lost $6.4 billion in the past 21/2 years, has reported steady progress in filling its planes and working to reduce annual costs by $4 billion. The airline has rehired a few hundred of the thousands of workers it laid-off workers. "We feel good about the progress we've made," said Gerard Arpey, who became chief executive in April after his predecessor, Don Carty, lost credibility with workers. "But like every airline out there, we still have a lot of challenges." Analysts expect a small loss -- or maybe a small profit -- when AMR reports third-quarter earnings Wednesday. AMR shares have rebounded from a low of $1.25 to close at $14.90 on Tuesday -- not far from their 52-week high of $15.46. "They are moving in the right direction. Things were better than expected over the summer," said Ray Neidl, an analyst with Blaylock & Partners. The next six months, however, will be tougher as American moves into the slower fall season, Neidl said. The key, he said, would be how quickly American can get more money out of every passenger -- for example, by selling more high-priced tickets to business travelers. Cost-cutting measures, which have included thousands of layoffs this yea= r, are almost certain to continue. American is expected to announce cuts in its maintenance operations -- including the possible closing of one facility -- this week. Analysts see other problems, including underfunded pension plans. "They still have a very heavy debt load and substantial upcoming pension obligations. The balance sheet is their relative weak point," said Philip Baggaley, an analyst for Standard & Poor's. Baggaley said American must depend on factors outside its control -- the economy, avoiding more terrorism -- while rethinking its strategy and responding to competition from low-cost carriers. "They have to play a bad hand as best they can," he said. The deck was stacked against Arpey in April, when he replaced Donald J. Carty, who resigned after his failure to disclose bonus and pension perks for senior executives led to an employee uproar. After salvaging $1.8 billion in annual labor concessions -- a deal that Carty won then nearly lost amid the perks flap -- Arpey and other leaders held a series of late-night meetings that resulted in a four-point turnaround plan built on basics such as lowering costs and giving customers what they want. Analysts and union officials credit Arpey for helping the airline retreat from the edge of disaster in April, when company attorneys were minutes from filing bankruptcy papers in New York. Carty moved to cut flights through the St. Louis hub and replace seats that had been removed from some planes in a failed bid to lure coach customers with more legroom. Some analysts, however, fault him for moving too slowly to shake up the stodgy carrier. Arpey's cautious approach has been evident in the decision to only partially undo Carty's "more legroom in coach" program and his months-long agonizing over the fate of maintenance facilities. Arpey acknowledged that pressure from the three communities -- Kansas City, Mo., Tulsa, Okla., and Fort Worth -- had delayed his decision. American still ranks below many of the major carriers in on-time arrival= s, mishandled baggage and consumer complaints, according to figures from the U.S. Department of Transportation. Labor-management relations have often been strained at American, and Arp= ey moved to sound conciliatory toward unions after asking their members to bear the brunt of cost-saving measures -- in both lost jobs and cuts in pay. Mike Boyd, a consultant who has worked for American's pilot and ground worker unions, said workers who were angry at Carty support Arpey's goal to turn the carrier around. Signs of union discontent still linger, however. Labor leaders were outraged that the company dispatched planes around the country to fly managers to a conference at a luxury hotel near Dallas this month. "It was a huge waste of money. You could charter a bus for a fraction of the cost of sending airplanes to Tulsa," said John Ward, president of the flight attendants' union. He boycotted the meeting, although other officials from his union attended. Ward said company officials have not been forthcoming in detailing expenditures on the conference or other items, including the hiring of an outside firm that advises companies on labor-relations problems. "That doesn't do much to convince us that things on the employee-relatio= ns front are going to be any different," Ward said. But Ward gave Arpey high marks for moving swiftly to reduce the St. Louis hub and put more seats back in some planes. American gave new hope to idled workers when it agreed this month to bri= ng back 390 flight attendants because of an expected pickup in travel. However, about 5,800 members of the union are still out of work. "This job won't be fun until we start giving people their jobs back instead of taking them away," Arpey said. =20 ---------------------------------------------------------------------- Copyright 2003 AP