American Airlines shares fall sharply

David Koenig

Wednesday, March 12, 2003 | 11:02 a.m.

DALLAS -- AMR Corp., the parent of American Airlines, will be removed from the Standard & Poor's 500 index this week as the company's stock price and market value continue their long slide. Investors sent shares in the company down another 14 percent this morning.

S&P said it would drop the airline from its index after trading ends Thursday and replace it with Apartment Investment Management Co., a Denver-based real estate firm. The move forces mutual funds modeled on the index to shed the stock, and AMR shares fell 23 cents to $1.36 each in trading on the New York Stock Exchange.

AMR blamed its fall from the S&P 500 index on broader problems in the airline industry. The company's stock has lost more than 90 percent of its value in the past year due to massive losses and sluggish demand for air travel.

Investors, spooked by reports that the world's largest carrier was negotiating financing to operate under bankruptcy protection, had driven shares of the world's largest carrier down more than 43 percent Tuesday to a new 52-week low.

The New York Times reported that American is seeking commitments for up to $2 billion in financing if it files for bankruptcy. The newspaper said the financing would be led by Citigroup, which issues a credit card linked to a mileage-reward program with Fort Worth, Texas-based American. A banker briefed on the plans said the talks are informal and that American is optimistic it can restructure its debts outside of bankruptcy court.

American spokesman Bruce Hicks declined to comment on the reports.

"These are clearly rumors," Hicks said. "We're not going to be commenting on all the rumors flying around."

The second-largest U.S. airline, United, and US Airways are already in bankruptcy proceedings. Industry officials worry that war with Iraq would further rattle travelers and drive more carriers into bankruptcy.

American and other airlines are lobbying members of Congress for relief from federal taxes and security costs.

The stock was under renewed pressure Monday after the president of the union representing flight attendants warned that the carrier might file for bankruptcy "sooner rather than later."

The Association of Professional Flight Attendants and other unions are talking with American about $1.8 billion in annual labor-cost concessions. Flight attendants passed a formal resolution Tuesday authorizing negotiations for concessions.

American first raised the possibility of seeking bankruptcy protection last month, when it asked employees for the $1.8 billion in concessions, a major piece of the company's restructuring plan.

American Chief Executive Donald J. Carty said the company needs to cut $4 billion in annual costs to compete with low-cost carriers such as Southwest Airlines and JetBlue. AMR lost $3.5 billion last year, as the weak economy and fear of terrorism cut into travel and discount carriers made it nearly impossible to raise prices.

In its latest move to avoid bankruptcy, American presented ground workers on Tuesday with a six-year proposal of concessions that includes a 16 percent cut in salaries, deep reductions in benefits and tightened work rules.

American executives also promised that union-represented employees would share in any future profits, should concessions turn the airline around, the Fort Worth Star-Telegram reported Wednesday.

Leaders of the Transport Workers Union, which represents mechanics, baggage handlers and other ground workers, said they would carefully review the proposal, which would save American $625 million annually.

In a statement, the union said it "is clearly in our members' interest to avoid a bankruptcy, and we will do our best to accomplish this."