New York Times Article

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March 29, 2003
Strategy Split Is Reported in Top Ranks of AmericanBy EDWARD WONG

...The banker said executives at the airline, the world's largest, had basically fallen into two camps. Donald J. Carty, the chief executive of AMR, parent of American Airlines, and several colleagues want desperately to avoid bankruptcy and would rather work out labor and supplier concessions outside of court, he said.
But executives close to Mr. Carty were arguing that no matter what American does, no matter what labor concessions it wrings out now, there is no way to avoid seeking Chapter 11 protection from creditors because of the bleak industry outlook, he said.


On Thursday, two bankers said that American might file for bankruptcy protection as early as next week because of the steep decline in revenue. But with the executives still divided, the timing seems uncertain now, one banker said.
Another person briefed on the discussions said American was not having a problem raising financing, because it has enough assets to offer as collateral.
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NEWS ANALYSIS
Some Question Bankruptcy Role in Airlines' Cure
By EDWARD WONG with MICHELINE MAYNARD

...But industry analysts and economists are questioning whether the kinds of cuts that carriers make in Chapter 11 are deep enough to cure the industry's fundamental ills. After all, they note, the airlines went through a wave of bankruptcies in the early 1990's, only to end up in their worst shape ever today.

It is unclear, in the meantime, what American Airlines, the world's largest carrier, will do if it enters bankruptcy court, as bankers have said it might next week. There are no indications that American — or any major rival — is seriously rethinking how it does business.
Skeptics say that the problem with sticking to the old-school focus on cutting labor costs is that it has not worked in the long run. When the airlines eventually eke out a profit, unions demand significant wage and benefit increases, because executives bludgeoned them so hard during the downturns.
To break out of the cycle, the carriers need to take stronger medicine, experts say. Their prescription includes permanent and far-reaching changes in complicated fare structures that have driven away business travelers, in route networks and schedules that guarantee an oversupply of seats and in an archaic mind-set that counts on the government to bail the carriers out, like a prodigal son who keeps asking his parents for rent money.
"Bankruptcy can do a lot of things for you on the cost side and the capital structure side," said Samuel Buttrick, an analyst at UBS Warburg. "Bankruptcy can't build you a good airline network."

Mr. Buttrick pointed out that when US Airways emerges from bankruptcy, it will simply have gone from being an airline with the highest costs in the industry to an airline with high costs.


Many experts say that besides grounding some planes, the airlines need to simplify their fare structures. Most still charge astronomical fares for walk-up tickets — a holdover from the dot-com boom, when businesspeople would pay almost anything for a last-minute flight. Ticket-booking Web sites and the simplified fare structures of low-cost airlines — with about five fare types rather than dozens — have made travelers resentful of the opaque pricing of the major carriers.

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