American Airlines staves off bankruptcy after union deal

American Airlines, the world's biggest carrier, stepped back from the brink of bankruptcy yesterday after its flight attendants agreed to accept a $1.8bn (£1.1bn) package of wage cuts.

The move followed the ousting of the airline's chief executive Don Carty in a dispute with unions over undisclosed executive perks.

American had been expected to file for Chapter 11 bankruptcy protection on Monday unless the flight attendants fell into line with its two other main unions and accepted the cost-cutting plan.

After talks with American's new chief executive, Gerard Arpey, the flight attendants said they had decided to agree to the wage concessions needed to keep the airline aloft.

The airline's two other big unions representing pilots and machinists have already agreed to the wage cuts after the company said it would improve the terms of a profit-sharing deal but the flight attendants were holding out against the changes.

Had American filed for Chapter 11 bankruptcy protection, it would have been the biggest bankruptcy in airline history, eclipsing even that of United Airlines, which sought protection from its creditors last December. Bankruptcy financing of up to $1.75bn was being lined up for American by a group of banks including Citigroup, JP Morgan Chase and Merrill Lynch.

Mr Carty was forced to fall on his sword after it emerged that he had failed to tell the workforce about special pension and bonus arrangements for directors at the same time as staff were being asked to accept deep wage cuts. The omission provoked a storm of protest from staff and led to criticisms of Mr Carty's handling of negotiations from shareholders, fellow directors and government officials alike.

Mr Arpey, his replacement, is American's current president and chief operating officer. Aged 44, he has spent his entire corporate career with American since joining as a financial analyst in 1982. Edward Brennan, the former chairman and chief executive of Sears Roebuck, was named executive chairman.