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American Air Had `No Choice' About Grounding
Jets a Second Time

By Mary Schlangenstein

April 10 (Bloomberg) -- AMR
Corp.'s American Airlines, the biggest operator of Boeing
Co. MD-80 jets, said it had ``no choice'' in grounding almost
half its fleet after the planes again failed to meet a U.S. safety
order.

That decision forced the cancellation of about 1,550 flights over
two days, stranded 171,000 passengers and helped send AMR's stock to
the biggest drop in a month. American, the world's largest
carrier, will scrub 900 more today as it continues another round
of inspections.

American acted in response to spot checks by the Federal Aviation
Administration that found the carrier hadn't secured some wiring in
accordance with an FAA directive. Compensating stranded passengers
and working on the jets will create ``very significant'' costs,
American said, without elaborating.

``A very high percentage'' of American's 300-plane MD-80 fleet wasn't in compliance as the jets were
rechecked, Executive Vice President Dan
Garton said yesterday. ``We viewed ourselves as having no choice
but to ground the aircraft.''

Falling short of FAA requirement for the earlier wiring
adjustments meant that American didn't have the option of parking
some jets on a rolling basis while flying others, Chief Executive
Officer Gerard
Arpey said. Fort Worth, Texas-based American checked all the
MD-80s in March in response to the FAA order, spurring groundings
and scrapping hundreds of flights.

The planes, flown mostly on domestic routes, account for almost
half of American's total, and idling them erased half of the
carrier's 2,200 flights yesterday. The cancellations may persist until tomorrow.

As travelers clogged airport terminals, especially at hubs such
as Dallas-Fort Worth, American booked them to other flights, ran
buses to destinations within driving distance or tried to find seats
on rival carriers. By late yesterday, 60 MD- 80s had been returned
to service, American said.

Cost to American

American's bill probably will run into ``tens of millions of
dollars,'' said Alan
Bender, a professor of airline economics and operations at Embry
Riddle Aeronautical University in Daytona Beach, Florida.

The cancellations were the industry's worst in at least 30 years
outside of severe weather and fallout from the Sept. 11 attacks,
Bender said yesterday in an interview. ``There's been nothing of
this magnitude since the early jet era of the 1960s and 70s,'' when
engines were less reliable.

AMR tumbled $1.15, or 11 percent, to $9.17 yesterday in New York
Stock Exchange composite trading.
It was the biggest drop since March 12, and brought the shares'
decline over the past year to 72 percent.

Jet-Fuel Expense

Like other U.S. carriers, American already was struggling with an
85 percent surge in the price of jet
fuel over 12 months and signs that demand is weakening as the
U.S. economy slows. AMR will post a full-year loss
of $3.14 a share, based on the average of 14 analyst estimates
compiled by Bloomberg.

Jim
Corridore, a Standard & Poor's analyst in New York, switched
his 2008 estimate for AMR to a loss of 95 cents a share from a
profit of $1.50 because of costs from the repeated inspections and
rising fuel expense. He rates
AMR as ``hold.''

``This couldn't have come at a worse time,'' Garton said at a
news conference at American's headquarters. ``If there is any good
news, it's that this is a relatively concentrated event, a one-time
event, unlike the price of jet fuel.''

The failure to meet FAA specifications regarding the wheel- well
wiring wasn't a safety issue, Garton and Arpey said. The CEO spoke
at a Oneworld airline alliance press conference in Marina del Rey,
California.

FAA Directive

Garton said American concluded that it had met the FAA's safety
directive when it grounded the MD-80s on March 26 and 27 for fixes
to the wiring bundles. Those planes weren't reinspected by the FAA
before they returned to service.

In the FAA spot checks that began on April 7, inspectors found
that the attachment of the wiring bundles didn't match agency
specifications such as the orientation of certain clamps and ties,
Garton said.

Mechanics ``had taken certain latitudes'' in the work, Garton
said, not realizing the ``greater emphasis on strict compliance'' at
the FAA since U.S.
lawmakers began raising questions last month about its oversight of
airline maintenance.

``It's a question of how we did the work, not whether we did
it,'' Garton said. ``We now understand the rules have gone to a very
strict level of enforcement. We will meet that and get the planes in
the air.''

To contact the reporter on this story: Mary
Schlangenstein in Dallas at [email-masked]

Last Updated: April 10, 2008 00:00 EDT

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