AMERICAN AIRLINES CHIEF RIPS BANKRUPTCY CLAIMS

AMERICAN AIRLINES CHIEF RIPS BANKRUPTCY CLAIMS

To some executives, bankruptcy is a salvation, a shield against hard times. But to Robert L. Crandall, American Airlines chairman, bankruptcies can be a way for competitors to play dirty pool.

The fiery, blunt Mr. Crandall has grown increasingly irritated with competitors who he says use protections of the bankruptcy code to slash fares and undercut the industry's few remaining healthy carriers.His anger surfaced during a meeting with the media in Dallas this week, when he said carriers who file for bankruptcy protection should have their operating permits revoked.

According to Mr. Crandall, a carrier in bankruptcy has violated the economic fitness standards required by the Department of Transportation before it grants a certificate. Because a bankrupt carrier no longer meets this basic criterion, its license should be rescinded, he said.

"Why should (the Transportation Department) allow a bankrupt carrier to operate? Why should a company be permitted to deny its obligations?" Mr. Crandall asked.

Under bankruptcy law, a company's assets are protected from creditors until it works out a reorganization plan. In the case of bankrupt airlines, Mr. Crandall says the system allows them to avoid major expenses, such as the funding of employee pension plans. Bereft of these expenses, these carriers price space below cost, he charged.

American estimated in December that 20 percent of all airline seats in the United States were flown by bankrupt carriers.

Trans World Airlines, America West Airlines and Continental Airlines are operating under bankruptcy protection. Three formerly bankrupt carriers, Midway Airlines, Eastern Airlines and Pan American World Airways, went out of business last year.

Mr. Crandall did not single out any one carrier for engaging in such practices, but in looking at Continental, he said, "things would be better" if it shut down. He also criticized TWA Chairman Carl C. Icahn's handling of his airline. "I think Carl's a loser on this one," he said.

Sam Woodward, an analyst for SH&E, a New York aviation consulting firm, said some of Mr. Crandall's comments have merit. But he said American's aggressive pricing strategies over the years are partly to blame for the woes facing some of its competitors.

"If TWA is experiencing losses, it's because American has forced them into this position," Mr. Woodward said.

The analyst said large, healthy carriers like American and United Airlines set fare trends, while TWA and Continental simply follow along.

The measure of a healthy airline has been revised dramatically downward in the past two years. Of all major U.S. airlines, only Southwest Airlines reported a net profit last year. American posted a 1991 net loss of $240 million, while its operating income plunged 96 percent.

Some of the losses were attributed to the skyrocketing price of jet fuel in the first quarter. But Mr. Crandall said fuel prices are "utterly irrelevant" to an airline's ability to make money. "Fuel costs go up. Fuel costs go down," he said.

The executive scoffed at the thought of filing for bankruptcy protection, saying American has "all the cash we need."

Mr. Crandall said the U.S. economy would grow by only 1 percent to 2 percent annually for the next five years, a figure that does not bode well for the industry. He voiced concerns that potential investors, discouraged by the airlines' historically weak rates of return, may be reluctant to contribute the capital that the industry will desperately need.

The airline business, he said, "is going broke."

Mr. Crandall said that while American favors random alcohol testing for transport workers, he warned that unless Department of Transportation crafts reasonable rules, the program could be ineffective and incredibly costly.

"If we spend $100 million on alcohol testing and it's ineffective, then the consumer pays," he said.

Mr. Crandall called for global airline deregulation, but he said a growing number of governments are opting to protect their airline markets rather than opening them up to foreign competition. "I see it going the other way," he said when asked if the trend favored worldwide deregulation.

He ripped the United Kingdom for advocating "incredibly protectionist" aviation policies and chastised the DOT for failing to convince its counterparts to pry open their markets.

Asked if he was happy with DOT's performance in negotiating bilateral aviation accords, Mr. Crandall replied, "No."