American Airlines risks having to tap its $5 billion bankruptcycash fund and probably will lose some passengers after on-timearrivals tumbled, cancellations surged and incorrectly installedseat clamps were found on six planes.

The operational obstacles add to questions about whetherAmerican, the third-biggest U.S. airline, can successfully emergefrom bankruptcy protection on its own or should merge with would-besuitor US Airways Group Inc., said James Corridore, a Standard& Poor's equity analyst in New York.

“Certainly things are not going well in the reorganizationprocess right now,” Corridore said in an interview. “These aremajor hiccups.”

The glitches flag considerations that are among the mostimportant to passengers when choosing an airline — arriving on timesafely and convenience of the flight schedule. Concerns that seatsare coming loose may lead more passengers to move to a competitor,said Jeff Kauffman, a Sterne, Agee & Leach analyst in NewYork.

“The seat issue elevates it to a whole new level,” Kauffmansaid. “Before you're dealing with inconvenience; now you're dealingwith safety. What else is going to happen?”

The airline and the U.S. Federal Aviation Administration areinvestigating why the seat clamps failed. The airline pulled 48 ofits 102 Boeing Co. 757s out of service on Oct. 1 and 2 forinspections after rows of seats came loose during three flightsfrom Sept. 26 through Oct. 1. All the planes were returned toservice by late Oct. 3.

Six 757s were found to have improperly installed clamps thatcould have allowed more seats to pull away from tracks securingthem to the cabin floor. One had a mix of two different types ofseats, American said. The airline declined to discuss additionaldetails of the inspections.

Some of the seats recently had been removed and reinstalled tocreate a higher-price product in the coach cabin, and work was doneboth by American employees and a contractor, the airline said.Timco Aviation Services, based in Greensboro, North Carolina, did“much” of the work, the Transport Workers Union said. Timcodeclined to comment.

American, a unit of AMR Corp., inspects the seats monthly eventhough Boeing only recommends they be checked every 18 months, saidDavid Campbell, vice president for safety, security andenvironmental.

“We are a solidly safe airline,” Campbell said in an interview.“I have a lot of confidence we are operating a safe airline.”

Passenger Loyalty

American returned the 757s to service on Oct. 3, then saidyesterday it might delay or cancel some flights while mechanicsperformed additional inspections on the four dozen jets when theylanded at their next destinations.

The airline, which asked mechanics to focus on the lockmechanism that secures seats to the floor, said the work would becompleted by Oct. 6.

Jay Sorensen, president of consultant IdeaWorks and a formerairline marketing director, said most passengers will stick withAmerican if the carrier provides the most attractive schedule or alower fare.

“Similar incidents like this have happened with airlines allover the world for some reason or other,” said Sorensen, who'sbased in Shorewood, Wisconsin. “Maybe not something as visible as aloose seat, but often things like a broken engine part. If I had tochoose between them, I'd choose a loose seat over a broken enginepart every day of the week.”

The September delays and seat woes built on labor unrest afterFort Worth, Texas-based American imposed concessions on pilots tohelp it restructure in bankruptcy and detailed plans to cut morethan 4,000 jobs among mechanics and airport ground workers.

About 59 percent of American's flights arrived on time inSeptember, according to preliminary numbers on 51,511 arrivalstracked by industry researcher FlightStats.com. That fell from 74percent in August. American canceled 2.7 percent of its Septemberflights, up from 1.8 percent the prior month, FlightStats datashowed.

American expects the impact from the operational issues onSeptember unit revenue to be small, Michael Trevino, a companyspokesman, said in an interview. The airline is expected to reportSeptember traffic results, including revenue for each seat flown amile, on Oct. 8.

United Continental Holdings Inc., the world's largest carrier,had an 81 percent on-time rate in September, while No. 2 Delta AirLines Inc. was at 89 percent, FlightStats showed.

Public Reaction

“It costs money when the system is not on time,” Kauffman said.“Whether it's reshuffling aircraft to different locations orgetting new crews or paying for passenger inconvenience, there area lot of small costs. The biggest one is when the flying publicsays, 'Enough is enough.'”

American trimmed as much as 2 percent of its capacity frommid-September through October after late flights began to rise lastmonth. The airline threatened to take legal action against theAllied Pilots Association if it didn't move to stop the slowdown,which the carrier blamed on a jump in maintenance issues raised bypilots just before flights.

The union denied organizing or supporting any slowdown effortand said pilots were citing legitimate concerns. The airline'son-time performance improved to 66 percent on Oct. 3 after theAllied Pilots Association agreed to resume talks on a newcontract.

“I'm sure there are people booking away” to other airlines, saidDavid Swierenga, a former chief economist at the Air TransportAssociation trade group who now runs consultant AeroEcon in RoundRock, Texas. “In an industry where profit margins are very thin,one less passenger on an aircraft can mean the difference betweenprofit and loss for that flight.”

Kauffman, the Sterne Agee analyst, said he booked US Airwaysover American for an upcoming business trip to avoid delays. It maytake American as long as 12 months to win back the trust of sometravelers, hindering its ability to accurately forecast passengertraffic as it prepares a reorganization plan, he said.

“This is a serious hurt for the company” that could “eatthrough” part of the $5 billion cash reserve held by American tofinance its restructuring, Swierenga said. “There are people whoare just going to write this company off and say, 'I've hadit.'”

American retains the exclusive right to propose a reorganizationplan until the end of this year. US Airways agreed Aug. 31 toexchange confidential financial and operations data with Americanto better evaluate a potential merger.

US Airways

While US Airways already has reached contract agreements withAmerican's unions conditioned on a merger, American has said itprefers to emerge from court protection on its own and thenconsider combinations.

If flight delays and other issues are brought under control,American's creditors committee probably will be willing to moveahead in evaluating the airline's plan before considering otheroptions against it, Kauffman said.

“But if, in the course of this, I have to ask, 'Is this beingmanaged properly and is there a better solution,' then that's avery different situation,” he said.

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