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American Air Had `No Choice' About = Grounding=20 Jets a Second Time

By Mary Schlangenstein

April 10 (Bloomberg) -- AMR=20 Corp.'s American Airlines, the biggest operator of Boeing=20 Co. MD-80 jets, said it had ``no choice'' in grounding = almost=20 half its fleet after the planes again failed to meet a U.S. = safety=20 order.

That decision forced the cancellation of about 1,550 = flights over=20 two days, stranded 171,000 passengers and helped send AMR's = stock to=20 the biggest drop in a month. American, the world's largest=20 carrier, will scrub 900 more today as it continues = another round=20 of inspections.

American acted in response to spot checks by the Federal = Aviation=20 Administration that found the carrier hadn't secured some = wiring in=20 accordance with an FAA directive. Compensating stranded = passengers=20 and working on the jets will create ``very significant'' = costs,=20 American said, without elaborating.

``A very high percentage'' of American's 300-plane MD-80 = fleet wasn't in compliance as the jets = were=20 rechecked, Executive Vice President Dan=20 Garton said yesterday. ``We viewed ourselves as having = no choice=20 but to ground the aircraft.''

Falling short of FAA requirement for the earlier wiring=20 adjustments meant that American didn't have the option of = parking=20 some jets on a rolling basis while flying others, Chief = Executive=20 Officer Gerard=20 Arpey said. Fort Worth, Texas-based American checked all = the=20 MD-80s in March in response to the FAA order, spurring = groundings=20 and scrapping hundreds of flights.

The planes, flown mostly on domestic routes, account for = almost=20 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=20 as Dallas-Fort Worth, American booked them to other flights, = ran=20 buses to destinations within driving distance or tried to = find seats=20 on rival carriers. By late yesterday, 60 MD- 80s had been = returned=20 to service, American said.

Cost to American

American's bill probably will run into ``tens of millions = of=20 dollars,'' said Alan=20 Bender, a professor of airline economics and operations = at Embry=20 Riddle Aeronautical University in Daytona Beach, Florida. =

The cancellations were the industry's worst in at least = 30 years=20 outside of severe weather and fallout from the Sept. 11 = attacks,=20 Bender said yesterday in an interview. ``There's been = nothing of=20 this magnitude since the early jet era of the 1960s and = 70s,'' when=20 engines were less reliable.

AMR tumbled $1.15, or 11 percent, to $9.17 yesterday in = New York=20 Stock Exchange composite trading.=20 It was the biggest drop since March 12, and brought the = shares'=20 decline over the past year to 72 percent.

Jet-Fuel Expense

Like other U.S. carriers, American already was struggling = with an=20 85 percent surge in the price of jet = fuel over 12 months and signs that demand is weakening = as the=20 U.S. economy slows. AMR will post a full-year loss=20 of $3.14 a share, based on the average of 14 analyst = estimates=20 compiled by Bloomberg.

Jim=20 Corridore, a Standard & Poor's analyst in New York, = switched=20 his 2008 estimate for AMR to a loss of 95 cents a share from = a=20 profit of $1.50 because of costs from the repeated = inspections and=20 rising fuel expense. He rates = AMR as ``hold.''

``This couldn't have come at a worse time,'' Garton said = at a=20 news conference at American's headquarters. ``If there is = any good=20 news, it's that this is a relatively concentrated event, a = one-time=20 event, unlike the price of jet fuel.''

The failure to meet FAA specifications regarding the = wheel- well=20 wiring wasn't a safety issue, Garton and Arpey said. The CEO = spoke=20 at a Oneworld airline alliance press conference in Marina = del Rey,=20 California.

FAA Directive

Garton said American concluded that it had met the FAA's = safety=20 directive when it grounded the MD-80s on March 26 and 27 for = fixes=20 to the wiring bundles. Those planes weren't reinspected by = the FAA=20 before they returned to service.

In the FAA spot checks that began on April 7, inspectors = found=20 that the attachment of the wiring bundles didn't match = agency=20 specifications such as the orientation of certain clamps and = ties,=20 Garton said.

Mechanics ``had taken certain latitudes'' in the work, = Garton=20 said, not realizing the ``greater emphasis on strict = compliance'' at=20 the FAA since = U.S.=20 lawmakers began raising questions last month about its = oversight of=20 airline maintenance.

``It's a question of how we did the work, not whether we = did=20 it,'' Garton said. ``We now understand the rules have gone = to a very=20 strict level of enforcement. We will meet that and get the = planes in=20 the air.''

To contact the reporter on this story: Mary=20 Schlangenstein in Dallas at maryc.s@bloomberg.net=20

Last Updated: April 10, 2008 00:00 EDT=20

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