NEW YORK, United States – American Airlines’ CEO is proud that his company, unlike its biggest rivals, avoided the bankruptcy process to remake itself. Investors aren’t so sure.

As the economic outlook darkens, the airline industry is bracing for trouble. Among the biggest US carriers, American has the most to fear. It faces the highest labor, aircraft and borrowing costs.

“They’ve become old and feeble,” says Vaughn Cordle, chief analyst with AirlineForecasts.

American’s problems are the kinds that can be fixed under the protection of a bankruptcy court. And some analysts point to the airline’s beaten-down stock price — it’s fallen 69 per cent this year — as evidence that bankruptcy is not out of the realm of possibility.

On Monday, as speculation about a bankruptcy filing swirled, the stock fell 33 per cent. Shares bounced back Tuesday, rising nearly 21 per cent.

Executives at parent company AMR Corp insist a bankruptcy filing is not in the cards. The Fort Worth, Texas-based company has US$4.2 billion in cash and other short-term investments — enough of a cushion to sustain at least another year’s worth of losses while it comes up with a plan for growth, analysts say.

While most US airlines were profitable in the first half of the year, American had a net loss of US$715 million on revenue of US$11.6 billion. The company is forecast to show a loss of US$132 million when it reports third-quarter results in two weeks.

American was once an innovative airline. It invented frequent-flier miles and it launched the first computerized ticketing system. Now, that edge is gone.

Ray Neidl, an airline specialist with the Maxim Group, said in a recent note the airline’s management is experienced “but they appear to be riding on the storied airline’s past.”

American’s biggest problem is the high cost of labor.

It spends US$3,008 on salary and benefits for every hour each of its 650 planes is in the air, according to Cordle. United spends US$2,801, Delta US$2,587 and US Airways US$1,991.

Put another way, if American had the same labor costs as US Airways — which restructured in bankruptcy court in 2002 and 2004 — it would save US$2.2 billion a year, Cordle said.

American had hoped that gap would shrink as employees at the other airlines negotiated higher wages in new contracts. But that has yet to happen.

The airline has other disadvantages:

— More than US$12.1 billion in outstanding debt, about the same amount as airlines twice its size.

— An unfunded pension liability of US$7.9 billion. For the most part, other airlines don’t have traditional pension plans.

— High borrowing costs. It agreed to pay 8.75 per cent interest on US$726 million it borrowed last week.

— The oldest and least fuel-efficient fleet in America.

American was in such a tough financial situation in the past decade that it couldn’t invest in new jets. The airline is aggressively replacing its gas-guzzling jets with newer, more-efficient planes. But it’s a slow process.

American refused to comment for this story but management does have some plans to right the airline.

It recently gained government approval for joint ventures with British Airways, Japan Airlines and Qantas, allowing the airlines to work together to set prices and schedules on routes. The move gives American some of the benefits it would have seen through a merger.

American is also in the process of trying to separate its unprofitable regional airline, American Eagle, into an independent airline.

In the years after the September 11, 2001 terrorist attacks, Delta Air Lines, United Airlines and US Airways all restructured in bankruptcy court. In contrast, American was able to secure concessions from its unions and avoid that fate.

“I have a different definition of success than bankrupting your company,” American CEO Gerard J Arpey said in April.

Still, the competition emerged from bankruptcy stronger, while American struggled and looked everywhere it could to cut costs.

“We discussed how often the trash was picked up,” Thomas R Del Valle, senior vice president of airport services for American, said in a recent interview.

With the merger of Delta and Northwest in 2008, American had fallen from its perch as the world’s biggest airline. Two years later, it fell further in the pecking order with the merger of United and Continental.

Even if American can bring its labor costs in line with the other major airlines, it — and the rest of the industry — still need to compete with younger airlines like JetBlue, Frontier and Virgin America.

If American paid the same wages and benefits that Virgin America does, it would save US$4.6 billion a year.