How one airline flew back into the black

Two American Airlines mechanics didn't like having to toss out $200 drill bits once they got dull. So they rigged up some old machine parts - a vacuum-cleaner belt and a motor from a science project - and built "Thumping Ralph." It's essentially a drill-bit sharpener that allows them to get more use out of each bit. The savings, according to the company: as much as $300,000 a year.

And it was a group of pilots who realized that they could taxi just as safely with one engine as with two. That was instituted as policy has helped cut American's fuel consumption even as prices have continued to rise to record levels.

From the maintenance floor to the cockpit, American Airlines is daily scouring operations to increase efficiency and find even the smallest cost savings. It's paid off: Last week, the company announced its first profit in almost five years.

While the other so-called legacy carriers are also slashing labor costs and increasing efficiency in an effort to compete with successful low-cost airlines, American has been the most aggressive in emulating the positive employee relations of low-cost rivals. Indeed, when American's management intensified its cost-saving efforts, it didn't turn to high-priced outside consultants. Rather, it asked its employees, since they do their jobs day in and out and know them probably better than anyone else.

"Communication lines were suddenly open," says Justin Fuller, an American engineer in Tulsa, Okla. "Before, people had ideas, but they didn't know where to take them. They also thought it wouldn't make any difference if they did. Now, the groundwork has been laid so people know where to take their ideas and how to get them implemented."

In an industry long noted for hostile labor-management relations, American's new approach is garnering high praise. But analysts caution that the change may not be enough to help turn the airline around completely. Fuel prices continue at record highs - double what they were a year ago - and, even though fares have nudged up only slightly, passengers are still demanding bargain-basement fares.

The combination continues to hobble most of the major US carriers. United, Delta, and Northwest are all struggling to either emerge from bankruptcy or avoid it. At Northwest, the clock has started ticking on a potential strike.

Of the major legacy carriers, only American and Continental showed a profit in the second quarter - usually the industry's strongest. Although the earnings are good news, analysts say that American still faces a long haul.

"There's some potential looking forward. Things are better," says airline analyst Helane Becker of the Benchmark Co. in New York. "But the worst isn't over yet. Fuel costs are still very high."

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