The airline announced "dreadful" first quarter results

Donald Carty stepped down from the airline's parent company, AMR, following anger over the revelation of a special $41m pension fund for the airline's management, together with bonuses worth twice their salary.

Unions representing the airline's staff were furious that just as they were being asked to agree to sweeping pay cuts and a range of other cutbacks, fresh perks for management were being kept secret from them.

On Wednesday, AMR announced a loss of more than a $1bn (�660m) dollars in the first quarter of this year amid the worst environment for airlines in years.

It's a perilous climate and our success is far from assured Don Carty Ex-AMR chairman

The aviation business was already in trouble thanks to over-capacity, before the 11 September attacks on the US froze flights for several days and made many people unwilling to fly.

Since then, the ongoing economic slowdown, the uncertainty preceding the US' attack on Iraq and the spread of the Sars virus have only made matters worse for the industry.

One to go

AMR's new chief executive Gerard Arpey could still be leading his company into bankruptcy within days.

News agencies reported that the company has already lined up bankruptcy financing of $1.75bn in preparation.

Much depends on whether the union representing flight attendants will endorse cuts to their pay packages.

Its negotiators have said they face additional cuts over and above those faced by other staff.

Pilots' and mechanics' representatives have already signed up, having threatened to re-ballot their staff in the immediate aftermath of the executive pay revelations.

As for AMR, the pension fund remains, but the bonuses for executives have been scrapped.

'Brutal' environment

Mr Carty painted a bleak picture of American's immediate prospects as the results were announced earlier this week.

"The fact remains that we are confronting a brutally difficult financial and business environment," he said.

American Airlines staff are fuming

"We are beset on all sides by a struggling economy, the continued uncertainties regarding hostilities in the Middle East, concerns regarding the Sars outbreak, fuel prices that are significantly higher than they were a year ago, and fare levels that are at 30-year lows.

"All told, it's a perilous climate and our success is far from assured."