US aviation has lost $32 billion (£18 billion) in four years, and is on course to lose another $5 billion-plus this year. Of the 12 airlines that have credit ratings, 11 are deemed junk. United Airlines, one of the industry’s pillars, is in Chapter 11, a form of bankruptcy that provides protection from creditors while a company is restructured. Airline analysts say two other big names, Delta and Continental, may go the same way.

Even American Airlines, the world’s biggest carrier and long the US industry’s financial powerhouse, has flirted with disaster. When chief executive Gerard Arpey took over in 2003, the company was just weeks away from the unthinkable. Last week he revealed to The Sunday Times that the airline’s board had given him authority to file for Chapter 11 if he could not secure the right pay deal with flight attendants.

It was a crucial test for Arpey, 46, a relative unknown who was following two giants of the North American airline world. Don Carty, his immediate predecessor, fell on his sword when unions rebelled over bonuses paid to managers. Carty had replaced the inimitable Bob Crandall, the abrasive, chain-smoking executive who created the archetype of the hard-driving US airline boss.

Arpey made a pact with the flight attendants, staving off the immediate threat of bankruptcy. That was only the start of the fight, a fight whose outcome is not yet certain. American is still loss-making — it posted a deficit of $162m in the first quarter of this year, albeit with a fuel bill $350m higher than the same quarter a year earlier — and it remains heavily indebted, with net debt roughly equal to its $2 billion market value.

“It’s difficult to be the chief executive of any US airline at the moment,” Arpey said. “In the first quarter only two airlines made any money, Southwest and JetBlue [two low-cost airlines], and Southwest would have lost money if not for its fuel-hedging position, and JetBlue’s margin was tiny.”

Fuel costs are a huge burden. “Last year our fuel bill was $1.1 billion greater than 2003 — and this year we are headed for another one billion-plus on top.”

When Arpey took charge, the issue was not fuel, but the shattering blow dealt by the September 11 attacks. In the years prior to the atrocities, the dotcom boom and a runaway domestic economy had given US airlines their best-ever trading period. The share price of AMR Corporation, American’s quoted holding company, went north of $40 — it now trades at about $13.

Flushed with this success, American under Carty decided to try to move upmarket and make a clean break with its rivals. It took seats out of economy to give more legroom, and built chic new terminals. It ran up big debts just as a downturn started, and then ran smack into September 11.

“Don [Carty] was just very ambitious and unfortunately the world changed. We were very much poised on the edge of bankruptcy for my first many months in the job. It was an extraordinary period of time, and not one I hope to relive,” Arpey said.

Late-night meetings led to a four-point plan aimed at showing Wall Street that American was going to survive. Point one was lower costs, point two was trimming services to give customers only what they valued, point three was tackling labour relations and point four was rebuilding American’s shaky balance sheet by reducing debt.

But some think Arpey’s efforts will prove futile, and that American and other big names such as Continental and Delta are doomed to be overtaken by low-cost rivals.

Arpey is having none of it. “I don’t think so — even in this environment, we have a substantial revenue premium over the low-costs — well north of 20%. Everybody a few years ago said that number was going to zero — it isn’t.”

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