Sky Talk

American continues its pr campaign for JAL

Around 11:45 p.m. last night, American put out a press release extolling the virtues of an "open skies" agreement between the U.S. and Japan.

"Open Skies agreements end discriminatory aviation policies and are in the best interest of Japanese and American consumers and airlines alike," said Will Ris, American's Senior Vice President - Government Affairs. "Airlines with antiquated, anti-competitive policy viewpoints might believe that it's OK to leave well enough alone. At American Airlines, it is our experience that Open Skies agreements have proven to increase travel choices and enhance competition, which results in greater benefits to consumers."

Both governments are holding talks in Washington D.C. this week on an "open skies" agreement that would give carriers more freedom to open routes and schedule flights between Japan and the U.S

American's full release can be found here.

-Andrea Ahles

AMR completes $276 million private debt sale

Fort Worth-based AMR Corp. announced on Monday that it has completed a $276 million private debt sale.

The sale, which had been previously reported by newswire services, has senior secured notes due in 2016 and carry a 13 percent interest rate.

The company, which is the parent company of American Airlines, said that the offering refinances, in part, the outstanding $401 million of enhanced equipment trust certificates that are due in full on Oct. 15, 2009.

The press release continues saying "The Company deposited the net proceeds from the offering as cash collateral to secure the new notes. Following the October 15 maturity of the 1999 EETCs, the new notes will be secured by 12 of the 15 aircraft that currently secure the 1999 EETCs, and the cash collateral will be released to the Company."

The loan-to-value ratio of the notes is 65 percent, the company said.

-Andrea Ahles

American Airlines sells $276.4 million in debt offering

In an effort to continue building its cash reserves, American Airline sold $276.4 million in a debt offering, according to a Bloomberg News article.

Bloomberg reports that the sale was 20 percent smaller than the $344.1 million the Fort Worth-based carrier had hoped to raise.

The article continues:

"The 13 percent pass-through certificates due in 2016 pay a higher interest rate than a $520.1 million sale American completed last month, according to data compiled by Bloomberg. That 10-year debt, the airline's first such deal since 2005, was priced at 10.375 percent and backed by newer jets."

American spokesman Andy Backover declined to comment beyond the company's previous filings.

To read the story, click here.

-Andrea Ahles

Arpey to employees: No surprise to you that we lost money

In a letter to AMR Corp. employees, chief executive Gerard Arpey stressed the airline's need to focus on customer service even as it loses millions of dollars.

Arpey also told workers that while American Airline's planes were "reasonably full," the airline wasn't able to charge fares that would enable it to make money.

The full letter is below.

-Andrea Ahles

Dear Colleague:

Given the global recession and the sharpest decline in air travel since the aftermath of 9/11, I’m sure it comes as no surprise to you that we lost money in the second quarter of 2009.  To be exact, in the three months ending June 30th, we lost $319 million, which compares to a $298 million loss during the same period in 2008, excluding special items.   As you know, a year ago we were moving aggressively to confront the problem of skyrocketing fuel costs.  At the time I said that the airline industry was not built for $130 a barrel oil.  That’s still true, but today I must add that neither is the industry built for today’s environment of negative global economic growth and erratic capital markets.

The global recession kept a lot of would-be travelers at home in the second quarter, as evidenced by our 23 percent passenger revenue decline.  While we have been able to keep our planes reasonably full, the competitive landscape prevented us from being able to charge fares sufficient for us to make money.  Compounding this, business travel has been hit especially hard by the weak economy.  In fact, AA’s second quarter yield, which represents average fares, fell by 15 percent compared to 2008.  Making matters worse was the significant decline in revenue we experienced as a result of the H1N1 flu outbreak.

If someone predicted oil prices would be cut in half from nearly $150 a barrel a year ago, yet the airline industry would be in worse shape, not many people would have believed it -- but that seems to be exactly what has happened.  And no carrier is immune -- whether low-cost, legacy or foreign, because we are all dependent on the health of the economies we serve.

In this extraordinary economic environment, it’s important that we continue to focus our efforts on the things we can control.  For all of us, that means continuing to execute when it comes to delivering the basics of airline service -- and we should all be encouraged by the fact that across a broad range of service categories we have been doing a good job in recent months. 

Compared to 2008, our completion factor, on-time performance, and baggage handling statistics are all improved -- and not surprisingly, so are our customer satisfaction scores.  With the slump in air travel demand making competition for every customer that much more intense, our focus on customer service has never been more important.  And we all need to do our part to sustain and build on our current momentum.

As challenging as things are today, our task would be far more daunting had we not met so many challenges head on during the last several years.  Moreover, I want to stress once again that our objective is not to simply endure the latest crisis.  It is to make sure our airline is positioned to compete and win over the long haul.  That’s what our fleet renewal program is all about, and one of the important highlights of the second quarter was the deployment of the first wave of new 737s we will receive in the next two years.  In addition to new planes, we are continuing to prudently invest to refurbish our aircraft interiors and airport facilities in a variety of ways.

Without diminishing the magnitude of what we -- along with every other airline -- are up against today, we believe we are taking the right steps.  We have a long list of competitive strengths, proven resilience, and despite formidable obstacles, we are executing well on a number of fronts.  We are running an airline our customers can depend on, delivering the products and services they value, and building a fleet and a network that will serve our customers, our people, and our company well for many years to come.

I want to conclude, as always, by thanking you for your hard work and commitment to American Airlines.
       

AMR officers haven't sold bonus stock

In past years, the top executives with AMR Corp. have sold off the stock they received under the annual performance bonus plan at pretty much the first opportunity. This year, they've held off from dumping those shares, at least for now.

Documents filed with the SEC this afternoon record shares that were disposed of for tax liability purposes, but indicate that CEO Gerard Arpey and the four other offices are holding onto the rest of the AMR stock they received this week.

They can still sell it off at any time, of course. But the decision to keep the stock rather than immediately convert it to cash suggests that they're hopeful the value will rise. And so far, they're right - AMR shares closed at $5.25, up from $5.01 when the shares were distributed on April 15. That's a 5 percent profit already.

- Trebor Banstetter

AMR paid $13.4 million to top execs in '08

The top five executives at AMR Corp., the parent company of American Airlines, received a compensation package valued at $13.4 million in 2008, a year when the airline lost more than $2 billion. That's about 19 percent lower than their 2007 compensation.

The details were disclosed in an SEC filing Friday afternoon. Keep reading for more info.

- Trebor Banstetter

Arpey's 'gut' on the economy

American Airlines CEO Gerard Arpey said during today's earnings conference call that he agrees with recent comments from Fed Chairman Ben Bernanke regarding the U.S. economy.

"I read with interest Bernanke’s comments from earlier this week, and what he said resonated with me, and it kind of confirms what I feel in my gut," Arpey said.

He then repeated Bernanke's statement: "I am fundamentally optimistic about our economy. Today’s economic conditions are difficult, but the foundations of our economy are strong, and we face no problems that cannot be overcome with insight, patience and persistence."

"That’s kind of consistent about what my gut tells me about the U.S. economy," Arpey said. "It mirrors my thinking about where our company sits today."

- Trebor Banstetter

AMR reports $375 million loss

AMR just reported a loss of $375 million for the first quarter, compared with $341 million a year ago. Per share, the loss was $1.35, significantly better than expected by most Wall Street analysts, who were predicting a loss of $1.68 per share.

Some highlights:

• Fuel costs declined by 30 percent during the quarter, compared to a year ago
• Unit revenues were down by 8.7 percent
• Yields, or average fares, dropped by 4.5 percent - the first decline since the fourth quarter of 2004
• AMR secured a $100 million loan during the quarter backed by aircraft
• Capital expenditures were cut by $100 million during the quarter
• New financing is in place for two of the new Boeing 737-800 jets AMR is purchasing
• Revenues from new baggage fees, sales of food on board and other sources outside of fares rose by nearly 7 percent to $558 million.
• American is still planning a 6.5 percent reduction in its passenger capacity this year
• AMR ended the quarter with $2.8 billion in unrestricted cash in its coffers
• The airline has at least $3.6 billion in assets it can tap for liquidity if needed, including airplanes, airport slots and its frequent flier program. And another $1 billion in assets should become available this year.

Keep reading for the full report from AMR.

- Trebor Banstetter

Unions focus on AMR bonuses

In a few weeks AMR Corp., American's parent company, will pay its annual stock-based bonuses to about 1,000 top managers and executives. The unions make a point of criticizing the payouts every year, and have held marches and demonstrations at AMR headquarters in the past.

This year may be a bit quieter. The pilots have said they aren't planning any public events, and the flight attendants are still mulling their plans. And the payouts themselves are likely to be just a fraction of past bonuses, because of the plunge in the price of AMR shares.

Still, labor leaders do hope to capitalize on public outrage over bonuses at bailed-out insurance giant AIG. We had a preview of the bonus issue in Sunday's Star-Telegram, which can be read online here.

- Trebor Banstetter

Analyst: AMR guidance better than expected

Analyst Kevin Crissey of UBS writes this morning that the revenue forecast from AMR Corp. was weak, but the 12 percent drop is a bit better than he anticipated.

"Clearly this is still a bad number, particularly when combined with a deterioration in cargo and other revenue, but it’s probably in line with lowered consensus expectations," he said. At the same time, he noted, AMR's fuel bill was slightly higher than his prediction.

Crissey said he'll be updating his forecast soon, adding that "there is a positive bias to our (first quarter earnings-per-share) estimate and perhaps to the full year."

- Trebor Banstetter