american airlines

DealBook: American Airlines Parent Company Files for Bankruptcy

November 29, 2011 by NewsMaker Leave a Comment

Ángel Franco/The New York TimesThe American Airlines counter at La Guardia Airport in Queens, New York.

The AMR Corporation, the parent company of American Airlines, said on Tuesday that it had filed for bankruptcy protection in an effort to reduce labor costs and shed a heavy debt burden.

AMR was the last of the major legacy airlines company in the United States to file for Chapter 11. Analysts said that its reluctance to do so earlier had left it less nimble than many of its competitors.

The company says it intends to operate normally throughout the bankruptcy process, as previous airlines have done. AMR does not expect the restructuring to affect its flight schedule or frequent flier programs.

“Our board decided that it was necessary to take this step now to restore the company’s profitability, operating flexibility and financial strength,” Thomas W. Horton, who was named the company’s chairman and chief executive on Tuesday, said in a statement. Mr. Horton, formerly the company’s president, is succeeding Gerald Arpey, who is retiring.

One of AMR’s chief goals in bankruptcy will be to lower its labor costs.

The company had been in contract talks with its unions until the negotiations stalled earlier this month when the pilots’ union refused to send a proposal to its members for a vote. Because federal bankruptcy rules allow companies to reject contracts, AMR may take a harder negotiating stance with its unions.

“Achieving the competitive cost structure we need remains a key imperative in this process,” Mr. Horton said, “and as one part of that, we plan to initiate further negotiations with all of our unions to reduce our labor costs to competitive levels.”

Once the nation’s biggest airline, AMR began to lose ground in recent years as low-cost carriers like Southwest Airlines grew in prominence. Major airlines were forced to respond by cutting fares.

As competition intensified, AMR responded by borrowing more and more, eventually pledging nearly all of its assets and leaving it heavily indebted. It also sought to reduce expenses, managing to cut $4.1 billion by the end of 2004.

But its principal competitors, including Delta Air Lines and the UAL Corporation’s United Airlines, filed for bankruptcy, shedding billions of dollars in costs and renegotiating labor contracts.

Both also sought mergers to gain scale. Delta paired off with Northwest, and United teamed up with Continental, allowing those airlines to return to profitability.

“Since their restructurings in Chapter 11, AMR’s major network competitors all have lower costs than AMR,” Isabella D. Goren, the company’s chief financial officer, wrote in a court filing.

As part of an effort to cut long-term costs, American earlier this year announced a $38 billion order for 460 new single-aisle planes from Airbus and Boeing, part of a major overhaul of its aging fleet of more than 600 planes that — with an average vintage of 15 years — remains one of the oldest and least fuel-efficient among the six major U.S. carriers.

American expects eventually to shave between 15 percent and 35 percent from its fuel bill with the introduction of the new planes — Airbus A320s and Boeing 737s — which will replace older McDonnell Douglas MD-80s and Boeing 757s and 767s. In an e-mail, Andrea Huguely, an American spokeswoman, said “it is our intent” to take delivery of the new planes as currently scheduled.

In the meantime, the airline has remained unprofitable. AMR has posted annual losses three years in a row, including a $471 million loss last year. It has recorded a $982 million loss through the first nine months of this year.

Given the airline’s shaky financial picture, speculation about an AMR bankruptcy filing also started to increase this year, spooking investors. The company’s stock price has dropped 79 percent in 2011.

As of Sept. 30, AMR reported $24.7 billion in assets and $29.6 billion in debt, according to a filing with the federal bankruptcy court in Manhattan. The company added that it had about $4.1 billion in cash and short-term investments that could be used to pay vendors and suppliers.

The company’s largest unsecured creditors include the Wilmington Trust and the Manufacturers and Traders Trust Company, which represent several classes of bonds.

Nicola Clark contributed reporting.

AMR is being advised by the investment bank Rothschild and the law firms Weil, Gotshal Manges; Paul Hastings; Debevoise Plimpton; and the Groom Law Group.

Article source: http://feeds.nytimes.com/click.phdo?i=5838df46c379c60bac24bb0ac598cc05

American Airlines Bankruptcy Fears Drive Down Stock

October 4, 2011 by NewsMaker Leave a Comment

The sell-off reflected investors’ increasing nervousness that American Airlines, with high debt levels and high labor costs, might be too weak to weather another economic downturn. Its competitors, meanwhile, have consolidated and strengthened their share of the airline market.

The decline on Monday was the steepest drop for American’s parent, the AMR Corporation, in a decade, and it precipitated a general sell-off in airline stocks throughout the day. AMR shares closed at $1.98 after setting off repeated automatic trading halts meant to prevent widespread losses. Still, Delta Air Lines and United Continental Holdings both fell more than 11 percent, and US Airways lost nearly 16 percent.

Even before Monday’s drop, American’s shares were down 62 percent since the start of the year. The severity of the decline, which sent the stock price to its lowest level since 2003, forced the carrier to dismiss speculation that it might be considering a prepackaged bankruptcy.

“Regarding rumors and speculation about a court-supervised restructuring, that is certainly not our goal or our preference,” Andrew Backover, a company spokesman, said in a statement. “We need to improve our results, and we are keenly focused as we work to achieve that.”

Most network airlines have gone to bankruptcy court in the last decade, sometimes repeatedly, to restructure their obligations and rewrite contracts as fuel prices soared and the industry struggled against low-cost competitors. American, however, managed to avoid filing for bankruptcy after obtaining major concessions from its labor groups.

The strategy still left the airline with higher operating costs than the other legacy carriers, including pension obligations, higher labor costs and less flexible work rules for its pilots. American has struggled in recent years to make up that gap, posting losses for much of the decade even as other airlines managed to turn a profit last year.

But even as Wall Street has grown impatient with the company’s troubles, some analysts did not think it was under any immediate duress to restructure.

AMR’s total debt was $17.1 billion at the end of the second quarter, up from $16.1 billion in the same period last year. But the company was still able to raise money last month when it completed a $725.7 million 10-year bond offering.

The airline said last month that it would end the third quarter with $4.2 billion in cash. It is expected to post a loss of $110 million in the third quarter.

Some analysts said the sell-off had been set off by news that an exceptionally large number of American pilots had taken an early retirement offer last week and opted for a lump-sum payment on their pension.

Article source: http://feeds.nytimes.com/click.phdo?i=85c6c158a9ed00bbcc4fc3692c2e14c8

Filed Under: Business News Tagged With: airline stocks, american airlines, backover

AMR Says It May Initiate Spinoff of American Eagle

August 12, 2011 by NewsMaker Leave a Comment

The proposal would help AMR win competitive rates for regional flying and allow American Eagle to increase its business by competing for contracts with other airlines, AMR said in a regulatory filing.

“This industry is intensely competitive and it will not be easy to transform Eagle from a wholly owned subsidiary into an independent company overnight,” Dan Garton, the chief executive of American Eagle, said in a letter to employees. “I’m sure we will have growing pains along the way.”

The company did not say when it would initiate the spinoff, in which 100 percent of the outstanding shares of American Eagle would be distributed tax-free to shareholders.

A review of the plan by the Securities and Exchange Commission could take up to three months. AMR also said an outright sale of the regional airline was possible, but not likely.

The company said that though all aircraft would remain on Eagle’s operating certificates, it expected to transfer to all of its jet aircraft and the associated indebtedness to American.

The proposal also would give American Eagle an eight-year contract to provide some of American Airlines’ ground operations, including baggage handling.

AMR said in July that it planned to divest itself of Eagle, which provides about 90 percent of the regional flying for American Airlines. Eagle has more than 1,700 daily flights to destinations throughout the United States, Canada, the Bahamas, the Caribbean and Mexico.

Ray Neidl, senior aerospace sector analyst with Maxim Group, said the regional airline’s biggest asset would be its contract with American Airlines. He noted the challenges facing regional carriers as major airlines adjust their routes and attempt to trim the cost of their operations.

“Basically, the regional sector is changing dramatically,” Mr. Neidl said. “Those that cannot adapt their fleets and cost structure will eventually perish. American Eagle has a lot of work ahead of it. And it would have been very difficult, in my opinion, to find a buyer.”

Stock in AMR, which is based in Fort Worth, rose 18 cents, to $3.69 a share.

Article source: http://feeds.nytimes.com/click.phdo?i=7892949cef10fbf4daaef50329bac8b5

Filed Under: Business News Tagged With: american airlines, independent company, regional carriers

Stocks and Bonds: Bank and Energy Shares Reflect Wall Street’s Unease

June 7, 2011 by NewsMaker Leave a Comment

The Dow Jones industrial average fell 61.30 points, or 0.5 percent, to 12,089.96. The Standard Poor’s 500-stock index dropped 13.99 points, or 1.1 percent, to 1,286.17. It was the first closing below 1,300 for the S. P. index since March 23. The Nasdaq composite fell 30.22, or 1.1 percent, to 2,702.56.

All 10 industry groups in the S. P. index fell. Energy and financial companies each lost 2 percent.

The nation’s biggest banks declined 2 percent or more, after a speech by a Federal Reserve governor on Friday indicating that banks may be required to set aside more cash to cover potential losses. If the proposal were to take effect, banks would be left with less money to lend, which could hurt earnings. Citigroup and Bank of America each lost about 4 percent, and JPMorgan Chase shares dropped 2.5 percent.

Airline stocks fell after an industry group cut its profit estimates for this year by half. The group blamed disasters in Japan, unrest in the Middle East and higher fuel prices. Delta Air Lines and AMR, the parent company of American Airlines, each lost more than 3 percent.

Investors also remained focused on the grim unemployment report released last Friday, which sent stocks sharply lower that day.

“Wall Street came back, quickly and very strongly, at a time when the populace was still weak in terms of low job growth and low wage growth,” said Daniel Penrod, a senior industry analyst at California Credit Union League. “That appeared to be overly optimistic.”

The Labor Department reported that employers added only 54,000 new workers in May. The unemployment rate inched up to 9.1 percent from 9 percent.

Pending regulation and lawsuits also affected some individual companies. Lorillard, the tobacco company, fell 7 percent, the most of any company in the S. P. 500 index. Investors are concerned that the Food and Drug Administration could ban menthol cigarettes. The company makes the most popular menthol cigarette, Newport.

The oil field services company Halliburton fell 4.5 percent after the Supreme Court ruled that shareholders could pursue a class-action lawsuit that claimed the company had inflated its stock price.

Interest rates were steady. The Treasury’s benchmark 10-year note fell 3/32, to 101 3/32, and the yield was 3 percent, up from 2.99 percent late Friday.

Article source: http://feeds.nytimes.com/click.phdo?i=595baa2f38c0224e1f5a4708d505ac04

Filed Under: Economy News Tagged With: american airlines, jpmorgan chase, low job

Renovation of a Terminal, Keyed to San Francisco

April 11, 2011 by NewsMaker Leave a Comment

More Standard Hotel than standard airport gateway, T2, as it is known here, is one of the few terminals renovated top to bottom since the 9/11 terrorist attacks and represents an ambitious attempt by the airport and airlines to take both stress and carbon out of air travel. The $383 million renovation gutted a drab 1950s-era building that last served as the international terminal before being shuttered more than a decade ago. Even compared with more contemporary terminals at San Francisco International, T2 represents a new approach to airport design. It opens on Thursday.

“It’s about the intersection between passenger delight and bringing back the joy of flying with the high-performance building aspects,” said Melissa Mizell, a senior associate with Gensler, the San Francisco firm that designed the renovation. “That really guided a lot of our decisions, even with sustainability.”

The words delight, joy and flying do not usually appear in the same sentence. But airport officials, airlines and architects said that they put as much emphasis on redefining the travel experience as on lessening its environmental impact.

“We wanted this to feel like a San Francisco terminal and not a terminal anywhere else in the world,” Raymond Quesada, an airport project manager, said as he stood in the soaring, light- and art-filled ticket lobby shared by Virgin America and American Airlines, the terminal’s two tenants.

Those San Francisco values include a city mandate to achieve at least LEED Silver status for the renovation. LEED — Leadership in Energy and Environmental Design — is a rating system administrated by the United States Green Building Council that ranks structures according to points earned for energy efficiency, water conservation and other environmentally beneficial attributes.

Airport officials intend to apply for LEED Gold certification, and if it is awarded, T2 will be the first airport terminal in the United States to achieve such a ranking, according to Ashley Katz, a spokeswoman for the building council.

Drivers of hybrid and electric cars get preferential parking in the nearby garage, and there are vehicle-charging stations for the electric cars. Cool air seeps from perforated white wall panels in the terminal rather than being forced down from the ceiling. The system, called displacement ventilation, cuts energy use by 20 percent because the air does not need to be cooled as much since it displaces the rising warmer air, Mr. Quesada said.

Reclaimed water is pumped into the restrooms, reducing water consumption by 40 percent. The abundant natural light through walls of windows makes most daytime artificial lighting unnecessary.

Passengers are encouraged to carry reusable bottles and fill them at blue “hydration stations” in the terminal rather than buy throwaway bottled water.

“Originally, we were considering banning the sale of bottled water, but we got a lot of pushback from the concessionaires,” Mr. Quesada said. “But they are required to sell more environmentally friendly plastic bottles. But again, we’re hoping they won’t have to do that and people will bring their own bottles to the airport.”

Under their leases, food sellers must use utensils and packaging that can be composted, and compost bins are prominently displayed in the terminal. The airport scores more LEED points for making the green experience educational through signs and even a mobile phone tour.

But passengers will probably pay most attention to the terminal’s food, fashion and flow, all of which reflect the esthetic of Virgin America, which has its headquarters in San Francisco.

The neon mood lighting found on Virgin planes is mirrored in the lobbylike ticketing area, where pods of those high-backed, Danish-designed Egg chairs are clustered around sculptures and paintings by local artists.

The security checkpoint has six lanes to expedite screening and passengers exit into an airy “recompose area” that features colorful ottomans, installed with the Transportation Security Administration dispensation in place of the government’s usual utilitarian benches.

That area opens into a food hall modeled after the one in San Francisco’s Ferry Building and offers some of the same upscale Bay Area restaurants, including Cowgirl Creamery, Acme Bread, Napa Farms Market and Lark Creek Grill. Travelers hungering for a Burger King or Dunkin’ Donuts are out of luck.

“The whole idea is that you feel like you’re in San Francisco, with an emphasis on local, organic produce,” Mr. Quesada said.

Beyond the food hall are the gates, arrayed in two wings. “The concept was to make this area very much like a lounge,” he said. “You could be in the food area and still be within ear- and eyeshot of your check-in podium and thus minimize stress.”

Free Wi-Fi and the presence of some 350 power outlets — available on work tables and every few seats in the gate areas — may well also be a major stress reducer for travelers accustomed to sprawling on terminal floors with their laptops.

Virgin does not plan on having a separate airport lounge. “We feel like the gate area is the lounge,” Ross Bonanno, Virgin’s vice president for airports and guest service, said as he rested an arm on an Egg chair.

(American Airlines has built a dedicated lounge, which will seek LEED Silver status.)

David Cush, Virgin America’s chief executive, said he was hoping the green-tinged amenities would give the airline an edge with sustainable-minded travelers.

“Certainly for San Francisco and people who live in the Bay Area, this is a top-of-mind issue,” said the tan and long-haired Mr. Cush, who could be mistaken for a local surfer. “It’s becoming a bigger and bigger top-of-mind issue for corporate America in terms of travel policies.”

But how much impact can a low-carbon terminal really have on the most carbon-intensive form of transportation?

“Not traveling is really not an option, so the real question is how do we make it more sustainable,” Mr. Cush said, noting that in January Virgin America placed an order for 30 Airbus A320neo jetliners, which will be 15 percent more efficient than current models while emitting far fewer pollutants.

“It can be green and fun,” he added. “You don’t have to choose one or the other.”

Article source: http://feeds.nytimes.com/click.phdo?i=db0f5bc9b61cdd905ecdbb78fb88c7fe

Filed Under: Business News Tagged With: american airlines, environmental design, top to bottom

DealBook: Expedia Plans to Split Into Two

April 8, 2011 by NewsMaker Leave a Comment

Expedia, the online travel company, said on Thursday that it would split into two companies, with its TripAdvisor business becoming a separate business.

The company said it either spin off TripAdvisor to shareholders or would reclassify Expedia’s stock. A spin-off, if approved, is expected to be completed in the third quarter.

Shares of Expedia surged in after-hours trading. But the credit-ratings agency Standard Poor’s warned that it might cut Expedia’s ratings as a result. “The transaction could raise Expedia’s adjusted debt leverage to mid-2x, assuming all existing debt remains in place at Expedia,” Andy Liu, a credit analyst with S.P., said in a statement. Expedia has more than $1.6 billion in debt, according to Capital IQ.

Expedia was spun off from IAC/InterActiveCorp, the Internet conglomerate, in 2005. Barry Diller, the chairman of IAC, is also chairman of Expedia.

In December, Mr. Diller and John C. Malone of Liberty Media reached an agreement to separate their mutual interests, with Liberty giving up its voting stake in IAC for cash and two business units. But Mr. Diller and Mr. Malone remained intertwined at Expedia, in which Liberty holds a 17.6 percent stake.

The company’s statement announcing the split said that “it is expected that Expedia’s dual-class equity capital structure and the governance arrangements between Barry Diller and Liberty Media will be mirrored at TripAdvisor following the transaction.”

The announcement comes a week after Expedia resolved a dispute with American Airlines that had kept the airline’s fares and schedules off Expedia’s Web sites.

Expedia also owns Hotels.com and Hotwire. It has a market value of $6.2 billion. TripAdvisor Media Network accounts for about 11 percent of the company’s annual revenue, according to Thomson Reuters.

Corporate splits have been nearly as active as acquisitions in recent months. Expedia’s plan follows announcements by ITT, Fortune Brands, Marathon Oil and Sara Lee to divide their businesses.

Article source: http://feeds.nytimes.com/click.phdo?i=5f536d0054e47c57e5e616257d145ce1

Filed Under: Business News Tagged With: american airlines, barry diller, capital iq

Southwest Completes Inspections, Finds 5 Planes Cracks

April 5, 2011 by NewsMaker Leave a Comment

The airline conducted the inspections after a hole tore open the roof of one of its 737s on Friday on flight from Phoenix to Sacramento, forcing the airplane to make an emergency landing at a military base.

Friday‘s incident has prompted the Federal Aviation Administration to say that it would issue a directive requiring all airlines to inspect some older-model Boeing 737s for cracks in the skin that can be caused by pressurization and depressurization of the cabin over thousands of takeoffs and landings. Boeing, the manufacturer, said it was also recommending that airlines inspect the areas where the skin covers joints on the older 737 models.

Southwest canceled about 670 flights over the weekend and on Monday while it inspected nearly 80 aircraft. On Tuesday, a Southwest spokeswoman, Whitney Eichinger, said the airline had resumed full scheduling of its 3,400 daily flights, despite the absence of the five planes taken out of service.

“We are waiting for further instructions from Boeing on how to complete the repairs,” Ms. Eichinger said.

Friday’s crack was at least the third involving metal fatigue in the last few years, and the most terrifying. The others involved another Southwest 737-300 flight in 2009 and an American Airlines Boeing 757 last year.

The recent string of similar problems has baffled safety experts who said the industry assumed it had successfully resolved the problem of metal fatigue after an accident in 1988 involving a 737 jet flown by Aloha Airlines. During the flight, an 18-foot section of the forward cabin ripped open and a flight attendant was blown out of the plane.

The F.A.A. announcement applies to 175 aircraft worldwide, including 80 that are based in the United States, most of them operated by Southwest.

Southwest insisted that it had done all the required inspections of its aircraft. But the latest problem focused attention on how the carrier uses its planes on up to 12 flight segments a day. Other airlines, which often fly longer routes, typically have six to eight segments for their planes. The plane involved in the incident on Friday had logged 39,000 takeoffs and landings, a relatively high number for a 15-year-old aircraft.

Asked whether there were any changes to the number of segments, Ms. Eichinger said deferred to the National Transportation Safety Board investigation.

The F.A.A. directive focused on planes that had accumulated a large number of takeoff and landing cycles. It applies not only to the 737-300 model but also to similar 737-400 and 500 models, a design that dates back to the early 1980s and is known as the 737 Classic series.

“This was a very serious failure,” said William R. Voss, the president and chief executive of the Flight Safety Foundation, an independent nonprofit group. “Is there something wrong with the inspections we’ve been using in the past 20 years, or was there something wrong on the inspection with this one plane?”

Hans J. Weber, owner of Tecop International, an aviation consulting firm in San Diego, said that jetliners could easily survive a small crack in the aluminum skin on the fuselage. But what happened in the Aloha accident and the more recent incidents is that multiple small cracks appeared near rivets in areas where the plane experiences the most stress, causing the skin to peel back. “It’s like it unzips,” Mr. Weber said.

The F.A.A. directive is intended to detect cracks in places where the skins overlap and other structural weaknesses, J. Randolph Babbitt, the F.A.A. administrator, said in a statement.

The N.T.S.B. said that it was probably the result of fatigue cracks in these joints. Southwest began flying the plane, which carried 118 passengers, in 1996 and it is among the oldest in its fleet.

Mr. Weber said that after the Aloha accident, metal fatigue was a big issue, and the F.A.A. began to require the airlines to conduct more frequent and intense inspections as planes aged and accumulated more takeoffs and landings.

“Over the last few years, the attitude has been that we solved the fatigue problem,” he said. “But are we seeing what happens when attention wanders to something else, that we slip a little bit in the quality of the work we do? This is just speculation, but this is what I’m worried about.”

Article source: http://feeds.nytimes.com/click.phdo?i=b6a432545c1e356dd06cebd72f4c1560

Filed Under: Business News Tagged With: aloha airlines, american airlines, eichinger

Expedia and American in a Fare Agreement

April 5, 2011 by NewsMaker Leave a Comment

“This is good news for both organizations,” said Henry H. Harteveldt, a travel industry analyst at Forrester Research in San Francisco. “The good news for Expedia is that it has obviously regained the inventory of one of the largest airlines. And the good news for American is that it regained access to a travel agency that in 2010 accounted for more than 5 percent of its sales.”

About three months ago, American said that it wanted to bypass the central reservation system that now delivers information to online travel agents like Expedia and Orbitz, and instead deliver that information directly.

It developed a direct connection distribution technology that would eventually tailor offers to a traveler’s individual needs, like more legroom. Using its own direct system would reduce the fees American pays to list its fares on travel agents’ sites.

Expedia, the top online travel agency, however, chose not to renew its contract with American when it expired on Dec. 31 because it did not want to use the new technology.

Under the recent agreement between the companies, Expedia will initially use the existing global distribution system technology.

In the near future, however, the online travel company will have access to American’s fares, schedules and travel products through American’s direct connect technology, using aggregation technology provided by a global distribution system, which would eventually allow for more customized offers. Additional terms were not disclosed.

Mr. Harteveldt said the companies had reached an agreement that both parties could tolerate. American “wanted a more cost-effective distribution model,” he said, but “Expedia wouldn’t have agreed to this if American Airlines did not agree to business terms that would allow them to earn revenue from the sales of those tickets.”

Article source: http://feeds.nytimes.com/click.phdo?i=94fd391f2761af5891454a6bff02b291

Filed Under: Business News Tagged With: american airlines, distribution model, new technology