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Can AA and CAL stay out of Chap 11?

General Lee

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Analysts See American, Continental Avoiding Bankruptcy


DOW JONES NEWSWIRES
September 15, 2005 7:55 p.m.

--

DALLAS (AP)--Unlike two carriers that filed for bankruptcy this week,
American Airlines, the nation's largest carrier, has already cut wages
sharply, eked out a small profit and piled up more than $3 billion in cash.

Analysts say American and Continental Airlines Inc. (CAL), the No. 5
carrier, are unlikely to follow rivals Delta Air Lines Inc. (DAL) and
Northwest Airlines Corp. (NWAC) into bankruptcy anytime soon. But
American - which barely avoided bankruptcy two years ago - and
Continental are also struggling with high fuel prices and big pension
obligations.

If Delta and Northwest use the bankruptcy process to dump their pension
obligations and cut employees' pay, it could force American and
Continental to do the same, analysts say.

"The managements at Delta and Northwest are going to be very aggressive
about cutting costs. It's going to be tougher for other legacy carriers
like American and Continental to compete against all these bankrupt
carriers," said Ray Neidl, an analyst with Calyon Securities.

With the parents of United Airlines and US Airways already reorganizing,
four of the six legacy carriers - those that existed before deregulation
in 1978 - are now in bankruptcy after four years of sluggish business
travel, low fares and high fuel prices.

American's parent, Fort Worth, Texas-based AMR Corp. (AMR), has lost
$7.4 billion since the beginning of 2001, yet it may be the strongest
financially of the traditional airlines. It earned $58 million in the
April-June period, despite a 47% jump in fuel costs to $1.35 billion.

AMR sits on $3.4 billion in cash and short-term investments.

AMR's relative health is due largely to the fact that it was the first
major carrier to sharply cut wages and benefits. In 2003, American's
employees agreed to $1.8 billion in annual wage and benefit concessions,
most of it from unionized pilots, flight attendants, mechanics and ramp
workers.

The airline's lawyers were poised to file bankruptcy papers if the
unions voted down the concessions, which left workers "forced to choose
between two very bad alternatives," said Ralph Hunter, president of the
pilots' union. American also cut thousands of jobs.

Hunter said he doesn't see an immediate risk of bankruptcy but said that
American may seek to get more work out of the same number of pilots, or
the same amount of work with fewer pilots. He didn't rule out further
pay cuts but suggested that American would have to protect current
pension plans to preserve its recently improved relations with the unions.

Chief Executive Gerard Arpey "can't make us do anything," Hunter said.
"He has to show us the consequences if we don't do what may need to be
done." That said, he added, "I've got some guys who want to burn the
place down for what we've already done" on concessions.

Union officials said AMR made a $74.4 million payment to the company's
pension plans on Wednesday, but it still has a sizable deficit - $2.69
billion at the end of 2004 - and the company and its unions are lobbying
Congress for relief.

Tommie Hutto-Blake, president of the flight attendants' union at
American, applauded the pension payment but said workers are worried by
the new bankruptcy filings.

"They're scared - they would be crazy not to be concerned," she said.

Continental is no stranger to the bankruptcy process. It reorganized
twice in the 1990s, and many analysts credit that experience with giving
the Houston-based carrier lower costs than its rivals.

Last year, Continental set out to cut another $500 million in labor
spending and has achieved $418 million of that, while negotiations
continue with flight attendants. The company posted a $100 million
profit in the second quarter and padded its cash and short-term
investments to more than $2 billion. Continental's year-end pension
shortfall was $1.58 billion.

A spokesman said Continental was better positioned than other network
airlines but not immune to rivals getting a cost advantage from
bankruptcy protection. He said the company expected to "be a survivor."

Jeff Brundage, American's senior vice president for human relations,
said the airline has cut $4 billion in annual costs without the help of
bankruptcy courts. He said the company is looking for new revenue,
citing an effort to perform maintenance for American and other carriers
instead of outsourcing the work.

"American is restructuring right in front of their eyes," Brundage said.
"The difference is we're maintaining control of that restructuring
instead of handing it off to the bankruptcy judges, investment bankers
and lawyers."

Keeping control of the company is a powerful reason for executives to
avoid bankruptcy, as is the cost of hiring lawyers, said analyst Bill
Warlick of Fitch Ratings. Beyond that, he said, "It's an admission that
management has failed. It's a loss of pride."

Philip Baggaley, an analyst for Standard & Poor's, said American and
Continental and other carriers could benefit if Delta and Northwest
reduce flights, leading to fewer seats and, in turn, higher fares.

Analysts said they expected the bankruptcies to have little effect on
Southwest Airlines Co. (LUV), the most consistently profitable U.S. carrier.

Industry observers doubt that many Delta and Northwest passengers will
switch carriers. They said consumers are getting used to bankrupt carriers.

"United filed for Chapter 11 and they're selling all their product,"
said industry consultant Michael Boyd. "Chapter 11 is just a change in
legal proceedings."

AMR shares fell 27 cents to close at $11.86, and Continental shares fell
44 cents to close at $11.71, in trading Thursday on the New York Stock
Exchange.



Maybe? I hope so....


Bye Bye--General Lee
 

General Lee

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Filings may not be boon to rivals

By TREBOR BANSTETTER

STAR-TELEGRAM STAFF WRITER

American Airlines and Southwest Airlines have little to gain in the
bankruptcies of rivals Delta Air Lines and Northwest Airlines, analysts
say, and could have a lot to lose.

While there might be some benefits if those airlines cut back flights,
it's unlikely that Delta and Northwest will give up their most valuable
assets -- airport gates and international routes -- as they restructure.

"There isn't a lot of real upside for American and Southwest," said Ray
Neidl, airline analyst for Calyon Securities in New York.

Fort Worth-based American, Southwest of Dallas and Continental of
Houston are now the only large carriers not in bankruptcy court. When
Northwest and Delta filed for Chapter 11 protection Wednesday, they
joined United Airlines and US Airways in bankruptcy.

In the past, bankrupt airlines presented an opportunity for competitors.
Strapped for cash, they would be forced to sell off assets at bargain
prices. They would also open up room for competition by cutting flights
to save money.

In 2000, American bought bankrupt airline TWA. At the time, executives
hoped that TWA's St. Louis hub, New York operations, and international
flights would solidify American's position as a leading global carrier.

But in today's troubled industry environment, with all airlines burdened
by fuel prices, American and Southwest aren't rushing to expand or spend
scarce resources at the auction block.

"It remains to be seen whether Northwest or Delta are going to
relinquish some of their real assets," said Ron Kuhlmann, vice president
of Unisys R2A Transportation Management Consultants, an aviation
consulting firm. "It's not like American is going to want to buy their
airplanes; nobody wants those."

Most analysts predict that Delta and Northwest will cut flights by as
much as 15 percent. That could benefit the rest of the industry, because
reducing industry capacity tends to drive up fares. Higher revenues tend
to follow.

But passenger loads have been high all year, and some analysts note that
the problem lies more with low fares of discounters like Southwest and
JetBlue Airways.

The flights that Northwest and Delta cut aren't likely to be profitable
international or transcontinental routes. The two airlines will probably
shrink flights between small cities and their hubs, replacing mainline
jets with regional service.

It's doubtful that the carriers will unload their most coveted routes
unless they liquidate. Northwest has extremely lucrative rights to fly
to Asian cities, including destinations in China. Delta has routes to
Europe that it will probably hold closely during its restructuring.

Both carriers have said they plan to increase their focus on
international travel.

Recent experience has also shown that bankruptcy isn't a boon for
competitors.

US Airways, for example, operates a successful East Coast shuttle that
many speculated would be sold. It wasn't, and now it will be absorbed
into the new airline that will be created when US Airways and America
West merge.

Likewise, many predicted that American would be a big winner when United
filed for bankruptcy in 2003, because the airlines operate competing
hubs at O'Hare Airport in Chicago. But United still has a larger share
of the market, and competition between the two has only intensified.

And American learned a hard lesson from its purchase of TWA, which was
approved just months before 9-11. The St. Louis hub was substantially
reduced last year, and most of the former TWA employees have been laid off.

"This [bankruptcy] is really more of a threat to American and
Southwest," Neidl said. "These guys are going to be aggressive in
bankruptcy in cutting their costs, and it's going to mean a lot more
pressure on the other airlines."

Shares of AMR Corp., American's parent company (ticker: AMR) dropped 27
cents Thursday to close at $11.86. Southwest stock (LUV) rose 16 cents,
closing at $13.80.

Continental stock (CAL) was down 44 cents, finishing at $11.71 per share.



Bye Bye--General Lee
 

General Lee

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Southwest Exec Sees Tough Delta, Northwest Competition


DOW JONES NEWSWIRES
September 16, 2005 7:52 a.m.

AMSTERDAM -- U.S. low-cost carrier Southwest Airlines (LUV) expects to
see continued tough competition from Delta Air Lines Inc. (DAL) and
Northwest Airlines Corp. (NWAC), despite the fact that the two network
carriers have filed for bankruptcy protection, a Southwest executive
said Friday.

"It's business as usual. They'll be aggressive as ever," Pete McGlade,
vice president for scheduling and planning at Southwest said on the
sidelines of an airline conference in Amsterdam. He added the U.S.
low-cost airline sector remains extremely competitive, with overcapacity
still a major problem.

Many carriers not in bankruptcy protection say those who have sought the
protection are able to offer steeper discounts as they price purely for
cash.

Turning to other issues, McGlade said Southwest might have to delay some
new route deployments should a strike by machinists at Boeing Co. (BA)
delay deliveries of 737-700 jets. "We think we can cover everything that
we've already announced," McGlade said.

The airline is due to take delivery of several planes from October to
December, he added.

McGlade added that the airline expects to have two flights operating
next week from the airport in New Orleans, which was hit by the
devastating Katrina hurricane. Southwest was previously that largest
carrier at the southern U.S. airport.

Looking ahead, the he said the airline expects oil prices to remain
"challenging."



Bye Bye--General Lee
 

ThisistheDream

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I see AA and CAL following suit to a Chptr 11 filing, that is the only way to ensure that hard working employees lose out on any retirement pensions and take huge paycuts. AA and CAL are already stating that they are losing millions and they will be next to go, and probally quick to reach the new deadline on Chtr 11 rules. everyone will be in the same situation some say DAL was better off than AA and vice versa, the only thing that is true is that every pilot is going to be affected sooner or later in an very bad way at every airline. if USair UAL DAL and NWA have lost there pensions, then AA and CAL will have to follow.
 

Dizel8

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Huh?
Misery loves company!
 

Dave Benjamin

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A better title for the thread might be "Do AA and CAL want to file bankruptcy?" I hope we don't end up with anyone else in Chap 11 but I have a feeling one or both of these carriers may be on the courthouse steps soon. The temptation to throw out contracts and discard pensions may be too much for managment to resist. Let's hope I'm proven wrong. I have friends at both companies.
 

vetteracer

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I think in the long run, to be competitive, they will have to follow suit, as afore mentioned.



Mark



 

LAXSaabdude

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To those who are suggesting that CAL and AMR may "want" to file Ch. 11 just to negate contracts or eliminate debts, I don't think it works that way. You have to prove to the court that you are truly insolvent, and with that kind of cash lying around, I think it would be a pretty tough sell.

I don't buy it. Perhaps in a few years, but not anytime soon.

LAXSaabdude.
 

General Lee

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So, high gas prices and a slow Fall wouldn't drain anyone's cash enough to think about it? I bet they are thinking about it. Consolidation will happen. I think CAL and UAL, and AA and AK. Just speculation...


Bye Bye--General Lee
 

vetteracer

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Quote
To those who are suggesting that CAL and AMR may "want" to file Ch. 11 just to negate contracts or eliminate debts, I don't think it works that way. You have to prove to the court that you are truly insolvent, and with that kind of cash lying around, I think it would be a pretty tough sell.



All they would have to do is empty the bank account making all the past due payments, spend the rest on a psydo fuel hedge and be in the red in 1 month.
I think if needed this could be orchestrated within a month, but to not appear as though this was there intention, they may drag it out over a longer period.

It is a sad case of affairs for all involved.

Mark
 

Ex737Driver

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ThisistheDream said:
I see AA and CAL following suit to a Chptr 11 filing, that is the only way to ensure that hard working employees lose out on any retirement pensions and take huge paycuts. AA and CAL are already stating that they are losing millions and they will be next to go, and probally quick to reach the new deadline on Chtr 11 rules. everyone will be in the same situation some say DAL was better off than AA and vice versa, the only thing that is true is that every pilot is going to be affected sooner or later in an very bad way at every airline. if USair UAL DAL and NWA have lost there pensions, then AA and CAL will have to follow.


I tend to disagree, and not only as an employee. CAL has strengthened it's cash position from 1.6B to 2.1B as of the end of the 2nd qtr. We are currently paying approx $69.00 for a barrel of jet-a, which is back down to levels before Katrina. While this is still above projections, leading to BK it is not. In addition CAL has filed with the SEC a shelf offering for numerous securites valued up to $1B. As normal retirements reach a peak in 2007 and with early retirements increasing, CAL's empolyee costs are being reduced monthly. The rate of new hires has increased to 16 a week with projections for this pilot growth until Mar '06. 7 new INTL destinations are planned in the near future; IAH-EZE, EWR-MOW, EWR-ATH, EWR-PSE, JFK-AUA, EWR-CPH, EWR-PRG, EWR-WAW, EWR-SHA, EWR-LOS have all been discussed/rumored recently. We now have 6 and 7 year captains on the 737 and that number is being lowered. Pension costs are not increasing as our "A" fund was frozen with contract '02.

I am not denying the fact that BK is still a possibility for any carrier, but I would tend to follow the data that puts CAL in decent shape until 4th qtr '06/1st qtr '07.
 

Gofish

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Anyone know what the PBGC tab is up to now? AA and CAL CH 11 will double that.
 

nitrogen

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LOL YEAH TRY MORE LIKE $ 4.3 BILLION IN CASH AND PENSIONS FUNDED AT MORE THAN 80%. tHE HIGHEST BY FAR OF ANY IN THE INDUSTRY. WISH ALL YOU WANT. AA AINT GOING ANYWHERE. DUMMMIES.
 

Diesel-9

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The way the Allied Pilot Association caved in and lowered the bar on the last contract, AMR has some time left.
 
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