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
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