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The bell tolls for AA

scoreboardII

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AMR Bankruptcy Risk Rises on Pilot Standoff
AMR Corp. (AMR)’s board may need to weigh a bankruptcy filing after a second round of stepped-up talks with American Airlines pilots failed to produce an agreement on a new, cost-saving contract.
Directors should consider alternatives now rather than watch cash reserves keep dwindling without a labor accord, said Jeff Kauffman, a Sterne Agee & Leach Inc. analyst in New York who cut his rating on AMR yesterday to “neutral” from “buy.”
“Liquidity is going to be whittling away over the next six months,” Kauffman said in an interview. “That pile is going to get to a level where the company feels they need to make a strategic decision. We are not there today and might not be in six to nine months, but my guess is we are within 12 months.”
The board meets today in the last such scheduled session of 2011 as Fort Worth, Texas-based AMR heads toward a fourth straight annual loss. American posted a pilot contract offer online on Nov. 14 after negotiators fell short of a goal of winning a deal for directors to review.
The Allied Pilots Association began its own three-day board meeting yesterday, and didn’t vote on whether to accept or reject the airline’s proposal, union spokesman Tom Hoban said today. The board sent a letter to American Chief Executive Officer Gerard Arpey saying the union wants to continue bargaining.
Assessing Options

Accelerated negotiations before an October meeting of AMR’s board also failed to produce an agreement in talks that began in 2006.
Bankruptcy isn’t “a goal or preference,” according to AMR, which ended the third quarter with $4.3 billion in unrestricted cash and short-term investments. AMR declined to discuss the board’s agenda, said Sean Collins, a spokesman.
AMR fell 2.6 percent to $1.87 at 10:30 a.m. in New York. The shares dropped 10 percent yesterday to the lowest closing price since March 2003, a month before union workers agreed to $1.6 billion in annual concessions to avert bankruptcy.
William Warlick, a Fitch Ratings credit analyst in Chicago, said the company has to evaluate options now rather than awaiting a pilot vote that would be months away even if the union accepted the latest proposal. The seasonal drop in U.S. air travel only adds to AMR’s financial strain, he said.
“The risk profile is changing as we get into the area where management is actually starting to more explicitly suggest a bankruptcy filing is coming,” Warlick said in an interview. “There is sufficient cash to get through the winter but, ultimately, the timing” of a filing may depend on having to act before those reserves get too low.
Labor Costs

American has sought new contracts to boost productivity and pare the industry’s highest labor costs as a percentage of sales. Pilots are a bellwether work group at U.S. carriers, and American has focused on an APA accord to spur progress in talks with flight attendants and mechanics.
Bankruptcy alternatives such as scaling back operations to cut costs aren’t very attractive because American already has been overtaken in passenger traffic by United Continental Holdings Inc. (UAL) and Delta Air Lines Inc. (DAL), said Jeff Straebler, an independent aviation analyst in Stamford, Connecticut.
“Shrinking much more than peers is unlikely to result in a turnaround,” Straebler said yesterday. “It would probably make more sense to file and rationalize the business under bankruptcy.”
‘Increasingly Likely’

American and the pilots held out renewed hope for a deal last week. The airline said Nov. 8 that “we believe we can reach a tentative agreement with the APA in the days ahead,” and union President David Bates said the same day he was “very hopeful” an accord could come in a week.
Then bargaining recessed over the weekend, resumed for a day on Nov. 14, and was put on hold as the union and AMR boards prepared to meet.
“It seems increasingly likely that AMR will fail to reach agreements with its unions soon enough and effective enough to keep the company out of bankruptcy,” Vicki Bryan, a senior bond analyst with New York-based Gimme Credit LLC, said in a report.
Bryan, who has an “underperform” rating on AMR debt, said the company “will most likely be hit harder than its larger peers” in any travel decline in a fourth quarter already “shaping up to be a lump of coal for the industry.”
AMR’s 10.5 percent bonds due in October 2012 fell 56 cents to 94 cents on the dollar, according to the Financial Industry Regulatory Authority. The yield rose to 17.97 percent.
Credit Protection

The cost to protect AMR debt from default for five years soared to the highest yesterday since July 2008. Credit-default swaps rose 3.2 percentage points to 68 percent upfront, according to data provider CMA. That’s in addition to 5 percent a year, meaning it would cost $6.8 million initially and $500,000 annually to protect $10 million of debt.
Credit-default swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. CMA, which is owned by CME Group Inc. (CME), compiles prices quoted by dealers in the privately negotiated market.
The APA’s letter, backed by 17 of 18 board members, said the union shares American’s desire to ‘conclude negotiations expeditiously.’’ American looks forward “to resuming negotiations with the APA regarding what we believe to be fair and reasonable proposals,” Missy Cousino, an airline spokeswoman, said in an e-mail.
Pay Gap

While American’s posting of the contract on a company website put the offer in front of rank-and-file APA members, not just union negotiators, the move also spotlighted the gap between the two side on pay.
The company offered two options on points such as compensation, productivity, pensions and benefits. One plan would give pilots a 4 percent average raise on the date the contract is signed, a 3 percent boost after 15 months, and increases of 2 percent after 30 months and after 45 months.
The second option offers a 5 percent average increase at signing, followed by a 4 percent jump after 12 months, a 2 percent increase after 24 months and 3 percent after 36 months.
Pilots had sought a 10 percent signing bonus, followed by 7 percent raises in each of the next three years. Hoban, the union spokesman, said Nov. 13 that the figure was “pretty reasonable.”
Kauffman, the Sterne Agee analyst, said winning new labor agreements would position American to renegotiate contracts with lessors and vendors to further pare costs. The airline also has to weigh the risks of waiting for an accord that may not come, because preserving cash ahead of a Chapter 11 filing would boost the chances for a successful restructuring, he said.
“The union needs to consider a new proposal, management needs to consider its alternatives,” Kauffman said. “That’s what these meetings are about over the next two days.”

Good luck AA guys and gals.
 

wmuflyguy

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the industry’s highest labor costs as a percentage of sales.

So management can't market and sell their product and sales fell driving up the percentage. Sounds like a management problem and not a pilot pay issue.
 

spacecadet1

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Expect them to file this week. Also heard that some serious buyers are out there looking for a good deal. Sad to see the end of AA, a once great airline, like so many others.
 

scoreboardII

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AA could pull it off if they dump everything domestic, codeshare everything domestic, and keep the international side running to feed domestic.
 

FlyinGuy

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It is sickening how they are trying to put this on the pilots. They (management) has had a decade to get their act together and they have failed miserably!!! Good luck...
 

Otto77

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It is sickening how they are trying to put this on the pilots. They (management) has had a decade to get their act together and they have failed miserably!!! Good luck...

+1. I'm sure someone will get bonuses even with a BK
 

Dan Roman

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Sorry to see these guys go through this, BUT.... it's not like C11 is the death penalty. They will end up with jobs at a newly restructured airline. I don't think their pay will be any worse than now as they have already taken the hit. They will lose some work rules.
The scary part is how management will try to rape their retirement, so I guess we will see if the supposed new rules in effect as a result of the UAL/CO/ DAL abuses change anything. I'm guessing they will get what's left of their A plan and get a new b plan with about an 8% contibution.

Good luck to the AA guys, most every legacy airline pilot in the country has been through what you are going through, it sucks but you'll be fine. If it's any consolation, with a little luck you'll get a new management team and a lot of growth when you come out of this.
 

Dan Roman

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+1. I'm sure someone will get bonuses even with a BK

Isn't that the truth. While the employees who took the pay cuts and carried the airline through tough times get screwed, the management team who caused the problems will get bonus's.
 

GuppyWN

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I agree with Dan. IF they go ch11 it doesn't mean they are rolling up the carpets.

Gup
 

General Lee

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It is sickening how they are trying to put this on the pilots. They (management) has had a decade to get their act together and they have failed miserably!!! Good luck...

You don't go for a paycut prior to BK, and then get another one in BK. That's what happened to us. We heard "Do it once, do it right" from the CEO, and he took 30%. Then in BK, they took another 17%. No, the better route is to do it ONCE. Now if the company is fractured or bought up by USAir, that may not be a good option either....



Bye Bye---General Lee
 

General Lee

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+1. I'm sure someone will get bonuses even with a BK


The BK lawyers get a payday, and some executives supposedly got a bonus for "a successful emergence from BK." The CEO that cut our pay supposedly got $10 million, and I also heard he gave every penny to the Employee Emergency fund. (He was very rich on his own anyway) That is rumor that I had heard a few times.


Bye Bye---General Lee
 

spacecadet1

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I think they will probably be broken up and sold off. The pieces are worth more than the sum.
 

General Lee

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Sorry to see these guys go through this, BUT.... it's not like C11 is the death penalty. They will end up with jobs at a newly restructured airline. I don't think their pay will be any worse than now as they have already taken the hit. They will lose some work rules.
The scary part is how management will try to rape their retirement, so I guess we will see if the supposed new rules in effect as a result of the UAL/CO/ DAL abuses change anything. I'm guessing they will get what's left of their A plan and get a new b plan with about an 8% contibution.

Good luck to the AA guys, most every legacy airline pilot in the country has been through what you are going through, it sucks but you'll be fine. If it's any consolation, with a little luck you'll get a new management team and a lot of growth when you come out of this.

They are also open to attacks from other airlines (like USAir), and that can tear apart an airline. Parker and company tried it during the DL BK, but too many of their bases were too close to ours, and local poloticians didn't want huge bases to go away in their districts. Is that the same with AA and US? DFW, ORD, LAX(PHX), JFK (PHL), DCA, MIA, CLT???? It doesn't look like a lot of overlap to me, except JFK/PHL and LAX/PHX. DCA is a smaller base that doesn't really do transcons or INTL excpet Bermuda and Nassau.



Bye Bye---General Lee
 

OurMoney1

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They will reorganize in BK.

It will be a game changer reorganizing. They will have to make it so. They have lost so much marketshare that it will be radical compared to recent filings. I suspect they will ask the judge for the moon and the stars behind it.
 

Whataburger

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You don't go for a paycut prior to BK, and then get another one in BK. That's what happened to us. We heard "Do it once, do it right" from the CEO, and he took 30%. Then in BK, they took another 17%. No, the better route is to do it ONCE. Now if the company is fractured or bought up by USAir, that may not be a good option either....



Bye Bye---General Lee

Didn't yall vote to "give" the first 30%? I am not exactly sure they "took" it.
 

Flyby1206

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They will reorganize in BK.

It will be a game changer reorganizing. They will have to make it so. They have lost so much marketshare that it will be radical compared to recent filings. I suspect they will ask the judge for the moon and the stars behind it.

Agreed. The worst nightmare of UAL/DAL/LUV/etc is to see a lean and mean AMR post-BK.
 

Flying the Line

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We're taking all the 717 jobs too, all will be flown by SWAPA. Too bad not all planes in delta colors aren't flown by delta pilots. Godspeed dooshbag.
 

General Lee

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Didn't yall vote to "give" the first 30%? I am not exactly sure they "took" it.


Yeah, that was really fun. Yeah, we just voted to GIVE it to them for fun, for no real reason..... You are an idiot. The CEO came to us and stated "Do it once, do it right." We learned that was not really true, and I gave a little advice here. Here is some advice for you, "Enjoy West Texas and treat the Air Tran pilots better if you want to save your so called culture."



Bye Bye---General Lee
 

shon7

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till the time US carriers get their act together and realize that this is a service business - problems will continue to plague the legacy carriers.

High costs can be covered as long as you can charge for it. But who in their right mind would want to pay a premium for the "customer experience" that is offered by the legacies.
 
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