Watch Out - Here Comes American Airlines With $2.9B in Cash

johnsonrod

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Could this lead to a USAirways acquisition down the road? What about the JAL investment? Adding flying with the new 737s?



AMR Raises $2.9 Billion, Shifts Flights to Boost Hubs (Update3)

By Mary Schlangenstein

Sept. 17 (Bloomberg) -- AMR Corp.’s American Airlines, the world’s second-largest carrier, said it raised $2.9 billion in cash and financing and will add flying at four U.S. hubs to focus on the most-profitable parts of its network.

AMR rose the most in 11 months in New York trading. Credit- card partner Citigroup Inc. paid $1 billion for frequent-flier miles, and GE Capital Aviation Services provided $1.6 billion in jet-financing commitments, American said today in a statement.
The cash will bolster liquidity for Fort Worth, Texas-based AMR before winter in the U.S., when travel typically slows and carriers tap their reserves to fund operations. The recession has sapped demand for higher-fare business travel, dragging the biggest U.S. carriers to losses.
“There are signs of improvement in the revenue environment and in consumer sentiment, but the winter season is still potentially a challenging one,” said Douglas Runte, managing director at Piper Jaffray & Co. in New York, who doesn’t rate AMR. “This liquidity raising is an important move.”
The shares jumped $1.66, or 23 percent, to $9.01 at 9:44 a.m. in New York Stock Exchange composite trading. They reached $9.05 for the biggest intraday advance since Oct. 16. AMR tumbled 31 percent this year through yesterday.

AMR had $3.3 billion in cash and short-term investments as of June 30, including $460 million dedicated to specific uses.

Hub Flights
American said flights will increase from the hubs at Chicago, New York, Dallas-Fort Worth and Miami, and some regional jets will get first-class cabins. The carrier also will purchase 22 70-seat Bombardier Inc. planes.
Daily departures for mainline jets and regional carrier American Eagle will drop by 46 at St. Louis and 9 at Raleigh/Durham, North Carolina, American said. The carrier said it’s still assessing how many employees will be affected.

Capacity in American’s main jet operations will increase 1 percent next year over 2009, the carrier said. Domestic markets will be unchanged, while available seating on international flights, typically the most profitable routes for airlines, will rise 2.5 percent.

The GE Capital Aviation Services agreement will provide funding for Boeing Co. 737-800s American will add through 2011 by letting the airline sell the jets to the General Electric Co. unit and lease them back. The planes are 25 percent more fuel efficient than the MD-80s they will replace.

GE’s Role
Boeing 737s use only CFM engines, built by GE’s jet-engine manufacturing venture with Safran SA of France. Fairfield, Connecticut-based GE is the world’s biggest maker of jet engines and the largest aircraft lessor by the number of planes.

The new GE financing also includes $280 million in cash under a loan accord. American put up 10 aircraft as collateral for $225 million of that funding, and will pledge 3 more planes as security next month to tap the remaining $55 million.

“The fact that we have been able to raise the money we need, both to sustain us through this economic contraction and to invest in our future, is an important vote of confidence by the capital markets and our business partners,” Chief Executive Officer Gerard Arpey said today in a message to employees.

American is at least the fifth major U.S. airline since 2008 to raise funds by selling frequent-flier points to credit- card issuers. The miles are distributed as awards for purchases.

Frequent-Flier Miles
Citigroup can use the miles, which were bought in a so- called advance purchase, in equal monthly installments from 2012 through 2016. The agreement also extends its co-branded credit- card program with American.

Delta Air Lines Inc., the world’s biggest carrier, and UAL Corp.’s United,
Continental Airlines Inc. and US Airways Group Inc. all agreed last year to advance sales of frequent-flier miles to credit- card partners. The carriers raised sums ranging from $200 million to $1 billion. American didn’t disclose a cost to add first-class cabins to its fleet of Bombardier CRJ700s, allowing the airline to charge higher fares and compete with United Airlines, which sells the premium tickets on its 70-seat planes from Chicago. American will begin accepting the 22 new CRJ700s in 2010.

The route changes for American and American Eagle will include the addition of 57 daily flights and 12 destinations in 2010 from Chicago’s O’Hare Airport. The airline will add 23 daily departures from Miami, 19 from Dallas-Fort Worth, 7 from John F. Kennedy airport in New York, 2 at New York’s LaGuardia and 2 at Los Angeles.

Expanding international capacity and adding service such as Chicago-Beijing is a bet on a recovery in travel demand.

U.S.-based carriers slashed flight capacity in 2008 and this year, first in response to record fuel prices and then to better match supply as corporate and leisure business dwindled.
To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net
 

ACL65PILOT

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It leads to a lot. Three airlines now have decent cash at good rates.
 

viper01

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Jetblue's doing pretty good with cash/size of op's.
 

The Prussian

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Some additional perspective from Marketwatch: 17 Sept. 2009


By MarketWatch
SAN FRANCISCO (MarketWatch) --

American Airlines' parent AMR Corp. made a bet Thursday that, if it pays off, will be seen as a brilliant move to get out in front of a rebound in air travel.

It could also be a colossal dud -- not of intent, but timing.

Either way, the move is exciting. AMR shares /quotes/comstock/13*!amr/quotes/nls/amr (AMR 8.62, +1.27, +17.25%) surged as much as 22% on the news, which takes $2.9 billion of newly raised capital to beef up its hubs and add a batch of planes for an assault on neglected regional markets. See full story.

The plan includes leveraging its frequent-flier miles to raise $1 billion from Citigroup /quotes/comstock/13*!c/quotes/nls/c (C 4.46, +0.26, +6.19%) , part of AMR's effort to squirrel away enough cash to get through the typically slow winter months.

To put the move in broader context, look at AMR's rivals. The entire group has been on a roll the past few weeks, with the NYSE Arca Airline Index /quotes/comstock/10t!xal.x (XAL 29.52, +0.47, +1.62%) up nearly 30% since the start of September and up 130% since bottoming in early March.

Can this pace continue? Probably not. And it might already be coming to an end.

While AMR's shares dominate today's leader board, most of the rest of the sector is down, a sign investors are getting skittish about a rally built on momentum and a late rotation of cash into a sector with almost no fundamentals to back it up.

Earlier this week, the International Air Transport Association issued a downward revision to its 2009 forecast, raising its projected 2009 losses for the industry based on data collected since June. The bottom line message was not rosy. See full story.

So far the market has ignored that message, riding momentum for all it's worth. AMR's announcement could bolster the conviction that things in the industry are looking up.

On the other hand, given the weak fundamentals, the sector is looking increasingly vulnerable to another cash rotation, only next time it will be led by folks locking in gains and moving their money out of airlines.
AMR's moves today might delay that process, but it's hard to see it stopping it. That doesn't mean AMR isn't brilliantly positioning itself for a rebound in air travel.

But the company's bold plan to add hubs, flights and aircraft also runs the risk of pushing it too far ahead of what a still shaky economy can support. If that happens, the capital it just raised will be more essential to survival than promoting expansion.
-- Jim Jelter
 
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Flopgut

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I wish Texicana had a plan....Guess you have to have some real money.
 

flyboyzz1

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I thought the APA would never let eagle have any more CRJ700s?! Yeah.
 

Flyby1206

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I thought the APA would never let eagle have any more CRJ700s?! Yeah.
AMR won an arbitration that allowed them to purchase up to 22 CRJs. I know APA didn't want them to win, and I am surprised AMR got their way as well. AMR gets what AMR wants.
 

johnsonrod

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Who will fly the new CRJ-700s? AA furloughees or Eagle pilots?
 

AA717driver

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