English
Well-known member
- Joined
- Nov 26, 2001
- Posts
- 3,374
Notice the part about AMR trying to gain concessions from its pilots...
The Baumert Report January 24, 2003
AMR's 4th Qtr. Report
AMR ended the year with $2.7 billion in cash and, according to Smith Barney
estimates, $7 billion in unencumbered assets. Also, the company will be
getting a $550 million tax refund sometime in the current quarter. Contrary
to their statement regarding uncertain access to capital markets, as late as
December AMR completed a $675 million private aircraft financing deal.
During the last major downturn in the early nineties, premium carriers
continued to have access to the capital markets and that still appears to be
the case with AMR.
Much has been made of the $834 million of debt due on June 30, but that
appears to be much ado about nothing. The $834 million is from a bank
revolver that CFO Jeff Campbell said should not be a problem in
renegotiating either through a higher fee or more collateral.
In trying to snatch concessions from labor, AMR management's negotiating
ploys have included "leaking" the hiring of bankruptcy lawyers, talking as
if the current revenue environment is permanent and the access to capital
markets is uncertain. On the latter, one analyst feels this was said just
to "put labor's feet to the fire." However, it's obvious what a
rationalization of capacity and stronger GDP growth would do for AMR and
other carriers' profits. Here's what some respected analysts had to say
about AMR's current bankruptcy chances:
Glen Engel at Goldman Sachs wrote, "We believe bankruptcy fears on AMR are
overblown." And "We see no near term liquidity crunch." Mr. Engel also
believes that AMR's cash loss per day will end up averaging over 40% less
for the year than what AMR is currently stating.
Smith Barney's Brian Harris said that the company's financial firewalls
"appear thick enough to withstand the crisis this year . .. ."
Ray Neidl at Blaylock & Partners said it is too soon to consider American a
bankruptcy candidate since it has several assets it can sell to raise cash.
AMR's fourth quarter loss was much less than analysts had predicted, revenue
growth was better than expected and AMR's unit costs declined more than the
industry average, with its costs dropping 3.4% year-over-year. AMR's fourth
quarter loss of $3.39 per share beat consensus estimates of a loss of $3.73
and revenues were $70 million more than Smith Barney expectations. Here's
how revenue per available seat mile (RASM) growth stacked up geographically:
Europe: +19.6%
Pacific: +16.5%
Latin Am: +4.2%
Caribbean and domestic RASM growth was flat.
Still, AMR continues to be overexposed to business travel and Latin America,
while having too little exposure to the rising profits of Asia routes. Mr.
Campbell stated that if AMR just had the geographic mix of the industry
average then the company would have made $90 million more in revenues and
more than doubled unit passenger revenue growth from 2.6% to 5.3%. What's
the wait, then?
AMR's pension return assumptions continue to indicate denial in Dallas. In
2002, with the bear market fully entrenched, AMR scarcely lowered their
assumption from 9.5% to 9.25%. Now, they say they got it down to a still
unrealistic 9.0%. Warren Buffett on high pension return assumptions like
AMR uses: "I'm a sporting type, and I would love to make a large bet with
the chief financial officer. . .that over the next 15 years they will not
average the rates they've postulated."
AMR likes to blame the stock market and low bond yields for their
underfunded pension. Yet, if that were the whole reason then every company
with a pension would have underfunding troubles, but it's mainly the ones
that had (and still have) high pension return assumptions that have dramatic
funding problems. Now, just when the company needs cash the most, AMR had
to fund its pension last year with $250 million in cash and is looking at
funding another $200 million or so in cash this year. And that's in
addition to wiping out $1.1 billion in shareholders' equity for their
underfunded pension.
Despite the implications of AMR management, labor costs are not to blame for
AMR's crisis (as I outlined in "Origins of a Cash Crunch"), nor will
slashing labor costs solve it. Slashing labor costs will not help AMR
management's inability to allocate capital profitably. Slashing labor costs
will not make AMR's inefficient network more efficient. Slashing labor
costs will not diversify revenue away from Latin American and US business
centers and toward Asia. Slashing labor costs will not bring pension return
assumptions in line with reality. Nor will it create the kind of improved
productivity that accompanies good labor relations.
A drastic reduction in labor costs is not the panacea that premium airline
CEO's make it out to be. If it were, then "budget" carriers with so-called
low labor costs would never go out of business. Yet, they do. If it were,
then every company that cut labor costs via bankruptcy would have a huge
competitive advantage that would allow it to best its rivals. Yet, since
1982, 63% of major airlines that declared bankruptcy have had to declare
bankruptcy again. Where was the supposed competitive advantage?
Thus, lowering labor costs, through bankruptcy or other means, is not a
cure-all by any stretch. In a commodity service industry, wiping away a
bunch of liabilities and a drastic reduction in labor costs doesn't do much
good if you have poor morale, bad labor relations and a management team that
can't make good decisions.
Steven Baumert
The Baumert Report
The Baumert Report January 24, 2003
AMR's 4th Qtr. Report
AMR ended the year with $2.7 billion in cash and, according to Smith Barney
estimates, $7 billion in unencumbered assets. Also, the company will be
getting a $550 million tax refund sometime in the current quarter. Contrary
to their statement regarding uncertain access to capital markets, as late as
December AMR completed a $675 million private aircraft financing deal.
During the last major downturn in the early nineties, premium carriers
continued to have access to the capital markets and that still appears to be
the case with AMR.
Much has been made of the $834 million of debt due on June 30, but that
appears to be much ado about nothing. The $834 million is from a bank
revolver that CFO Jeff Campbell said should not be a problem in
renegotiating either through a higher fee or more collateral.
In trying to snatch concessions from labor, AMR management's negotiating
ploys have included "leaking" the hiring of bankruptcy lawyers, talking as
if the current revenue environment is permanent and the access to capital
markets is uncertain. On the latter, one analyst feels this was said just
to "put labor's feet to the fire." However, it's obvious what a
rationalization of capacity and stronger GDP growth would do for AMR and
other carriers' profits. Here's what some respected analysts had to say
about AMR's current bankruptcy chances:
Glen Engel at Goldman Sachs wrote, "We believe bankruptcy fears on AMR are
overblown." And "We see no near term liquidity crunch." Mr. Engel also
believes that AMR's cash loss per day will end up averaging over 40% less
for the year than what AMR is currently stating.
Smith Barney's Brian Harris said that the company's financial firewalls
"appear thick enough to withstand the crisis this year . .. ."
Ray Neidl at Blaylock & Partners said it is too soon to consider American a
bankruptcy candidate since it has several assets it can sell to raise cash.
AMR's fourth quarter loss was much less than analysts had predicted, revenue
growth was better than expected and AMR's unit costs declined more than the
industry average, with its costs dropping 3.4% year-over-year. AMR's fourth
quarter loss of $3.39 per share beat consensus estimates of a loss of $3.73
and revenues were $70 million more than Smith Barney expectations. Here's
how revenue per available seat mile (RASM) growth stacked up geographically:
Europe: +19.6%
Pacific: +16.5%
Latin Am: +4.2%
Caribbean and domestic RASM growth was flat.
Still, AMR continues to be overexposed to business travel and Latin America,
while having too little exposure to the rising profits of Asia routes. Mr.
Campbell stated that if AMR just had the geographic mix of the industry
average then the company would have made $90 million more in revenues and
more than doubled unit passenger revenue growth from 2.6% to 5.3%. What's
the wait, then?
AMR's pension return assumptions continue to indicate denial in Dallas. In
2002, with the bear market fully entrenched, AMR scarcely lowered their
assumption from 9.5% to 9.25%. Now, they say they got it down to a still
unrealistic 9.0%. Warren Buffett on high pension return assumptions like
AMR uses: "I'm a sporting type, and I would love to make a large bet with
the chief financial officer. . .that over the next 15 years they will not
average the rates they've postulated."
AMR likes to blame the stock market and low bond yields for their
underfunded pension. Yet, if that were the whole reason then every company
with a pension would have underfunding troubles, but it's mainly the ones
that had (and still have) high pension return assumptions that have dramatic
funding problems. Now, just when the company needs cash the most, AMR had
to fund its pension last year with $250 million in cash and is looking at
funding another $200 million or so in cash this year. And that's in
addition to wiping out $1.1 billion in shareholders' equity for their
underfunded pension.
Despite the implications of AMR management, labor costs are not to blame for
AMR's crisis (as I outlined in "Origins of a Cash Crunch"), nor will
slashing labor costs solve it. Slashing labor costs will not help AMR
management's inability to allocate capital profitably. Slashing labor costs
will not make AMR's inefficient network more efficient. Slashing labor
costs will not diversify revenue away from Latin American and US business
centers and toward Asia. Slashing labor costs will not bring pension return
assumptions in line with reality. Nor will it create the kind of improved
productivity that accompanies good labor relations.
A drastic reduction in labor costs is not the panacea that premium airline
CEO's make it out to be. If it were, then "budget" carriers with so-called
low labor costs would never go out of business. Yet, they do. If it were,
then every company that cut labor costs via bankruptcy would have a huge
competitive advantage that would allow it to best its rivals. Yet, since
1982, 63% of major airlines that declared bankruptcy have had to declare
bankruptcy again. Where was the supposed competitive advantage?
Thus, lowering labor costs, through bankruptcy or other means, is not a
cure-all by any stretch. In a commodity service industry, wiping away a
bunch of liabilities and a drastic reduction in labor costs doesn't do much
good if you have poor morale, bad labor relations and a management team that
can't make good decisions.
Steven Baumert
The Baumert Report
