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Published: September 17, 2009
Shares of American Airlines Inc. parent AMR
Corp. (NYSE: AMR) soared as high as +23.7% in early morning
trading Thursday after the company announced it raised $2.9
billion in liquidity to hunker down for the typically slow
winter travel season and possibly acquire a majority stake in a
Japanese airline.
The new liquidity includes $1.3 billion in cash from monetizing
most of its unencumbered assets, selling aircraft and
frequent-flyer miles to counter the sharp decline in airline
travel and prepare for looming pension changes, The Wall
Street Journal reported.
“There are signs of improvement in the revenue environment and
in consumer sentiment, but the winter season is still
potentially a challenging one,” Piper Jaffray & Co. Managing
Director Douglas Runte told Bloomberg News. “This
liquidity raising is an important move.”
The funds could potentially pave the way for the purchase of a
stake in Japan Airlines Corp. (OTC ADR: JALSY), The
Journal said. American, which already has a codeshare
agreement with Japan Airlines, will likely face a competing bid
from the world’s biggest carrier, Delta Air Lines Inc. (NYSE:
DAL). Delta is in talks with Japan Airlines to acquire a
majority stake in the struggling carrier, according to Japanese
media reports.
Also included in the funding is
$1.6 billion from General
Electric Co. (NYSE: GE) in which
GE will provide funding for 84
Boeing Co. (NYSE: BA) 737-800s.
American will add the jets in a
lease-back deal from GE that runs
through 2011. The 737s will replace
aging MD-80s that are 35% less
fuel-efficient.
GE will also loan AMR $280 million
in cash, with American putting up 10
aircraft as collateral for $225
million of that funding, and will
pledge three more planes as security
in October to tap the remaining $55
million. GE makes jet engines and
operates the world’s second-largest
aircraft leasing company; it has a
central role in funding the airline
sector during downturns.
“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,” American
Airlines Chief Executive Officer
Gerard Arpey said in a message to
employees.
American will increase capacity at
its hub cities of Chicago, New York,
Dallas-Fort Worth and Miami, while
scaling back flights at St. Louis
and Raleigh-Durham. AMR expects the
carrier’s overall capacity to grow
by +1% next year, international
capacity to grow by +2.5% and
domestic capacity to remain flat.
Excluding the impact of 2009
cancellations due to the swine flu
and the launch of its
Chicago-Beijing service, capacity is
expected to remain flat in 2010.
In 2008, U.S.-based airlines cut
flight capacity in response to
record fuel prices as oil prices
topped out at $147 a barrel in July
of that year. Now, dwindling
business and leisure travel are
forcing carriers to lower fares and
scale back more capacity.
Last month, JetBlue Airways Corp.
(Nasdaq: JBLU) quickly sold out
its “All You Can Jet Pass,” which
enables those who purchased a $599
ticket to fly as much as they want
from Sept. 8 to Oct. 8. And
Southwest Airlines Co. (NYSE: LUV)
in July offered a steep discount on
fares, charging $30 for flights 400
miles or less, $60 for flights
between 401 and 750 miles, and $90
for longer trips.
-- Bob Blandeburgo
Associate Editor
MoneyMorning |
