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American Airlines Group reports a record first quarter GAAP net profit of $932 million

American Airlines Group Inc. (American Airlines) (Dallas/Fort Worth) today reported its first quarter 2015 results.

Reported record first quarter 2015 net profit of $1.2 billion excluding net special charges, tripling the Company’s first quarter 2014 net profit of $402 million excluding net special credits

Reported record first quarter 2015 GAAP net profit of $932 million, a $452 million improvement versus the Company’s first quarter 2014 GAAP net profit of $480 million

Achieved several critical integration milestones during the quarter, including a combined frequent flyer program and recalibration of the schedule at the Company’s hubs at Chicago O’Hare and Dallas/Fort Worth. Also obtained a single operating certificate from the Federal Aviation Administration (FAA) in early April

Declared a dividend of $0.10 per share to be paid on May 18, 2015, to shareholders of record as of May 4, 2015

Excluding net special charges, American Airlines Group’s first quarter 2015 net profit was a record $1.2 billion, or $1.73 per diluted share. This represents a tripling of the Company’s first quarter 2014 net profit excluding net special credits of $402 million, or $0.54 per diluted share. The Company’s first quarter 2015 pretax margin excluding net special charges was a record 12.7 percent, up 8.6 percentage points from the same period last year.

On a GAAP basis, the Company reported a record net profit of $932 million, or $1.30 per diluted share. This compares to a GAAP net profit of $480 million in the first quarter 2014, or $0.65 per diluted share.

“We are pleased to report record first quarter profits, exceeding the prior record set just last year,” said Doug Parker, American Airlines Group Chairman and CEO. “The credit belongs to our 100,000 team members who are working together to restore American to the greatest airline in the world. We are particularly pleased with the integration achievements our team has realized and look forward to building on those successes through 2015 and beyond.”

Revenue and Cost Comparisons

While core demand remains healthy, first quarter 2015 revenue was impacted by competitive capacity growth, a stronger U.S. dollar and economic softness in Latin America. Total revenue in the first quarter was $9.8 billion, a decrease of 1.7 percent versus the first quarter 2014 on a 0.9 percent decrease in total available seat miles (ASMs). Consolidated passenger revenue per ASM (PRASM) was 13.44 cents, down 1.7 percent versus the first quarter 2014. Consolidated passenger yield was 16.82 cents, down 1.2 percent year-over-year.

Total operating expenses in the first quarter were $8.6 billion, a decrease of 7.1 percent compared to the first quarter 2014 due primarily to a 42.2 percent decrease in consolidated fuel expense. First quarter mainline cost per available seat mile (CASM) was 12.80 cents, down 5.2 percent on a 1.7 percent decrease in mainline ASMs versus the first quarter 2014. Excluding special charges and fuel, mainline CASM was 9.49 cents, up 5.8 percent compared to the first quarter 2014. Regional CASM excluding special charges and fuel was 16.47 cents, down 0.9 percent on a 5.7 percent increase in regional ASMs versus the first quarter 2014.

Liquidity

As of March 31, 2015, the Company had approximately $9.9 billion in total cash and short-term investments, of which $757 million was restricted. The Company also had an undrawn revolving credit facility of $1.8 billion.

Also in the first quarter, the Company returned $260 million to its shareholders through the payment of $70 million in quarterly dividends and the repurchase of $190 million of common stock, or 3.8 million shares, at an average price of $49.47 per share.

Shares repurchased under the buyback program may be made through a variety of methods, which may include open market purchases, privately negotiated transactions, block trades or accelerated share repurchase transactions. Any such repurchases will be made from time to time subject to market and economic conditions, applicable legal requirements and other relevant factors. The program does not obligate the Company to repurchase any specific number of shares or continue a dividend for any fixed period, and may be suspended at any time at the Company’s discretion.

The Company also purchased approximately 87,230 shares from its Disputed Claims Reserve at the prevailing market price to satisfy certain tax obligations resulting from the February 10, 2015 distribution.

Approximately $644 million of the Company’s unrestricted cash and short-term investment balance was held in Venezuelan bolivars. This balance includes approximately $621 million valued at 6.3 bolivars to the U.S. dollar and approximately $23 million valued at 12.0 bolivars to the U.S. dollar, with the rate depending on the date the Company submitted its repatriation request to the Venezuelan government. These rates are materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system. The Company’s cash balance held in Venezuelan bolivars decreased $12 million from the December 31, 2014 balance of $656 million due to payments made in bolivars for local operating expenditures.

During 2014, the Company significantly reduced capacity in the Venezuelan market and is no longer accepting bolivars as payment for airline tickets. The Company is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses or other accounting adjustments, which could be material, particularly in light of the additional uncertainty posed by the February 2015 changes to the foreign exchange regulations and the continued deterioration of economic conditions in Venezuela. More generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by the Company and can significantly affect the value of its assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect the Company’s business, results of operations and financial condition.

Notable Accomplishments

Merger Accomplishments

Merged frequent flyer programs by moving US Airways Dividend Miles members into AAdvantage®
In April, received a single operating certificate from the FAA which allows the airline to operate under one certificate
Achieved a ratified 5-year contract with the carrier’s 15,000 pilots that provides industry leading pay rates
Optimized the Company’s flight schedule at Chicago O’Hare International Airport and Dallas/Fort Worth International Airport
Co-located operations at eight more airports across its network, bringing the total number of co-locations to 114

Finance Accomplishments

Completed a $500 million unsecured bond offering priced at 4.625% and a $1.2 billion enhanced equipment trust certificate (EETC) issue priced at a blended rate of 3.425%. In addition, in April the Company refinanced its $750 million 2014 slot, gate and route term loan at lower interest rates and improved collateral terms
On March 20, the Company was added to the S&P 500 index
Marketing, Network and Fleet Accomplishments

Took delivery of the first two Boeing 787 Dreamliners, which will enter domestic service in May 2015, and begin flying internationally in June 2015. Also, as part of its ongoing fleet renewal program, the Company took delivery of 18 new mainline aircraft, and retired its last Boeing 767-200

Signed a codeshare agreement with Korean Air to place its code on American flights between Dallas/Fort Worth International Airport and Seoul, South Korea

Became the official airline partner of the Los Angeles Clippers and was named the official airline of the Chicago Cubs and Wrigley Field

In the first quarter, the Company recognized $311 million in net special charges, including:

$223 million in merger related integration expenses, including $216 million in mainline special charges and $7 million in regional special charges

$99 million in charges relating to the Company’s new pilot joint collective bargaining agreement

$6 million in net credits for bankruptcy related items, principally consisting of fair value adjustments for bankruptcy settlement obligations

$8 million non-operating net special credits comprised of a $17 million early debt extinguishment gain on the repayment of American’s AAdvantage® loan with Citibank, offset in part by a $9 million charge related to the prepayment of certain aircraft financings

$9 million in tax special charges related to certain indefinite-lived intangible assets

Copyright Photo: AirlinersGallery.com. The new Boeing 787-8 goes into revenue service next month. The pictured Boeing 787-8 Dreamliner N801AC (msn 40619) was the second, delivered on February 27. N801AC is pictured landing at London (Heathrow) on a proving and training flight.

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United Airlines reports record first quarter net income of $508 million, announces its fleet plans including 10 Boeing 777-300 ERs

United Airlines (UAL) (United Continental Holdings, Inc.) (Chicago) today reported first-quarter 2015 net income of $582 million, or $1.52 per diluted share, excluding $74 million of special items. Including special items, UAL reported first-quarter net income of $508 million, or $1.32 per diluted share. These results are a record first-quarter profit for the company.

UAL earned a 17.1 percent return on invested capital for the 12 months ended March 31, 2015.
UAL’s consolidated passenger revenue per available seat mile (PRASM) increased 0.4 percent for first-quarter 2015 compared to first-quarter 2014.

First-quarter 2015 consolidated unit costs (CASM), excluding special charges, third-party business expenses, fuel and profit sharing, decreased 1.5 percent year-over-year on a consolidated capacity increase of 0.1 percent. First-quarter 2015 CASM, including those items, decreased 13.1 percent year-over-year.

In the quarter, UAL returned approximately $200 million to shareholders as part of its previously announced $1 billion share buyback program.

In the quarter, UAL prepaid approximately $120 million of debt and announced its intention, in the second quarter, to prepay $601 million of its 6 percent notes due 2026 and 2028.

“This quarter we reported a profit of nearly $600 million, excluding special items, a $1 billion improvement compared to the first quarter of 2014, and I’d like to thank the United team for all their great work,” said Jeff Smisek, UAL’s chairman, president and chief executive officer. “We continued to improve our operational reliability and deliver products that enhance our customers’ experience, including new aircraft, improved food, new inflight entertainment options and modern facilities. We are making significant progress on our long-term plan to reduce costs, improve our margins and grow our earnings, and expect our second quarter pre-tax margin to be between 12 and 14 percent, excluding special items.”

First-Quarter Revenue and Capacity

For the first quarter of 2015, total revenue was $8.6 billion, a decrease of 1.0 percent year-over-year. First-quarter consolidated passenger revenue increased 0.5 percent to $7.4 billion, compared to the same period in 2014. Ancillary revenue per passenger in the first quarter increased 8.6 percent year-over-year to more than $23 per passenger. First-quarter cargo revenue grew 15.8 percent year-over-year to $242 million. Other revenue in the first quarter decreased 14.2 percent year-over-year, mostly due to the reduction in sales of fuel to a third party. The corresponding expense decline from this reduction appears in third-party business expense.

Consolidated revenue passenger miles increased 0.1 percent and consolidated available seat miles increased 0.1 percent year-over-year for the first quarter, resulting in a first-quarter consolidated load factor of 81.1 percent.

First-quarter 2015 consolidated PRASM increased 0.4 percent and consolidated yield increased 0.4 percent compared to the first quarter of 2014.

“This quarter our PRASM performance reflected good progress on our revenue initiatives,” said Jim Compton, UAL’s vice chairman and chief revenue officer. “We will continue to match capacity with demand while making the appropriate network, fleet and product decisions to enhance revenue and margin performance, while improving our customers’ experience.”

First-Quarter Costs

First-quarter consolidated CASM, excluding special charges, third-party business expense, fuel and profit sharing, decreased 1.5 percent compared to the first quarter of 2014. The improved cost performance was driven by the better-than-expected performance from the company’s Project Quality efficiency program and strong U.S. dollar. First-quarter consolidated CASM including those items decreased 13.1 percent.

First-quarter total operating expenses, excluding special charges, decreased $1.19 billion, or 13.2 percent, year-over-year. Including special charges, total operating expenses decreased $1.18 billion, or 13.0 percent, in the first quarter versus the same period in 2014.

First-Quarter Liquidity and Cash Flow

In the first quarter, UAL generated over $1 billion in free cash flow, and ended the quarter with $7.0 billion in unrestricted liquidity, including $1.35 billion of undrawn commitments under its revolving credit facility. During the first quarter, the company had gross capital expenditures of $794 million, excluding fully reimbursable projects. The company contributed approximately $180 million to its pension plans and made debt and capital lease principal payments of $320 million in the first quarter, including approximately $120 million of prepayments. UAL also announced its intention to prepay the remaining $303 million of 6 percent notes due 2026 on April 1, 2015 and to prepay $298 million of 6 percent notes due 2028 on May 1, 2015.

As part of UAL’s $1 billion share buyback program, the company spent approximately $200 million in share repurchases in the first quarter. Through the first quarter, UAL has returned a total of approximately $520 million to shareholders under the program.

For the 12 months ended March 31, 2015, the company’s return on invested capital was 17.1 percent.

For more information on UAL’s second-quarter 2015 guidance, please visit ir.united.com for the company’s investor update.

Fleet Updates

Today, UAL announced refinements to its fleet plan, which will allow the company to achieve longer-term network needs without increasing its outlook for capacity or gross capital expenditures over the next several years. These adjustments will accelerate the company’s network initiatives as it transitions flying into the mainline operation from the regional operation, increases average gauge and reduces reliance on 50-seat aircraft. As part of this effort, the company will:

Complete the removal of more than 130 50-seat aircraft from its schedule by the end of 2015. UAL will remove additional 50-seat aircraft in 2016 and beyond as aircraft come off lease.

Above Copyright Photo: Brian McDonough/AirlinersGallery.com. United is removing rapidly its smaller regional jets. Operated by ExpressJet Airlines, Embraer ERJ 145XR (EMB-145XR) N12166 (msn 145831) approaches the runway at Baltimore/Washington (BWI).

Exchange 10 787 orders with Boeing for 10 777-300 ERs for delivery beginning in 2016. The new 777-300 ER aircraft will provide attractive upgauge and range opportunities to the company at competitive economics.

Extend the life of 11 additional 767-300 ER aircraft. The company now plans to extend the life of all 21 767-300 ER through investments in winglets, reliability improvements and interior modifications, which will improve financial performance and make the aircraft more customer pleasing.

Above Copyright Photo: SPA/AirlinersGallery.com. United has made the decision to extend the operating life of all 21 Boeing 767-300 ER aircraft. United is also inserting some international Boeing 777-200 and 757-200 aircraft back into the domestic market.

Reconfigure and transition 10 777-200 aircraft currently used in international markets into the domestic network, and position a number of its trans-Atlantic 757-200 fleet into the domestic and Latin markets, with the extension of the 767-300 ER aircraft.

Acquire additional used narrowbody aircraft. The company is in final negotiations regarding the lease of 10 to 20 used narrowbody aircraft for delivery over the next few years. In addition, the company plans to continue to seek other opportunities to acquire used aircraft to meet its needs as market conditions allow.

These changes will not impact the company’s current 2015 capacity guidance, and are consistent with the company’s focus on capacity discipline, and will not alter the company’s current gross annual capital expenditure guidance of $2.7 billion to $2.9 billion over the next three to four years.

“These changes are part of our strategy to improve operational reliability, grow capacity with demand, and enable us to achieve our long-term goal to improve margins and return on invested capital,” said John Rainey, UAL’s executive vice president and chief financial officer. “Customers tell us they prefer larger aircraft, and these fleet modifications will provide more opportunity for our customers to travel on the type of aircraft they prefer.”

Top Copyright Photo: SPA/AirlinersGallery.com. United will exchange 10 Boeing 787 orders with Boeing for 10 777-300 ERs for delivery beginning in 2016. According to the carrier, “the new 777-300 ER aircraft will provide attractive upgauge and range opportunities to the company at competitive economics.” Boeing 787-8 Dreamliner N26910 (msn 34826) climbs away from London (Heathrow).

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Ethiopian Airlines extends its Hong Kong route to Tokyo Narita

Ethiopian Airlines (Addis Ababa), as planned, on April 21 extended the Addis Ababa – Hong Kong route to Tokyo (Narita) in association with Star Alliance partner ANA (Tokyo). The route is operated three days a week with its Boeing 787-8 Dreamliners.

Copyright Photo: AirlinersGallery.com. Boeing 787-8 ET-AOV (msn 34750) touches down in London (Heathrow).

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Boeing donates 787-8 ZA002 (N787EX) to the Pima Air and Space Museum

Boeing (Chicago, Seattle and Charleston) has agreed to the permanent display of one of the original 787-8 Dreamliner flight test airplanes at the Pima Air and Space Museum.

This particular 787, test designated as ZA002 and registered as N787EX (msn 40691), is the second Boeing 787-8 to be produced. The airplane flew for the first time on December 22, 2009, joining what would become a six-airplane flight test and certification program for the 787-8. The primary focus of ZA002 was testing systems performance.

Interestingly Boeing registered N787EX with the FAA as a “787-83Q” but later decided to drop all Boeing customer codes in the designation (for the first time) and elected to designate all Dreamliners as 787-8s, 787-9s etc.

Coinciding with the 787 induction, the Pima Air and Space Museum also unveiled its new ‘Women in Flight’ exhibit, commemorating the achievements of female aviators over the past century.

ZA002 is the second of three flight test 787-8s Boeing plans to share with communities and future generations of employees and airplane enthusiasts.

The Pima Air and Space Museum is one of the largest aviation museums in the world, and the largest non-government funded aviation museum in the United States. The museum maintains a collection of more than 300 aircraft and spacecraft from around the globe—including many rare and one-of-a-kind—and more than 125,000 artifacts. The museum is located at 6000 E. Valencia Road, Tucson, Exit 267 off Interstate 10.

Copyright Photo: Akira Uekawa/AirlinersGallery.com. Although N787EX was painted in full ANA colors it was never delivered to launch customer ANA due to being an early model. Delivery aircraft incorporated changes Boeing made as a result of the testing.

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AeroMexico to lease one Boeing 787-9 from ALC

Air Lease Corporation (Los Angeles) has announced a long term lease agreement with AeroMexico (Mexico City) for one new Boeing 787-9 aircraft. This aircraft is from ALC’s order book with Boeing and is scheduled for delivery in fall 2016.

ALC logo

Copyright Photo: SPA/AirlinersGallery.com. AeroMexico will take delivery of the first stretched Boeing 787-9 Dreamliner in 2016 and the new type will replace the existing and aging two Boeing 767-300 ERs. The new 787-9s will operate along with the current smaller 787-8 Dreamliners. The pictured 787-8 N964AM (msn 35307) lands in London (Heathrow).

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LOT Polish Airlines produces its first profit in seven years

LOT Polish Airlines (Warsaw) is back in the black, producing its first profit in seven years. The airline issued this statement:

LOT ended 2014 in the black. With more than PLN 99 million ($26 million) profit on its core business of flying, LOT earned 40 percent more than it planned. This is the company’s first profit in seven years.

LOT was supposed to end 2014 with PLN 70 million ($19 million) profit on its core business but it is almost 30 million ($8 million) above the Restructuring Plan assumptions and 103 million ($27 million) more than in 2013.

“The company is steadily improving its situation, stabilizing its financial condition and getting ready for rapid growth in the next year,” said Sebastian Mikosz, CEO, LOT Polish Airlines. “The positive result on the core business, which is a key indicator of our company’s health, is of utmost importance since it has been achieved regardless of the compensation measures required by the European Commission.”

“Because of the public aid received, we had to cut the number of flights by almost eight percent in 2014, compared to the previous year. Nevertheless, we carried two percent more passengers and increased the revenue in comparison with 2013, while keeping a similar cost level,” continued Mikosz.

The company owes its positive results to consistent changes and initiatives included in the Restructuring Plan. Most of them were added as early as in 2013, but 2014 was the first full year to have seen the results. LOT continues to modernize and expand its sales channels, including mobile solutions. The quality of service is gradually improving. New products are being added to address new passenger groups in the market.

The new philosophy of building a network has also paid off. LOT has increased its connecting capacities by as much as over 40 percent in its Warsaw hub. Such connecting options are among the reasons why LOT has become the first choice for a constantly growing number of passengers from Poland as well as the entire Eastern and Central Europe region.

2014 was also the first year to have seen the Dreamliner effect since it was only in the entire past year that all long-haul flights were operated exclusively with these aircraft. The Boeing 787 Dreamliner is not only popular among passengers but provides tangible benefits, such as fuel savings. LOT currently operates six Dreamliners on its schedule network, leases them to other airlines and operates long-haul charter flights in the winter season. An efficient use of the Dreamliner fleet is included in the Restructuring Plan.

“The results in 2014 show we can operate effectively in this very competitive market, and there is a place for such a carrier as LOT,” added Mikosz. “However, we have to remember that this is just the first step of transformation and more challenges are ahead. This year, we are bound to repeat the financial success, as it is our goal to achieve sustained profitability and to move from restructuring to a rapid growth of the company.”

LOT has also improved other indicators. The EBITDA — indicator of company performance which determines the cash flow generating ability — also improved. EBITDA in 2014, is PLN 291 million ($77 million), compared to 2013 PLN 156 million ($41 million) and 2012 a minus PLN 346 million ($91 million).

The normalized net profit, i.e. without one-offs and accounting effects, is also positive and amounts nearly to PLN 36 million ($9.5 million). Taking into account the one-offs and accounting effects, related to the increase of currency exchanging rates (mainly of the dollar), a minus appears at the net result at the level of 263.4 million ($70 million). This is only an artificial accounting record having no effect on the actual financial health of the company. It is because the relationship between LOT’s earnings and spending in foreign currencies is fairly in balance. Therefore, no currency is in fact exchanged, but only the amounts are booked in PLN according to the valid standards. The net profit in the previous year amounted to PLN 26 million ($7 million). The normalized net profit in 2013 was a minus 67 million ($18 million).

Owing to the consistent improvement of its financial condition, LOT postponed and considerably reduced by as much as two thirds, the money it received from the second state aid tranche. At the end of 2014, LOT received PLN 127 million ($34 million.). It should be emphasized that the amount of state aid has no effect on the result.

The company’s growth policy for 2016 is underway. It will be announced in the next few months new short- and long-haul destinations. LOT will start flying on those routes at the beginning of the next year when the Restructuring Plan is formally ended.

Copyright Photo: SPA/AirlinersGallery.com. The airline attributes the turnaround to its game changing six Boeing 787-8 Dreamliners and its restructuring program as the main reasons for the change in fortunes.

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Ethiopian will now route its North American flights through Dublin

Ethiopian Airlines (Addis Ababa) will now route its daily Washington Dulles-bound flight and its three times weekly-Toronto Pearson-bound flight from Rome (Fiumicino) to Dublin effective May 10 according to Irish Travel News. Previously the airline announced it was routing its Addis Ababa-Los Angeles Boeing 787 flight through Dublin as a transit stop. The airline will not gain any traffic rights from Dublin.

In other news, TAP Portugal and Ethiopian Airlines, both Members of Star Alliance, have signed a code-share agreement and will be soon introducing code-share services between Portugal and Ethiopia.

Copyright Photo: Michael Kelly/AirlinersGallery.com. Boeing 787-8 Dreamliner ET-ASG (msn 36111) approaches the runway at Dublin.

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