American Airlines Group reports its combined fourth quarter and full year financial results

American Airlines Group Inc. (American Airlines and US Airways) (Dallas/Fort Worth) today reported fourth quarter and full year 2013 results.

As the result of the merger which closed on Dec. 9, 2013, US Airways Group became a subsidiary of AMR Corporation which changed its name to American Airlines Group Inc. (AAG)
Fourth quarter 2013 combined net profit was $436 million on a non-GAAP basis excluding net special charges. This represents a $478 million improvement versus the company’s combined fourth quarter 2012 non-GAAP net loss of $42 million excluding net special credits
2013 combined net profit was $1.9 billion on a non-GAAP basis excluding net special charges, a $1.5 billion improvement versus the company’s combined 2012 non-GAAP net profit of $407 million excluding net special charges
The company ended the year with $10.3 billion in total cash and investments. Since the merger, the company has used more than $300 million of cash to reduce its diluted shares outstanding by approximately 14 million

For the fourth quarter 2013, AAG reported a GAAP net loss of $2.0 billion, which includes $2.4 billion of net special charges. This compares to a net profit of $262 million, which includes $350 million of net special credits in the fourth quarter 2012. AAG’s GAAP financial results include the results for US Airways only for the period from the completion of the merger on Dec. 9, 2013 through Dec. 31, 2013.

For full year 2013, GAAP net loss was $1.8 billion, which includes $3.1 billion of net special charges. This compares to a full year 2012 net loss of $1.9 billion, which includes $1.7 billion of net special charges.

The company believes it is more meaningful to compare year-over-year results for American Airlines and US Airways on a combined basis, which is a non-GAAP formulation that combines the results for AMR Corporation and US Airways Group. Therefore, it includes the results of US Airways Group for the full period (not just the period since the merger closed). See the accompanying notes in the Financial Tables section of this press release for further explanation of this presentation, including a reconciliation of GAAP to non-GAAP financial information.

Fourth quarter 2013 combined net profit was $436 million on a non-GAAP basis excluding net special charges. This compares to a combined non-GAAP net loss of $42 million excluding net special credits for the same period in 2012. Based on a diluted share count of 742 million, fourth quarter 2013 diluted earnings per share was $0.59 on a non-GAAP basis.

For 2013, the company’s combined net profit was $1.9 billion on a non-GAAP basis excluding net special charges. This represents a $1.5 billion improvement over the company’s combined 2012 non-GAAP net profit of $407 million excluding net special charges.

“The early returns on our merger are very positive,” said Doug Parker, CEO of American Airlines Group Inc. “Our teams are working well together and our customers are already beginning to see the benefits of our combined network. We have much work ahead, but believe we are on our way to restoring American as the greatest airline in the world. These financial results are evidence of the strong foundation we have in place and we anticipate improving upon these results as we further integrate our operations in 2014.”

Merger Integration

Since closing the merger on December 9, 2013, the company has made significant progress in integrating American Airlines and US Airways. Key accomplishments include:

Launched the first phase of codesharing which offers customers improved access to the company’s global network by allowing them to book select flights on both airlines’ networks
Provided reciprocal benefits for Club members and Elite members, including priority check-in, waiver of fees for checked bags, complimentary access to preferred seats, priority security, early boarding and priority baggage delivery
Allowed AAdvantage^® and Dividend Miles members to earn and redeem miles when traveling across either airline’s network
Trained more than 85,000 customer-facing employees

Revenue and Cost Comparisons

On a combined basis, total revenues in the fourth quarter were $10.0 billion, up 8.7 percent versus the fourth quarter 2012 on a 3.4 percent increase in total available seat miles (ASMs). Fourth quarter combined consolidated passenger revenue per ASM (PRASM) was 13.64 cents, up 5.0 percent versus the fourth quarter 2012, driven by a 5.3 percent increase in yield.

Strong demand and high load factors led to 2013 total combined revenues of $40.4 billion, which were up 4.7 percent versus 2012. Full year combined consolidated PRASM was 13.67 cents, up 2.6 percent versus 2012.

Total combined operating expenses in the fourth quarter were $9.7 billion, up 7.0 percent over fourth quarter 2012. Combined fourth quarter mainline cost per available seat mile (CASM) was 14.17 cents, up 4.2 percent on a 3.6 percent increase in mainline ASMs versus fourth quarter 2012. Excluding special charges, fuel and profit sharing, mainline CASM was flat compared to the fourth quarter 2012, at8.49 cents. Regional CASM excluding special charges and fuel was 15.73 cents, up 1.8 percent on a 1.6 percent increase in regional ASMs versus fourth quarter 2012.

For the full year 2013, total combined operating expenses were $37.8 billion, up 0.6 percent versus 2012. Excluding special charges, fuel and profit sharing, combined mainline CASM decreased 3.1 percent to 8.37 cents versus 2012. Regional CASM excluding special credits and fuel increased 1.1 percent to 15.38 cents versus 2012.

Liquidity and Financing Transactions

As of December 31, 2013, American had $10.3 billion in total cash and investments, of which $1.0 billion was restricted. The company also has an undrawn revolving credit facility of $1.0 billion. Approximately $710 million of this unrestricted cash balance was held as Venezuelan bolivars, valued at the weighted average applicable exchange rate of 6.04 bolivars to the dollar. The period of time to exchange those funds into dollars and repatriate them has been increasing and is presently more than a year. On January 24, 2014, the Venezuelan government announced that a newly-implemented system will determine the exchange rate (currently 11.36 to the dollar) for repatriation of income from future ticket sales, and introduced new procedures for approval of repatriation of local currency. American is working with Venezuelan authorities regarding the timing and exchange rate applicable to the repatriation of funds held in local currency.

During the fourth quarter, the company elected to pay approximately $300 million in tax withholdings for employees under the Plan of Reorganization in lieu of issuing shares of common stock, thereby reducing the number of shares issued under the Plan by approximately 13 million. On January 9, 2014, the first distribution date, the company paid approximately $23 million in additional employee tax withholdings in lieu of issuing approximately 1 million shares of common stock. The company may make a similar election on future distribution dates as both a service to our team members and an indication of our confidence in the value of our common stock.

Additional balance sheet and liquidity detail will be included in the company’s Form 10-K to be filed in February.

During the fourth quarter, the company engaged in these additional financing transactions:

Completed the American Airlines offering of the Series 2013-2B EETC in aggregate face amount of $512 million and the Series 2013-2C EETC in aggregate face amount of $256 million
Amended the American Airlines term loan facility and the revolving credit facility to lower the applicable LIBOR margins to 3.0% for both offerings. As part of this amendment, the LIBOR floor with respect to the term loan facility was reduced from 1.0% to 0.75%
Utilized the floating rate debt market to refinance eight US Airways aircraft (six A321s and two A320s) at significantly reduced rates
Financed two US Airways spare engine deliveries with a floating rate debt facility originated in 2012 while negotiating an interest rate reduction for the entire facility
On Jan. 16, 2014 the company also amended the US Airways term loan facility, to lower the applicable LIBOR margin from 3.0% to 2.75% for Tranche B1. In addition, the LIBOR floor was reduced from 1.0% to 0.75% on both the Tranche B1 and Tranche B2 loans

Special Charges

In the fourth quarter, the company recognized a combined total of $2.4 billion in net special charges, including:

$2.2 billion in net reorganization charges consisting primarily of a deemed claim to employees, professional fees and estimated allowed claim amounts
$497 million in operating expense net special charges primarily related to the pilot memorandum of understanding that became effective upon merger close, merger related costs and professional fees and a charge related to the pilot long-term disability obligation
$324 million in non-cash income tax benefits primarily related to gains recorded in Other Comprehensive Income, offset in part by a charge related to deferred tax liabilities on indefinite lived assets
$31 million in operating revenue net special credits related to a change in accounting method resulting from the modification of the company’s AAdvantage^® miles agreement with Citibank
$21 million in non-operating net special charges primarily related to interest charges to recognize post-petition interest expense on unsecured obligations

Notable Accomplishments

Additional Integration Related

On December 9, 2013, US Airways Group became a subsidiary of AMR Corporation which changed its name to American Airlines Group Inc. The company’s common stock began trading on the NASDAQ Global Select Market under the ticker “AAL”. Union presidents and more than 1,000 of the company’s employees joined American’s senior management team for the televised NASDAQ opening bell ceremony
Announced the new leadership team through the Managing Director level
Co-located our revenue management team to ensure the company is executing pricing and revenue management strategies as one organization
Took the unprecedented step of asking team members to vote to select the aircraft livery of the merged carrier. More than 60,000 team members participated

Fleet/Network

Continued to modernize its fleet with new, fuel-efficient aircraft. The company inducted thirteen Airbus A320 family aircraft, two A330-200 aircraft, five Boeing 737-800 and one Boeing 777-300 aircraft into its fleet
Signed agreements with Bombardier Inc. and Embraer S.A. to purchase 90 new 76-seat regional jets that will replace smaller, less efficient 50-seat regional aircraft scheduled for retirement
Began nonstop service between its largest hub at Dallas/Fort Worth and Bogota, Colombia and Roatan, Honduras and announced proposed new service between Dallas/Fort Worth and Hong Kong and Shanghai
Began nonstop service between its Miami hub and Curitiba and Porto Alegre, Brazil
Expanded the company’s international reach from its hub at Charlotte, North Carolina with the announcement of new, seasonal summer service to Barcelona, Spain; Brussels, Belgium; Lisbon, Portugal and Manchester, England
Announced the company will begin service to Edinburgh, Scotland from its Philadelphia hub this summer
Held the grand opening of an expanded Terminal F in PHL, the exclusive home of US Airways Express. The airport project which was managed by the company, quadrupled the facilities central area to 37,000 square feet and added 20 new food, beverage and retail outlets for our customers

Copyright Photo: Bruce Drum/AirlinersGallery.com. American’s Boeing 767-323 ER N388AA (msn 27448) arrives at the Miami hub.

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