Tag Archives: AMR Corporation

It is official: American Airlines and US Airways to merge

AMR Corporation (Dallas/Fort Worth), the parent company of American Airlines, Inc., and US Airways Group, Inc. (US Airways) (Phoenix) today announced that the boards of directors of both companies have unanimously approved a definitive merger agreement under which the companies will combine to create a premier global carrier, which will have an implied combined equity value of approximately $11 billion based on the price of US Airways’ stock as of February 13, 2013.

Operating under the American Airlines name, one of the most recognized brands in the world, the combined airline will have a robust global network and a strong financial foundation. The merger will offer benefits to both airlines’ customers, communities, employees, investors, and creditors. Customers will have access to more choices and increased service across the combined company’s larger worldwide network and through an enhanced oneworld® Alliance, of which American Airlines is a founding member. With firm orders for more than 600 new mainline aircraft, the combined airline will have one of the most modern and efficient fleets in the industry, and a solid foundation for continued investment in technology, products, and services.

Thomas Horton, Chairman, President and Chief Executive Officer of American Airlines, will serve as Chairman of the combined airline’s Board of Directors through its first annual meeting of shareholders, and will also serve as the combined airline’s representative to the oneworld Alliance, of which he is currently chairman, and International Air Transport Association for the same duration. Doug Parker, Chairman and CEO of US Airways, will serve as Chief Executive Officer and a member of the Board of Directors. Mr. Parker will assume the additional position of Chairman of the Board following the conclusion of Mr. Horton’s service. The Board of Directors will initially be made up of twelve members. The Board will be comprised of three American Airlines representatives, including Tom Horton, four US Airways representatives, including Doug Parker, and five AMR creditor representatives.

Under the terms of the merger agreement, US Airways stockholders will receive one share of common stock of the combined airline for each share of US Airways common stock then held. The aggregate number of shares of common stock of the combined airline issuable to holders of US Airways equity instruments (including stockholders, holders of convertible notes, optionees and holders of restricted stock units) will represent 28% of the diluted equity of the combined airline. The remaining 72% diluted equity ownership of the combined airline will be issuable to stakeholders of AMR and its debtor subsidiaries that filed for relief under Chapter 11 (the “Debtors”), American’s labor unions, and current AMR employees.

The merger is to be effected pursuant to a plan of reorganization (the “Plan”) for the Debtors in their currently pending cases under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The Plan is subject to confirmation and consummation in accordance with the requirements of the Bankruptcy Code.

In connection with the merger agreement, AMR has entered into a support agreement with certain unsecured creditors holding approximately $1.2 billion of prepetition unsecured claims against the Debtors. Pursuant to the support agreement, the creditors party thereto have agreed, subject to certain conditions, to support a plan of reorganization implementing the merger and incorporating a compromise and settlement of certain intercreditor and intercompany claims issues. Provisions of the support agreement relating to the treatment of prepetition unsecured claims against the Debtors and the treatment of existing equity interests in AMR are summarized further below.

The combined airline will offer more than 6,700 daily flights to 336 destinations in 56 countries. The combined airline is expected to maintain all hubs currently served by American Airlines and US Airways, resulting in more travel options for customers. Both airlines expect that the regional carriers they own – AMR Corporation’s American Eagle and US Airways’ Piedmont and PSA – will continue to operate as distinct entities, providing seamless service to the combined airline. The company will be headquartered in Dallas-Fort Worth and will maintain a significant corporate and operational presence in Phoenix.

“Today, we are proud to launch the new American Airlines – a premier global carrier well equipped to compete and win against the best in the world,” said Tom Horton, Chairman, President, and Chief Executive Officer of American Airlines. “Together, we will be even better positioned to deliver for all of our stakeholders, including our customers, people, investors, partners, and the many communities we serve.

“The combination of American and US Airways brings together two highly complementary networks with access to the best destinations around the globe and gives us a strong platform to provide our customers the most connected, comfortable travel experience available. The operational and financial strength of the combined airline is expected to enable continued investment in new products and technologies and will create exciting new opportunities for our people, even as we deliver strong cash flow and sustainable profitability.

“Over the past year, the American team stood tall as we established a rock solid foundation for long-term success through an efficient and effective restructuring. As part of this process, after months of exhaustive analysis and a thorough review of all alternatives, we concluded that this merger is the best outcome for our company, delivering not only the greatest value for our financial stakeholders, but also positioning us well for sustainable success over the long term.

“This merger provides enhanced potential for full recovery for our creditors. In addition, I am pleased that we were able to obtain the support of a sizable portion of our unsecured creditors for a plan that provides a recovery of at least a 3.5% aggregate ownership stake in the combined airline for our shareholders. It is unusual in Chapter 11 cases – and unprecedented in recent airline restructurings – for shareholders to receive meaningful recoveries. I look forward to working closely with Doug Parker, whom I have known as a friend for more than 25 years, and with the leadership teams of both companies to assure a smooth integration and the creation of a new industry leader.”

Doug Parker, Chairman and Chief Executive Officer of US Airways, said, “Today marks an exciting new chapter for American Airlines and US Airways. American Airlines is one of the world’s most iconic brands. The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace. Our combined network will provide a significantly more attractive offering to customers, ensuring that we are always able to take them where they want to travel, when they want to go.”

Parker continued, “Today’s announcement is possible only because of the important work carried out over the past year by Tom Horton and the American team. No one cares more about the long-term success of American Airlines and its people than Tom. Through a successful restructuring and this merger, Tom and the American team have established an excellent foundation for the new American Airlines to become a premier global airline. I am grateful for all that Tom has done to ensure that American is in the best position possible for future success and am delighted he has agreed to remain on board to assist with the transition.

“I am particularly pleased for the employees of both US Airways and American. This merger will create a stronger company, with the path to improved compensation and benefits and greater long-term opportunities for all our employees. We are grateful to have the support of both companies’ unions and thank them and their leaders for their hard work and vision. We look forward to a bright future for our employees and enhanced service and choice for our customers. With today’s announcement, we start becoming one team and one new airline.”

More Choices, Increased Service, and an Enhanced Travel Experience for Customers

The transaction will combine American Airlines’ and US Airways’ complementary flight networks, increasing efficiency and providing more options for customers. The result for consumers is a highly competitive alternative to other global carriers. Importantly, the combined worldwide network will offer superior breadth of schedule to high value travelers.

The combined airline is expected to:

Provide the most service across the East Coast and Central regions of the U.S., including the East Coast shuttle, enhancing the combined carrier’s competitive position
Expand its presence and further strengthen the network in the Western U.S.
Bolster American’s industry-leading position in Latin America and the Caribbean
Enhance connectivity within the oneworld Alliance – including joint businesses with British Airways and Iberia across the Atlantic and with Japan Airlines and Qantas across the Pacific – creating more options for travel and benefits both domestically and internationally
Serve 21 destinations in Europe and the Middle East
Maintain current hubs of both American Airlines and US Airways, resulting in more choices for customers
Improve traffic flows through the existing hubs of both carriers
Expand service from those hubs to offer increased service to existing markets and service to new cities
Provide an industry-leading travel experience through innovative initiatives intended to increase comfort and connectivity for all customers
Improve valuable loyalty program benefits through expanded opportunities to earn and redeem miles across the combined network

In addition, American Airlines’ landmark agreements with Airbus and Boeing, designed to transform the American Airlines fleet over the next four years, will solidify the combined airline’s fleet plan into the next decade. The combined airline is planning to take delivery of more than 600 new aircraft, including 517 narrowbody aircraft and 90 widebody international aircraft, most of which will be equipped with advanced in-seat inflight entertainment systems offering thousands of hours of programming, inflight Wi-Fi offering connectivity throughout the world, and “Main Cabin Extra” seating with 4-6 inches of additional legroom in the Main Cabin. The combined carrier’s fleet will also feature fully lie-flat, all-aisle access premium seating on American’s new Boeing 777-300ER aircraft and Airbus 321 Transcontinental deliveries slated for later this year. Similar to US Airways’ Airbus A330 international Envoy service, American will also retrofit existing 777-200 and 767-300 aircraft to include fully lie-flat premium seating in an effort to provide a consistent experience for customers flying on the combined carrier.

Customers can continue to book travel and track and manage flights and frequent flyer activity through AA.com or USAirways.com, and will continue to enjoy all benefits and rewards of the AAdvantage and Dividend Miles frequent flyer programs. At this time, there are no changes to the frequent flyer programs of either airline as a result of the merger agreement. All miles in both programs will continue to be honored. Upon merger approval, additional information will be provided to customers of both frequent flyer programs on any future program updates, including account consolidation or benefit alignment.

Employees to Benefit from Greater Long-Term Opportunities

Employees of the combined airline will benefit from being part of a company with a more competitive and stable financial foundation, which will create greater opportunities over the long term. Each carrier’s employees will receive reciprocal travel privileges as quickly as possible. The merger will also provide the path to improved compensation and benefits for employees.

“Together we will combine the proud histories of both airlines and create one team that recognizes the contributions of all employees to our airlines’ great customer service and financial success. Our future has never looked brighter thanks to the outstanding people of both American Airlines and US Airways,” concluded Parker.

As previously announced, the unions representing American Airlines pilots, flight attendants and ground employees, as well as the union representing US Airways pilots, have agreed to terms for improved collective bargaining agreements effective upon the closing of the merger. In addition, the union representing US Airways flight attendants has reached a tentative agreement that includes support for the merger. The American Airlines unions representing pilots and flight attendants are working with their US Airways counterparts to determine representation and single agreement protocols.

Superior Value for Stakeholders

American Airlines stakeholders and US Airways shareholders are expected to benefit from the significant upside potential of the new combined airline, which is expected to have approximately $40 billion in revenues based upon the combination of each company’s projected 2013 performance. The combination is expected to deliver enhanced value to American Airlines stakeholders and is projected to be significantly accretive to EPS for US Airways shareholders in 2014.

The transaction is expected to generate more than $1 billion in annual net synergies in 2015, including $900 million in network revenue synergies, resulting predominantly from increased passenger traffic, taking advantage of the combined carrier’s improved schedule and connectivity, an improved mix of high-yield business, and the redeployment of the combined fleet to better match capacity to customer demand. Estimated cost synergies of approximately $150 million are net of the impact of the new labor combined contracts at American Airlines and US Airways. The companies expect one-time transition costs for the merger of approximately $1.2 billion, spread over the next three years.

The abovementioned provisions of the support agreement relating to the treatment of prepetition unsecured claims against the Debtors and existing equity interests in AMR under a plan are summarized as follows:

Holders of existing AMR equity interests will receive an aggregate initial distribution of 3.5% of the common stock of the combined airline on the effective date of the plan, with the potential to receive additional shares if the value of common stock received by holders of prepetition unsecured claims would satisfy their claims in full;
So-called “double dip” creditors (i.e., holders of prepetition unsecured claims as to which both AMR and American Airlines are obligors, either directly or indirectly) will receive shares of mandatorily convertible preferred stock equal to the full amount of their claims. These shares will convert into common stock of the combined airline at 30 day intervals during the 120 day period following the effective date of the plan, based on a formula tied to the market price of the common stock of the combined airline;
So-called “single dip” creditors (i.e., holders of prepetition unsecured claims that are not guaranteed) will receive a combination of shares of the same class of mandatorily convertible preferred stock as the “double dip” creditors will receive and shares of common stock of the combined airline; and
American Airlines’ labor unions and other employees will receive an aggregate of 23.6% of the common stock of the combined airline ultimately distributed to holders of prepetition unsecured claims against the Debtors.

The support agreement can be terminated in certain instances, including the failure of the Debtors to achieve certain milestones toward confirmation and consummation of the plan.

Clear Roadmap to Completion

The merger is conditioned on the approval by the U.S. Bankruptcy Court for the Southern District of New York, regulatory approvals, approval by US Airways shareholders, other customary closing conditions, and confirmation and consummation of the Plan. The combination is expected to be completed in the third quarter of 2013. During the period between the signing and closing of the transaction, a transition-planning team comprised of leaders from both companies will develop a carefully constructed integration plan to help assure a smooth and sustainable transition.

Advisors

Rothschild is serving as financial advisor to American Airlines, and Weil, Gotshal & Manges LLP, Jones Day, Paul Hastings, Debevoise & Plimpton LLP and K&L Gates LLP are serving as legal counsel. Barclays and Millstein & Co. are serving as financial advisors to US Airways, and Latham & Watkins LLP, O’Melveny & Myers, Cadwalader, Wickersham & Taft LLP, and Dechert LLP are serving as legal counsel to US Airways. Moelis & Company and Mesirow Financial are serving as financial advisors to the Unsecured Creditors Committee. Skadden, Arps, Slate, Meagher & Flom LLP and Togut, Segal & Segal LLP are serving as the Unsecured Creditors Committee’s legal counsel.

Tax Benefit Preservation Plan

In conjunction with execution of the Merger Agreement, US Airways also announced today that its Board of Directors has adopted a tax benefit preservation plan designed to help preserve the value of the net operating losses and other deferred tax benefits of US Airways and the combined enterprise resulting from the merger with AMR. The tax benefit preservation plan, which is effective immediately and will remain in place no longer than the closing of the merger, is designed to reduce the likelihood that changes in the US Airways investor base would limit the future use of the tax benefits by US Airways or the combined enterprise, which would significantly impair the value of the benefits to all shareholders.

As part of the plan, the US Airways Board of Directors has declared a dividend of one common stock purchase right, which are referred to as “rights,” for each outstanding share of US Airways common stock. The rights will be exercisable if a person or group, without the approval of the US Airways board or other permitted exception, acquires beneficial ownership of 4.9% or more of US Airways’ outstanding common stock. The rights also will be exercisable if a person or group that already beneficially owns 4.9% or more of the common stock of US Airways, without board approval or other permitted exception, acquires additional shares (other than as a result of a dividend or a stock split). If the rights become exercisable, all holders of rights, other than the person or group triggering the rights, will be entitled to purchase US Airways common stock at a 50% discount. Rights held by the person or group triggering the rights will become void and will not be exercisable. The rights will expire immediately upon the occurrence of certain events, including the closing of the merger or the termination of the merger agreement. In addition, the certificate of incorporation of the combined company will contain limitations on certain acquisitions and dispositions of shares effective from and after the closing of the merger, also with the objective of preserving the value of net operating losses and other deferred tax benefits.

US Airways shareholders with ownership positions near or above the 4.9% threshold specified in the tax preservation plan are urged to review its terms carefully. Further details about the plan will be contained in a Form 8-K to be filed today by US Airways with the Securities and Exchange Commission.

Combined Domestic Route Map:

Please click on the map for the full size view.

Combined International Route Map:

Please click on the map for the full size view.

Video: CLICK HERE

Can AMR’s CEO Tom Horton survive the American-US Airways merger?

AMR Corporation’s and American Airlines‘ (Dallas/Fort Worth) CEO Tom Horton, as we have noted, is fighting to keep his job in a new American Airlines as the merger talks with US Airways (Phoenix) progresses. Initially he rebuffed any merger talks with Doug Parker of US Airways. Gradually he has warmed up to the idea. US Airways Group’ (the entity with the money) CEO Doug Parker is likely to become the new CEO of the new American should the merger be completed. This was the situation when America West Airlines (Phoenix) acquired the old US Airways (Washington) and kept the old US name but assumed the management of the new company. This also happened with the Delta-Northwest and United-Continental mergers. Usually one CEO steps aside as there is not enough room in the “kitchen” for two strong CEOs (cooks).

This sensitive issue is one of the remaining issues in the American-US Airways merger discussions. Is there enough room to keep Tom Horton? Maybe as the Chairman of the Board? Would this lead to conflict? Reuters explores these burning questions (see below for the link).

Here is the bio of Thomas W. Horton:

Thomas W. Horton was named Chairman and Chief Executive Officer of AMR Corporation and American Airlines in November 2011. He also currently serves as Chairman of the oneworld® Alliance, where American is a founding member.

Horton became President of AMR Corporation and American Airlines in July 2010. In this role, he oversaw finance, planning, sales and marketing, customer service, information technology and American’s global network and alliance strategy.

Previously, Horton served as Executive Vice President – Finance and Planning and Chief Financial Officer of AMR and American Airlines. He was named to that position in March 2006 upon returning to American from AT&T Corporation, where he served as Vice Chairman and Chief Financial Officer.

Horton initially joined AMR in 1985 and has held a range of leadership positions, including Vice President responsible for the airline’s Europe business, based in London. In January 2000, he was named Senior Vice President and Chief Financial Officer of AMR.

In 2002, Horton joined AT&T, where he served first as CFO and later was also appointed Vice Chairman. In 2005, Horton led the evaluation of strategic alternatives, ultimately leading to the combination with SBC, which formed the new AT&T.

Horton holds a Master of Business Administration degree from the Cox School of Business at Southern Methodist University (SMU) and graduated with a Bachelor of Business Administration degree, magna cum laude, from Baylor University. Horton serves on the Board of Directors of Qualcomm, Inc., a leading developer and innovator of advanced wireless technologies and data solutions. He also serves on the Executive Board of the Cox School of Business at SMU.

Reuters interestingly explores this thorny issue. Read the article: CLICK HERE

American Airlines:

US Airways:

AMR Corporation reports a 4Q 2012 net profit of $262 million, a $1.4 billion improvement over 4Q 2011 and a $1.9 billion loss for 2012

AMR Corporation (Dallas/Fort Worth), the parent company of American Airlines, Inc. (Dallas/Fort Worth), today reported results for the fourth quarter and year ended December 31, 2012. Key points include:

Revenue of $24.9 billion in 2012, the highest in company history
Full-year operating profit of $494 million, excluding special items, a $749 million improvement over 2011
Full-year net loss of $1.9 billion. Excluding reorganization and special items, the full-year net loss was $130 million, a $932 million improvement over 2011
American took delivery of 11 new aircraft in the fourth quarter (nine 737-800s and two 777-300ERs) and 30 new aircraft during the full year (28 737-800s and two 777-300ERs), putting the airline on track to have the youngest, most fuel-efficient fleet among U.S. network carriers by 2017

“We have made enormous progress towards building the new American,” said Tom Horton, AMR’s Chairman and CEO. “It is remarkable what the American team has been able to accomplish, including generating record revenue and a return to an operating profit for the year while restructuring every aspect of our company. I want to thank all of our people for their dedication, hard work and commitment to serving our customers during this time. Our momentum is growing toward emerging as a strong, healthy and vibrant competitor. In fact, with what we have accomplished, we expect to show strong results beginning in the first quarter of 2013.”

In the fourth quarter, AMR reported a net profit of $262 million compared to a net loss of $1.1 billion in the fourth quarter of 2011. AMR’s fourth quarter results include $350 million of net positive reorganization and special items, which are detailed below.

Excluding reorganization and special items, the net loss in the fourth quarter of 2012 was $88 million, a $121 million improvement from the prior year. The fourth quarter of 2012 was negatively impacted by Hurricane Sandy and the early November snow storm in the Northeast and, separately, by the residual headwind on fourth quarter bookings from the operational disruptions experienced in late September and early October. The cumulative impact from these events is estimated to have reduced net profits by $142 million.

For full-year 2012, American recorded a net loss of $1.9 billion, compared to 2011’s full-year net loss of $2.0 billion. AMR’s full year 2012 results include $1.7 billion of net negative reorganization and special items, which are detailed below.

Excluding reorganization and special items, the net loss for 2012 was $130 million, a $932 million improvement over 2011. The company’s operating profit, excluding special items, of $494 million for 2012 was a $749 million improvement over last year.

Restructuring Progress

During the last year, AMR has completed the majority of its financial restructuring, including reducing debt, renegotiating aircraft leases and facilities agreements, grounding older airplanes, rationalizing the regional fleet, and renegotiating supplier relationships. AMR expects these actions to continue to increasingly improve its cost structure in 2013, as the company approaches its targeted restructuring related savings by the end of 2013.

In 2012:

American achieved labor cost reductions of 17 percent across all workgroups, including management, independent employees and unionized workgroups, all of which ratified agreements for six-year terms. Progress was also made at American Eagle, which achieved costs savings and reached agreements with its unionized workgroups
American made changes to its organizational structure to reduce management positions, making American’s management workgroup the leanest among the network carriers
Renegotiated the financing terms for more than 400 mainline and regional aircraft, which includes completing its financial contracts on its 216 Embraer aircraft. Improved terms on these aircraft significantly lower AMR’s aircraft ownership related costs, while also harmonizing its aircraft retirement and new aircraft delivery schedules
Negotiated more than 95 percent of American’s 725 facility leases
Evaluated and/or renegotiated over 9,000 vendor/supplier agreements – American’s suppliers have made significant contributions to its strategic plan for success, allowing AMR to meet its savings objectives as outlined in its business plan
Realized over $400 million in restructuring related savings in the fourth quarter, primarily from renegotiated aircraft leases, reductions to management and support staff positions, freezing the pension plans for all workgroups, and sun-setting the retiree medical program for active employees

“Throughout 2012, we have executed on all aspects of our business plan – streamlining our organizational structure, increasing unit revenues, reducing unit costs, and restructuring our balance sheet,” said Bella Goren, AMR’s Chief Financial Officer. “The strong financial foundation we are building gives us the ability to deliver returns to our financial stakeholders and make investments that create enhanced value for our customers and our people.”

Revenue Performance

For the fourth quarter of 2012, the company reported consolidated revenue of $5.9 billion, 0.3 percent lower compared to the prior year. The combined effects of Hurricane Sandy, the November snow storm in the Northeast, and the booking headwind from the earlier operational disruption, negatively impacted revenue by an estimated $155 million in the fourth quarter.

Fourth quarter consolidated passenger revenue per available seat mile (PRASM) was comparable to the same period last year, and mainline PRASM decreased by 0.4 percent. Absent the same factors that impacted revenues – described above – American estimates that PRASM would have been approximately 2.0 percentage points higher than the fourth quarter of 2011.

For full-year 2012, AMR reported record consolidated revenue of $24.9 billion, up 3.7 percent compared to 2011, on 1.0 percent less capacity. For 2012, AMR’s consolidated and mainline PRASM rose 5.8 percent and 5.6 percent year-over-year, respectively. Consolidated revenue performance was driven by a 4.6 percent year-over-year improvement in yield, or average fares paid, and record high consolidated and mainline load factors, or percentage of seats filled, of 82.2 percent and 82.8 percent, respectively. Domestic PRASM improved 5.5 percent in full-year 2012 versus full-year 2011, with PRASM increases across all five of American’s hubs.

International PRASM increased 5.7 percent in 2012 over the prior year, driven by improved yield performance across all entities and increased load factors. “We are making tremendous progress strengthening American’s global network by focusing the flying from our hubs to the most important domestic and international cities with the highest concentration of business travelers,” said Virasb Vahidi, American’s Chief Commercial Officer. “We are enhancing relationships with the best international alliance partners and creating a pipeline of industry-leading products and services, including a significant renewal and transformation of our fleet that will drive revenue performance in the coming years.”

American’s 2012 revenue improvement is a result of solid execution on its network, alliances, and product strategy. The recent revenue progress does not yet account for the benefits expected from initiatives accomplished in the restructuring.

Operating Expense

For the fourth quarter, AMR’s consolidated operating expenses, excluding special items, decreased $139 million, or 2.3 percent, versus the same period in 2011. American’s mainline cost per available seat mile (unit cost) in the fourth quarter decreased 3.3 percent versus the same period last year, excluding special items in both periods. Taking into account the impact of fuel hedging, AMR paid $3.22 per gallon for jet fuel in the fourth quarter versus $3.01 a gallon in the fourth quarter of 2011, a 6.6 percent increase. As a result, the company paid $135 million more for fuel in the fourth quarter of 2012 than it would have paid at prevailing prices from the prior-year period.

Excluding fuel and special items, mainline and consolidated unit costs in the fourth quarter of 2012 decreased 8.9 percent and 7.6 percent year-over-year, respectively, primarily driven by American’s restructuring efforts. “The significant improvement in the fourth quarter in non-fuel unit cost underscores the results we have been able to achieve in our restructuring efforts and the competitive cost structure we have put in place for the future,” said Bella Goren, AMR’s Chief Financial Officer.

Since many of the restructuring savings were implemented near the end of the year, AMR’s full year 2012 consolidated operating expenses, excluding special items, were up 0.3 percent, or $84 million, year-over-year. They also reflect a negative impact of $514 million due to higher fuel prices in 2012. American’s 2012 mainline unit costs, excluding special items, increased 1.5 percent versus the prior year. Excluding fuel and special items, mainline unit costs decreased 0.9 percent for the same period.

An unaudited summary of full-year 2012 results is available in the tables at the back of this press release.

Cash Position

AMR ended the fourth quarter with approximately $4.7 billion in cash and short-term investments, including a restricted cash balance of $850 million, compared to a balance of approximately $4.7 billion in cash and short-term investments, including a restricted balance of approximately $738 million, at the end of the fourth quarter of 2011.

2012 Notable Accomplishments

American has made significant progress in its plan to transform the airline into an industry leader. While the restructuring process is allowing the company to achieve a competitive cost structure and strengthen its balance sheet, American also showed improvement across all aspects of its business. Key accomplishments in 2012 include:

Financial:

The largest annual revenue in company history
Unit revenue growth that outpaced the industry average in 2012 – driven by strong customer demand for American’s product. Mainline and consolidated PRASM, passenger yield and load factor in 2012 were all records for any year in AMR’s history
Full-year 2012 operating profit, excluding special items, of $494 million, a $749 million improvement over 2011

Fleet Renewal and Transformation:

American made substantial progress on its fleet renewal plans and is on pace to have the youngest fleet in the industry in the next five years.

In the fourth quarter, the size of American’s fleet of 737-800s surpassed that of its MD-80s. 737-800s offer a 35 percent reduction in fuel cost per seat versus the MD-80
American became the first U.S. airline to take delivery of the Boeing 777-300ER, giving the airline’s fleet additional network flexibility, while delivering a state of the art customer experience, and better operating economics
American has 59 new mainline aircraft slated for delivery in 2013 and is in the midst of a significant renewal and transformation of its fleet

Customer Experience Enhancements:

American has taken many steps to provide an exceptional customer experience throughout the entire travel journey.

Announced a redesigned interior of its international widebody aircraft, including 777-200ERs and 767-300ERs
Will be the first domestic carrier to offer three-class service and fully lie-flat First and Business Class seats on transcontinental flights
Installing Main Cabin Extra to give customers more leg room in the Coach cabin
Introduced new travel options and a brand new booking path on AA.com offering customers more choices to book competitive, round-trip fares, as well as select new combinations of products and services customers value most

Network and Alliances Strategy:

American bolstered its network and alliances by expanding service from its hubs to the domestic and international cities most desirable to high value customers and by enhancing existing and forging new strategic partnerships.

International Expansion – American announced new routes and expansion into new international markets that have strong growth prospects, including:
- Manaus and Sao Paulo, Brazil; Roatan, Honduras; Asuncion, Paraguay; Puebla, Mexico; Bogotá, Colombia
- Dusseldorf, Germany and Dublin, Ireland
- Seoul, South Korea
Joint Businesses – The continuing maturation of American’s joint business agreements with IAG, parent of British Airways and Iberia, over the Atlantic, and Japan Airlines over the Pacific, were instrumental in driving unit revenue improvements of 5.9 percent and 9.6 percent over the Atlantic and Pacific in 2012, respectively
Codeshare – American expanded its long-standing partnership with LATAM Airlines group by embarking on codeshare agreements with TAM and LAN Colombia
oneworld^® – New member airberlin and members-elect Malaysia and Qatar Airways will bolster American’s network

Reorganization and Special Items:

AMR’s fourth quarter 2012 results include $350 million of net positive reorganization and special items.

Of that amount, AMR recognized a $569 million non-cash income tax benefit from continuing operations during the fourth quarter of 2012 related to gains in Other Comprehensive Income
The company recognized a $441 million loss in reorganization items resulting from certain of its direct and indirect U.S. subsidiaries’ voluntary petitions for reorganization under Chapter 11 on November 29, 2011. These items primarily result from estimated claims associated with restructuring the financing arrangements for certain debt, aircraft leases, as well as professional fees
The company recognized $58 million in special charges, primarily associated with personnel related restructuring costs
The fourth quarter results also include a $280 million benefit from settlement of a commercial dispute

AMR’s full year 2012 results include $1.7 billion of net negative reorganization and special items.

Of that amount, the company recognized a $2.2 billion loss in reorganization items resulting from certain of its direct and indirect U.S. subsidiaries’ voluntary petitions for reorganization under Chapter 11 on November 29, 2011. These items are primarily from estimated claims associated with restructuring the financing arrangements for certain debt, aircraft leases, and rejecting certain special facility revenue bonds, as well as professional fees
The company recognized $387 million in special charges, primarily associated with personnel related restructuring costs
As described above, in the fourth quarter, the company recognized a $569 million non-cash income tax benefit from continuing operations, and a $280 million benefit from a settlement of a commercial dispute

Capacity Guidance

AMR estimates consolidated capacity in the first quarter of 2013 to be down 1.7 percent versus the first quarter of 2012.

Factors contributing to this estimated reduction in capacity include the absence of Leap Day in 2013, and progress American has made in implementing its Main Cabin Extra program removing seats from the coach cabin. To date, American has completed the retrofit of its Boeing 757 and 767 fleets, has completed approximately half of its 737 fleet, and will commence the retrofit of the MD-80 fleet in January 2013 with completion targeted for the second quarter.

As previously reported, American experienced an unusually high number of pilot retirements in the fall of 2011 that resulted in capacity reductions for the period November 2011 to February 2012.

Absent the impact of the capacity reductions in January and February of 2012 due to pilot retirements, consolidated capacity in the first quarter of 2013 is estimated to be down 3.4 percent year-over-year.

First Quarter Unit Costs Guidance

AMR will continue to realize restructuring related savings and estimates that in the first quarter of 2013, unit costs will improve year-over-year, despite a capacity headwind due to consolidated capacity decreasing by 1.7 percent and lapping some restructuring related savings that impacted the first quarter of last year.

Copyright Photo: Bruce Drum. The new stretched Boeing 777-300 ER aircraft are being delivered in a non-logo gray scheme pending the unveiling of a new livery. The first new Triple Seven is due to go into revenue service on January 31. Is a pending merger announcement with US Airways holding up the unveiling of the new look? Classic Boeing 777-223 ER N785AN (msn 3005) taxies at the Miami hub in the old 1968 livery.

American Airlines:

AMR Corporation asks the bankruptcy judge to extend the exit plan deadline to March 11

AMR Corporation (Dallas/Fort Worth) has asked the bankruptcy court judge to extend by six weeks, through March 11, 2013 the period in which the company has the exclusive right to propose an exit plan.

Read the full story from the Chicago Tribune and Reuters: CLICK HERE

Copyright Photo: Michael B. Ing. Will American Eagle be spun off? Meanwhile as AMR struggles with this question it is farming out more flying to other carriers like SkyWest Airlines which started flying for AMR on November 15 as a new American Eagle carrier. Ex-Comair Bombardier CRJ100 (CL-600-2B19) N868CA (msn 7427) departs from Los Angeles International Airport.

American Airlines:

American Eagle:

American Eagle/SkyWest Airlines:

AMR and the Allied Pilot Association (APA) agree on a new contract

AMR Corporation (Dallas/Fort Worth) (American Airlines) and the Allied Pilots Association (APA) (Dallas/Fort Worth) have agreed on a new contract, still subject to the approval of the members.

Read the full report from Reuters: CLICK HERE

Copyright Photo: Brian McDonough. Members of the Oneworld alliance a sighing in relief with this agreement, if approved, it will allow AA to emerge from Chapter 11 bankruptcy reorganization. Boeing 767-323 ER N395AN (msn 29432) approaches the runway for landing at Miami.

American Airlines:

AMR Corporation reports a third quarter net profit of $110 million, AA to hire 1,500 new flight attendants

AMR Corporation (Dallas/Fort Worth), the parent company of American Airlines, Inc. (Dallas/Fort Worth), today reported a third quarter net profit of $110 million, excluding reorganization items and special charges – a $272 million improvement compared to the prior year period. In the third quarter of 2012, AMR incurred a net loss of $238 million compared to a net loss of $162 million in the same period of 2011.

AMR reported record third quarter consolidated revenue of $6.4 billion, up 0.8 percent compared to the prior year period, on 2.3 percent less capacity than in the third quarter of 2011. Consolidated passenger revenue per available seat mile (unit revenue) grew 4.3 percent compared to the third quarter of 2011, and mainline passenger unit revenue increased 4.5 percent.

Consolidated passenger yield, representing average fares paid, increased 3.5 percent year-over-year in the third quarter of 2012, and mainline passenger yield increased 3.7 percent.
Mainline capacity, or total available seat miles, in the third quarter of 2012 decreased 2.5 percent compared to the same period in 2011.
American’s third quarter 2012 mainline load factor, or the percentage of total seats filled, was 85.5 percent – a record for any quarter in American’s history.

The company’s revenue performance was driven by year-over-year yield improvement and a record high consolidated load factor of 84.7 percent. Domestic unit revenue improved 3.8 percent in the third quarter versus the same period last year and, for the third consecutive quarter, the company saw unit revenue increases across all five of its hubs. Growth in yields on connecting traffic and increased load factors in the premium cabins contributed to the solid revenue performance in the Domestic entity.

International unit revenue increased 5.3 percent in the third quarter, driven by increased load factors across all entities, and improved yield performance. Unit revenue performance in the Pacific entity was strong, up 15.9 percent, driven by increased demand for the premium cabins and greater revenues from Asia point-of-sale. The Latin American entity posted a 4.0 percent unit revenue increase in the third quarter of 2012, including yield improvements in Mexico and Central and South America. The growing strength of American’s enhanced network, together with coordinated selling efforts with joint business partners British Airways and Iberia over the Atlantic, helped drive trans-Atlantic unit revenue improvement of 2.9 percent versus the prior year, despite slower sales around the Summer Olympics, and a weaker economic environment in Europe in the quarter.

The third quarter 2012 results include $348 million in special charges and reorganization items.

Of that amount, $211 million is related to special charges, primarily associated with employee severance-related costs.
The company recognized $137 million in reorganization items resulting from certain of its direct and indirect U.S. subsidiaries’ voluntary petitions for reorganization under Chapter 11 on Nov. 29, 2011. These items primarily result from estimated claims associated with restructuring the financing arrangements for certain aircraft and professional fees, offset by a pension curtailment credit for prior service costs.

In the third quarter, as part of the company’s fleet renewal efforts, American took delivery of seven Boeing 737-800s, for a total of 19 737s in the first nine months of the year, with another nine 737s scheduled to be delivered in the fourth quarter of 2012. These aircraft will improve the customer experience and provide a 35 percent reduction in fuel cost per seat versus MD-80 aircraft.

Furthermore, during the quarter, American announced plans to be the only airline to offer three-class service and the first to offer fully lie-flat First and Business Class seats on transcontinental flights with its Airbus A321 transcontinental aircraft. All new narrowbodies from the Airbus 320 family delivered beginning in the third quarter of 2013 and the Boeing 737-800 aircraft delivered beginning in the fourth quarter of 2013 are expected to offer in-seat entertainment, inflight Wi-Fi, individual 110-volt universal AC power outlets and USB jacks at every seat, in addition to Main Cabin Extra seating.

American is in the midst of a significant renewal and transformation of its fleet, including 59 aircraft slated for delivery in 2013. American is taking significant steps to improve its overall competitive position and expects to have the youngest and most fuel-efficient fleet among its U.S. airline peers by 2017.

In other news, American Airlines today announced plans to bring more than 1,500 new flight attendants onboard over the next year. American will begin the process of recruitment and hiring in November, with the first new-hire class beginning training in January 2013. The overwhelming response by current flight attendants to the company’s recent voluntary separation options, combined with an aggressive training schedule during the transition to the newly established flight attendant contract, led to the ability to welcome new flight attendants to American. This is an exciting step forward and an opportunity for American to look for candidates to join the current team and help deliver the best onboard experience and represent the new American.

American Airlines:

Republic Airways Holdings hopes to increase its flying for American Airlines

Republic Airways Holdings (Indianapolis) is betting the AMR Corporation (Dallas/Fort Worth) will want to downsize the flying currently being performed by its subsidiary American Eagle Airlines (Dallas/Fort Worth). Republic hopes to expand its now small regional fleet flying for American Airlines (Dallas/Fort Worth) (currently by Chautauqua Airlines as American Connection) according to this article by Bloomberg Businessweek.

Read the full article: CLICK HERE

Copyright Photo: Stephen Tornblom. Although the titles say “Republic Airways” (after the holding company), this Embraer ERJ 170-100SU N821MD (msn 17000042) is actually operated by subsidiary Republic Airlines (2nd) (Indianapolis).

Republic Airways:

Bankruptcy judge rules AMR can void the American Airlines pilot’s contract

AMR Corporation (American Airlines) (Dallas/Fort Worth) now has what it has wanted. Bankruptcy Court Judge Lane has issued his decision which now permits AMR and American Airlines to unilaterally void its contract with its pilots, represented by the Allied Pilots Association. AMR has stated it needs labor stability and around 20 percent lower costs to emerge from its Chapter 11 reorganization. Who now will make the next move?

Read the full report from Reuters: CLICK HERE

Copyright Photo: Michael B. Ing. Boeing 777-223 ER N756AM (msn 30264) climbs away from Los Angeles International Airport.

American Airlines:

American and US Airways announce they are now formally exploring a merger

American Airlines (Dallas/Fort Worth) and US Airways (Phoenix) announced today they are now officially exploring a merger. The following statement was issued this morning:

“AMR Corporation (“AMR”), the parent company of American Airlines®, and US Airways Group, Inc. today announced that they have entered into a non-disclosure agreement (“NDA”), under which the companies have agreed to exchange certain confidential information and, in close collaboration with AMR’s Unsecured Creditors Committee, to work in good faith to evaluate a potential combination.

The companies do not expect to provide any further announcements regarding the status of any such discussions unless and until the parties have entered into a transaction or discussions between the parties have been terminated. Furthermore, AMR and US Airways have each agreed while they are evaluating a potential combination that they and their representatives will not engage in discussions with other parties concerning a potential combination of AMR and US Airways. The companies noted that there can be no assurance that a transaction will result from these discussions.”

Top Copyright Photo: Bruce Drum. American is a large Boeing operator with Airbus aircraft on order. Boeing 737-823 N959AN (msn 30828) taxies at Miami.

American Airlines:

US Airways:

Bottom Copyright Photo: Bruce Drum. US Airways has a large Airbus fleet. The company is also getting ready to phase out its last Boeing 737-300 after Labor Day. Boeing 737-301 N574US (msn 23739) departs from Charlotte.

American addresses bankruptcy judge’s concerns, makes a new push to void the pilot’s contract

American Airlines (Dallas/Fort Worth) through the AMR Corporation has listened to the concerns of bankruptcy court judge Sean Lane and revised its motion accordingly. AMR is now making a new effort to seek bankruptcy court approval to void the collective bargaining contract with its pilots through the Allied Pilots Association (APA) according to this report by Reuters.

Read the full report: CLICK HERE

Meanwhile, the creditors committee (after being briefed by AMR) urged both the pilots and the flight attendants to quickly reach a new agreement with management rather than take the consequences of a voided contract. The creditors told the unions AMR cannot sweeten the deal already tentatively agreed by management and union leadership. The pilot membership voted down the recent tentative agreement. APA’s president resigned after the members voted down this agreement.

Read the full report: CLICK HERE

American: