Happy paper anniversary American Airlines, it was a year ago
today that you filed for chapter 11 bankruptcy protection and ended an
era.
The Fort Worth, Texas-based Oneworld alliance member
long-held that it could achieve the cost savings and internal
restructuring necessary to survive and prosper in the 21st century
airline market - one where low-fares and low-costs dominate and
everything from checked luggage to a bag of pretzels has a price tag -
without going through bankruptcy. No other legacy carrier maintained a
similar position and lived to tell the tale during the past decade.
The
resignation of former chairman, president and chief executive of
American-parent AMR Gerard Arpey and his replacement by company man Tom
Horton complemented the bankruptcy filing on 29 November 2011. The
intervening 12 months have been filled with labour strife, financial
restructuring, headline maintenance issues and a very public merger
proposal, to name a few.
American outlined a bankruptcy plan to
cut costs by $2 billion annually while incrementally increasing revenue
by $1 billion by 2017, this past February. Cost cuts included about
$1.25 billion in savings from labour, while the new revenue is to come
from "right-gauging" its fleet and organic growth.
From the beginning, the airline maintained that it would pursue a standalone restructuring plan.
Financial improvements
American
has slowly improved its finances. It reported net profits excluding
special items of $110 million in the third quarter and $142 million in
the second quarter after a loss excluding special items of $248 million
in the first quarter. It posted net losses during each quarter in 2011.
The
carrier has made significant strides to reduce its labour costs. All of
its unionised labour groups have ratified new multi-year contracts
except its pilots (more on that later), management has been streamlined
and it is in the process of reducing headcount by 13,000 people.
Other savings have come from rejecting leases on old aircraft, including Boeing 757-200s,
Fokker F100s and
McDonnell Douglas
MD-80s, and renegotiating or refinancing American's debt. A pending up
to $1.5 billion secured enhanced equipment trust certificates
refinancing would hopefully reduce interest rates to below 6% from
between 8.625% and 13%, and a deal with
Embraer
and Brazilian development bank BNDES reduced outstanding debt on AMR
subsidiary American Eagle Airlines' Embraer regional jet fleet by more
than a third to $1.08 billion from $1.75 billion.
Cost savings
efforts have yet to hit the bottom line. Operating expenses have
increased during each quarter this year to $6.38 billion during the
three months ending 30 September. However, growth compared to a year
earlier has slowed to less than 1% during the third quarter from 6.2%
during the first quarter.
American reported that operating
revenue also grew during each quarter. It rose 9.1% to $6.03 billion in
the first quarter compared to 2011, up 5.5% to $6.5 billion in the
second quarter and up less than 1% to $6.4 billion in the third quarter.
Outstanding
long-term debt and capital leases are down, reaching $6.5 billion at
the end of September from $6.9 billion at the end of the March.
Flightglobal Research
Maintenance concerns
Maintenance
issues have plagued American. Flight delays and cancellations spiked in
September and October due to increased maintenance reports by pilots
that resulted in the airline trimming up to 2% of its flight schedule
through early November. In addition, loose rows of seats resulted in 48
of the airline's 757-200s being temporarily grounded and additional seat
clamps being installed on those aircraft and its Boeing 767-200s in
October.
American has attributed the loose seats to fault clamps
as well as simple wear and tear, however, recent external investigations
have found that third-party maintenance providers that installed the
seats may be partially at fault and that the airline knew about the
issues before the seats came loose during revenue flights. The US
Federal Aviation Administration is investigating the incidents.
The
airline will close its Alliance maintenance base in Fort Worth by the
end of the year and has cut its maintenance staff around the country.
Labour strife
Relations
with pilots remain a thorn in American's side. The carrier filed a
section 1113 request to reject its labour contracts in March but was
unable to reach a consensual deal with its about 10,000 Allied Pilots
Association (APA)-represented pilots. A US bankruptcy court judge
approved a revised measure to throw out its pilots contract in August,
which resulted in the spike in flight delays and cancellations in
September and October, according to American.
Ray Neidl, an airline sector analyst at Maxim Group, compared the dispute to the one that helped bring down defunct
Eastern Air Lines in the late 1980s, in September.
The
pilots deal is critical to American's plan to increase the number of
large regional jets in its feeder fleet and expand its domestic
codeshares - both are key elements of its revenue growth strategy.
American
and the APA reached a tentative agreement earlier in November and
voting will take place from 1 December through 15 December. APA
president captain Keith Wilson has called on pilots to avoid Eastern
style "martyrdom" and ratify the agreement in a recent letter to the
union's membership.
The merger question
Merger
speculation has taken a backseat to American's labour and maintenance
issues in recent months, but is still very much on the table. Horton and
the airline's management made an about face on the possibility in May,
when they said that they would consider the option alongside a
standalone plan. This followed months of public pressure by US Airways
and other groups to consider an offer.
The Tempe, Arizona-based
carrier claims that a merger would result in $1.2 billion in cost
synergies and create the number one carrier by market share in the East
and Midwest of the USA. The resulting carrier would retain the American
name and Fort Worth headquarters, and remain in the Oneworld alliance.
Combined American and US Airways domestic USA routes, November 2012 
Innovata Flightmaps Analytics
American
and US Airways signed a non-disclosure agreement in August and
discussions are reportedly on going. American has until 28 January 2013
to present a restructuring plan to the court after which other parties
can propose plans.
The bankrupt carrier has also signed a non-disclosure agreement with British Airways-parent International Airlines Group (IAG).
Much
remains to be done in American's bankruptcy restructuring. It must
complete its pilots contract, answer questions about the future of
wholly-owned subsidiary American Eagle, finalise its restructuring plan
and then potentially battle against a hostile takeover in court before
it can exit the process.
Whether the airline will celebrate its
cotton anniversary in bankruptcy is debatable. Recent court filings
indicate that American plans to exit chapter 11 in March 2013 but if
previous US airline bankruptcies are any indicator - United took three
years and Delta almost two years - we could be here for a while.
