Amr Results Falling Short Of Estimate
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WingNaPrayer
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Mike - can you C&P the story in so we don't have to sign up to read it?
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By ERIC TORBENSON / The Dallas Morning News
Financial results at American Airlines Inc.'s parent, AMR Corp., have fallen nearly $1 billion short of turnaround projections over the past year, raising the possibility that existing labor concessions may not be enough to sustain profitability.
Fort Worth-based AMR had presented the forecast to its unions last year, when it was faced with the prospect of bankruptcy. Labor groups contributed $1.62 billion in annual wage and benefit concessions to keep the company solvent. The largest share – $660 million a year – came from American's pilots.
Even with the lower-cost contracts in place since last May, the airline's results have fallen $1 billion behind its turnaround plan, according to John Darrah, president of the Allied Pilots Association.
High fuel prices may increase the shortfall to $1.8 billion by year's end, he said in a farewell note to 12,000 pilots last week.
"Granted, there are many variables that have impacted these results," Mr. Darrah wrote to pilots in a 5,366-word letter defending his actions that resulted in the new contract. He listed the war in Iraq, severe acute respiratory syndrome and increased fuel costs as key problems the airline has faced.
Mr. Darrah didn't run to keep his office and has been replaced by Ralph Hunter, who was a key negotiator on the concessionary contract.
"But even if we were to account for these influences, AMR's financial results would still not meet the goals identified in their restructuring plan based on the model from which we based our concessions," he wrote.
The airline acknowledged that its results haven't matched earlier projections.
"We were aggressive with our forecasts last spring to assure employees that we were asking for the minimum the business needed to survive," said Tim Wagner, spokesman for the carrier.
But the carrier hasn't signaled a need for more concessions.
At the AMR annual meeting in May, chairman and chief executive Gerard Arpey said the carrier didn't intend to ask employees for more givebacks. Instead, Mr. Arpey wants continuous cost-cutting from all parts of the company.
Still, the carrier's finances remain a concern.
AMR will announce its second-quarter earnings July 21, and analysts expect a result close to break-even. The company lost $166 million in the year's first quarter after losing more than $6.4 billion in the previous three years combined.
The world's largest carrier needs to do more than show modest profits. Despite having $3.7 billion in cash and short-term investments in the bank, the carrier's balance sheet remains debt-laden.
In presentations to the pilots' union and other unions last year, American said it would need to return to pretax profit margins of between 7 percent and 10 percent in order to make enough money to keep up with debt payments and lease obligations that together exceed $22 billion.
American has done a lot to reduce costs, but has far less control of its revenue as low-fare carriers continue to expand into American's bread-and-butter transcontinental routes. Its average fares have dropped more than 20 percent in some cases as JetBlue Airways Corp. and America West Airlines Inc. have flooded long-haul routes with new flights.
That weakened revenue outlook has some analysts down on AMR. Lehman Bros. analyst Gary Chase lowered his estimate to a loss of 40 cents per share from a break-even estimate earlier, blaming lower-than-expected revenue and little chance that average fares will rise even with the improving economy.
Fuel prices are the other enemy to American's financial performance. The carrier said its jet fuel costs would be as much as $700 million higher this year than during 2003, a figure that comes right out of the bottom line.
In his note to pilots, Mr. Darrah said that, although painful, the cuts American pilots took could have been much deeper and were unquestionably preferable to bankruptcy.
At United Airlines Inc., pilots face the prospect of having their pension plan terminated as the carrier tries to emerge from Chapter 11 bankruptcy.
And published reports Tuesday suggest Delta Air Lines Inc. wants $1 billion in annual cuts from its pilots, who now earn 40 percent to 60 percent more than comparable American pilots. Like American last year, Delta is struggling to avoid bankruptcy and needs to reduce its industry-leading pilot costs.
"Without fundamental changes from management, your leadership realizes that American Airlines may still not survive long term in its present form," Mr. Darrah wrote.
American continues to experiment with its operations, and while many changes are on the drawing board that would save the carrier money, they haven't yet trickled down to employees, said Denis Breslin, chairman of the communications committee for the pilots union.
"They've got a good plan in place, but it's just slow to take off," Mr. Breslin said. "We just want it all to happen right now."
AMR shares fell 44 cents to $11.45 in light trading Tuesday.
Financial results at American Airlines Inc.'s parent, AMR Corp., have fallen nearly $1 billion short of turnaround projections over the past year, raising the possibility that existing labor concessions may not be enough to sustain profitability.
Fort Worth-based AMR had presented the forecast to its unions last year, when it was faced with the prospect of bankruptcy. Labor groups contributed $1.62 billion in annual wage and benefit concessions to keep the company solvent. The largest share – $660 million a year – came from American's pilots.
Even with the lower-cost contracts in place since last May, the airline's results have fallen $1 billion behind its turnaround plan, according to John Darrah, president of the Allied Pilots Association.
High fuel prices may increase the shortfall to $1.8 billion by year's end, he said in a farewell note to 12,000 pilots last week.
"Granted, there are many variables that have impacted these results," Mr. Darrah wrote to pilots in a 5,366-word letter defending his actions that resulted in the new contract. He listed the war in Iraq, severe acute respiratory syndrome and increased fuel costs as key problems the airline has faced.
Mr. Darrah didn't run to keep his office and has been replaced by Ralph Hunter, who was a key negotiator on the concessionary contract.
"But even if we were to account for these influences, AMR's financial results would still not meet the goals identified in their restructuring plan based on the model from which we based our concessions," he wrote.
The airline acknowledged that its results haven't matched earlier projections.
"We were aggressive with our forecasts last spring to assure employees that we were asking for the minimum the business needed to survive," said Tim Wagner, spokesman for the carrier.
But the carrier hasn't signaled a need for more concessions.
At the AMR annual meeting in May, chairman and chief executive Gerard Arpey said the carrier didn't intend to ask employees for more givebacks. Instead, Mr. Arpey wants continuous cost-cutting from all parts of the company.
Still, the carrier's finances remain a concern.
AMR will announce its second-quarter earnings July 21, and analysts expect a result close to break-even. The company lost $166 million in the year's first quarter after losing more than $6.4 billion in the previous three years combined.
The world's largest carrier needs to do more than show modest profits. Despite having $3.7 billion in cash and short-term investments in the bank, the carrier's balance sheet remains debt-laden.
In presentations to the pilots' union and other unions last year, American said it would need to return to pretax profit margins of between 7 percent and 10 percent in order to make enough money to keep up with debt payments and lease obligations that together exceed $22 billion.
American has done a lot to reduce costs, but has far less control of its revenue as low-fare carriers continue to expand into American's bread-and-butter transcontinental routes. Its average fares have dropped more than 20 percent in some cases as JetBlue Airways Corp. and America West Airlines Inc. have flooded long-haul routes with new flights.
That weakened revenue outlook has some analysts down on AMR. Lehman Bros. analyst Gary Chase lowered his estimate to a loss of 40 cents per share from a break-even estimate earlier, blaming lower-than-expected revenue and little chance that average fares will rise even with the improving economy.
Fuel prices are the other enemy to American's financial performance. The carrier said its jet fuel costs would be as much as $700 million higher this year than during 2003, a figure that comes right out of the bottom line.
In his note to pilots, Mr. Darrah said that, although painful, the cuts American pilots took could have been much deeper and were unquestionably preferable to bankruptcy.
At United Airlines Inc., pilots face the prospect of having their pension plan terminated as the carrier tries to emerge from Chapter 11 bankruptcy.
And published reports Tuesday suggest Delta Air Lines Inc. wants $1 billion in annual cuts from its pilots, who now earn 40 percent to 60 percent more than comparable American pilots. Like American last year, Delta is struggling to avoid bankruptcy and needs to reduce its industry-leading pilot costs.
"Without fundamental changes from management, your leadership realizes that American Airlines may still not survive long term in its present form," Mr. Darrah wrote.
American continues to experiment with its operations, and while many changes are on the drawing board that would save the carrier money, they haven't yet trickled down to employees, said Denis Breslin, chairman of the communications committee for the pilots union.
"They've got a good plan in place, but it's just slow to take off," Mr. Breslin said. "We just want it all to happen right now."
AMR shares fell 44 cents to $11.45 in light trading Tuesday.
PRINCESS KIDAGAKASH
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IF AA can't make money after all the concessions, then it is time to SCUTTLE the ship and move on! There are other jobs and careers out there that pay better and don't have the B.S. of the airline business.
goingboeing
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Its just a matter of time until AA management comes to all employee groups for more concessions.The writing is on the wall.It is great to work for a company that sends its employees backwards.
I feel like a downtown prostitute who shows up for work and wonders how much money the pimp or madam will let me keep today!
I feel like a downtown prostitute who shows up for work and wonders how much money the pimp or madam will let me keep today!
A depressing read. More paycuts would quicken the downward spiral. More disgruntled union workers and more top flight management heading towards the door leaving the only the bottom of the barrel to run the company. Super. Where is my resume?
local 12 proud
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"Without fundamental changes from management, your leadership realizes that American Airlines may still not survive long term in its present form," Mr. Darrah wrote.
:blink:
:blink:
jimntx
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No, Continental has never asked their employees for a dime in concessions. Granted, they have been making noises lately that they might have to furlough employees and/or ask for concessions, but it hasn't happened yet.BDLDFW said:
wontflyforfood
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Continental got there pay cuts in the early 90's after their 2nd bankruptcy. If you compare CO's pilot pay scales with AA's they're not much different (CO is a little higher) and AA has a much better retirement plan.jimntx said:
wontflyforfood
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As we're all finding out, what's the difference?Oneflyer said:
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