Eagle sells ATRs and agrees to leaseback

[FWAAA]

Press release from the Danish leasing company:

Sale and Leaseback of 39 ATR 72 Aircraft With AMR Leasing Corporation

Tuesday December 2, 2:44 pm ET

BILLUND, Denmark, December 2 /PRNewswire/ -- Nordic Aviation Capital A/S ("NAC") and KIRK Kapital A/S are pleased to announce an agreement for a sale and leaseback transaction with AMR Leasing Corporation (a wholly-owned subsidiary of AMR Corporation) for 39 ATR 72 aircraft operated by Executive Airlines, Inc. (also a wholly-owned subsidiary of AMR Corporation doing business as "American Eagle").

AMR Leasing Corporation will sell the 39 ATR 72 aircraft to an entity that will lease the aircraft to NK Aviation Limited, Ireland, a newly formed joint venture between NAC and Kirk Kapital A/S. Executive Airlines will lease the aircraft back through a sublease structure and will continue to be the operator of the aircraft. NAC will be the servicer for the aircraft.

Nordic Aviation Capital A/S

Nordic Aviation Capital A/S, formerly NAC Nordic Aviation Contractor A/S, was established in Denmark in 1990. Its principal headquarters in Billund, Denmark are complemented by regional offices in Ireland, France and Switzerland.

NAC is a Danish aircraft leasing company dedicated to the worldwide sale, purchase and finance of commercial jet and turboprop aircraft.

http://biz.yahoo.com/prnews/081202/3796062...ublic.html?.v=1

How much is an ATR worth? A million or two? Couldn't have raised much money.

 

[FrugalFlyerv2.0]

How much is an ATR worth? A million or two? Couldn't have raised much money.

Enough money for executive Christmas bonuses ... ... ...

 

[jimntx]

"NAC will be the servicer for the aircraft."

Aside from the money raised, I think this is probably the underlying reason. No need for AE mechanics for this a/c, don't you know.

 

[FWAAA]

"NAC will be the servicer for the aircraft."

Aside from the money raised, I think this is probably the underlying reason. No need for AE mechanics for this a/c, don't you know.

That's funny!!

No, the word "servicer" in this context means that NAC will collect the rent and enforce the terms of the lease for the entity that will own the aircraft, which is a newly formed joint venture between Nordic Aviation Capital A/S ("NAC") and KIRK Kapital A/S. Not unlike the use of the word "servicing agent" in the context of a residential mortgage loan.

 

[FWAAA]

Turns out that selling 39 Super ATRs generates about $200 million in cash:

A unit of American Airlines parent AMR Corp. will sell and lease back 39 planes in a transaction worth some $200 million to AMR, the companies said on Tuesday.

The twin-prop ATR 72 aircraft are operated by American Eagle, which will continue to operate them after the transaction.

http://biz.yahoo.com/ap/081202/amr_aircraf...eback.html?.v=2

That just might be enough cash to pay the executive Christmas bonuses.

Seriously, though, the cash is necessary because of the upside down fuel hedges:

AMR, which raised more than $700 million in the second and third quarters through aircraft-backed financings, reached a sale-leaseback deal involving American Eagle's turboprop fleet that is expected to raise another $200 million, Goulet said.

Like other airlines, AMR tried to protect itself against a spike in oil prices by hedging. AMR bought options to get 38 percent of its fourth-quarter fuel at about $92 a barrel -- twice Tuesday's price of oil. For 2009, AMR is 34 percent hedged at $99 a barrel.

As oil prices fall, AMR must post collateral against those bad hedges. Goulet said AMR has posted $480 million cash to cover the amount it will spend to settle the hedging trades if oil prices don't change much.

http://biz.yahoo.com/ap/081202/amr_outlook.html?.v=2

Ouch.

 

[jimntx]

"American and American Eagle expect to cut 2009 capacity about 6 percent from this year's levels, with most of the reductions falling on U.S. routes."

Note that the article says that AA and AE will cut capacity by 6%. This means growth for AE. Tom Horton, our illustrious CFO, was quoted on MarketWatch.com over a month ago saying that AA would cut capacity by 9% in 2009. The 9% cut was to be achieved through a 14% cut in domestic and an increase in International.

If domestic is actually cut another 14%, I do not see how we can avoid another furlough--particularly in the f/a corps. We already have reserves sitting around in every base getting paid guarantee and not flying anywhere near that many hours.

 

[FWAAA]

"American and American Eagle expect to cut 2009 capacity about 6 percent from this year's levels, with most of the reductions falling on U.S. routes."

Note that the article says that AA and AE will cut capacity by 6%. This means growth for AE. Tom Horton, our illustrious CFO, was quoted on MarketWatch.com over a month ago saying that AA would cut capacity by 9% in 2009. The 9% cut was to be achieved through a 14% cut in domestic and an increase in International.

If domestic is actually cut another 14%, I do not see how we can avoid another furlough--particularly in the f/a corps. We already have reserves sitting around in every base getting paid guarantee and not flying anywhere near that many hours.

I'm convinced that MarketWatch misquoted/garbled whatever Horton said. Wouldn't be the first time journalists got it wrong. Here's the latest AA release on capacity reductions:

Arpey highlighted several actions that illustrate the Company's efforts to address its short-term and long-term needs:

-- The Company plans to continue to exercise capacity discipline in 2009.

-- Consolidated system capacity is expected to decline more than 9 percent
compared to 2007 levels and is expected to decline by approximately
6 percent compared to 2008 levels, largely achieved through the
carry-forward impact of capacity reductions taken in late 2008.

-- Mainline capacity is expected to decline approximately 9 percent
compared to 2007 levels and decline approximately 5.5 percent compared
to 2008 levels. Domestic capacity is expected to decline approximately
14 percent compared to 2007 and approximately 8.5 percent compared to
2008. International capacity is expected to be about flat with 2007
levels and nearly 1 percent less than in 2008.

-- Regional affiliate capacity is expected to decline by about
14.5 percent compared to 2007 levels and decline approximately
9.5 percent compared to 2008.

http://phx.corporate-ir.net/phoenix.zhtml?...&id=1212522

Mainline domestic in 2009 is reduced 14% compared to 2007 and 8.5% compared with 2008. And Eagle/AX declines in 2009 by 14.5% compared to 2007 and down 9.5% compared to 2008.