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American may need more concessions
By Trebor Banstetter
Star-Telegram Staff Writer
• The airline could face a cash crunch in 2006 and be forced to lower labor costs if conditions don't improve, a credit rating firm says.
A credit ratings agency has warned that a cash crunch could force American Airlines to seek more employee concessions by year's end.
Fitch Ratings, based in Chicago, issued a report Thursday that lowered its outlook on American's debt to "negative" from "stable." The firm predicted that Fort Worth-based American's cash reserve could get squeezed in 2006 unless fuel prices drop, costs go down or revenue improves.
"American again faces extreme cost challenges this year," William Warlick, a Fitch analyst, said in the report. At the same time, airfares are unlikely to increase, he said, and fuel prices are expected to remain high.
"Large operating losses this year will lead to heightened liquidity pressures moving into 2006," he predicted.
Warlick said moves to reduce labor costs at other major carriers, such as Continental and Northwest, could force American to follow suit to remain competitive. That could include changes to American's pensions, he said.
That would "increase pressure on American to reopen collective bargaining agreements with its unions by year-end," Warlick said.
Such a move isn't likely to be popular with labor leaders. In recent interviews, officials with American's unions said they aren't interested in discussing further cuts in wages or benefits.
"We're not inclined to talk about any more concessions," said Jim Little, international executive vice president of the Transport Workers Union of America, which represents mechanics and ground workers.
American officials said no concession plans are on the table.
"We've said we would look under every stone and around every corner to lower our operating costs," said Tim Wagner, an American spokesman. "We've expressed no desire to go back to employees for more cost savings."
But, he added, "our labor groups understand the head winds we're facing, especially with extremely high fuel costs."
Management and labor teamed up this week on a strategy to protect American's pensions as Congress considers overhauling pension regulations.
Warlick noted that American's pensions are in better financial shape than those of most of its rivals.
But the plans will still require $310 million in payments this year and even more in 2006, he added.
If American faces a cash crunch, the airline will be forced to borrow more money, Warlick said. The airline could also sell American Eagle, its regional affiliate.
American's current debt agreements require the airline to have at least $1.5 billion in unrestricted cash on hand. At the end of 2004, the airline had $2.9 billion in unrestricted cash.
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Trebor Banstetter, (817) 390-7064 tbanstetter@star-telegram.com
By Trebor Banstetter
Star-Telegram Staff Writer
• The airline could face a cash crunch in 2006 and be forced to lower labor costs if conditions don't improve, a credit rating firm says.
A credit ratings agency has warned that a cash crunch could force American Airlines to seek more employee concessions by year's end.
Fitch Ratings, based in Chicago, issued a report Thursday that lowered its outlook on American's debt to "negative" from "stable." The firm predicted that Fort Worth-based American's cash reserve could get squeezed in 2006 unless fuel prices drop, costs go down or revenue improves.
"American again faces extreme cost challenges this year," William Warlick, a Fitch analyst, said in the report. At the same time, airfares are unlikely to increase, he said, and fuel prices are expected to remain high.
"Large operating losses this year will lead to heightened liquidity pressures moving into 2006," he predicted.
Warlick said moves to reduce labor costs at other major carriers, such as Continental and Northwest, could force American to follow suit to remain competitive. That could include changes to American's pensions, he said.
That would "increase pressure on American to reopen collective bargaining agreements with its unions by year-end," Warlick said.
Such a move isn't likely to be popular with labor leaders. In recent interviews, officials with American's unions said they aren't interested in discussing further cuts in wages or benefits.
"We're not inclined to talk about any more concessions," said Jim Little, international executive vice president of the Transport Workers Union of America, which represents mechanics and ground workers.
American officials said no concession plans are on the table.
"We've said we would look under every stone and around every corner to lower our operating costs," said Tim Wagner, an American spokesman. "We've expressed no desire to go back to employees for more cost savings."
But, he added, "our labor groups understand the head winds we're facing, especially with extremely high fuel costs."
Management and labor teamed up this week on a strategy to protect American's pensions as Congress considers overhauling pension regulations.
Warlick noted that American's pensions are in better financial shape than those of most of its rivals.
But the plans will still require $310 million in payments this year and even more in 2006, he added.
If American faces a cash crunch, the airline will be forced to borrow more money, Warlick said. The airline could also sell American Eagle, its regional affiliate.
American's current debt agreements require the airline to have at least $1.5 billion in unrestricted cash on hand. At the end of 2004, the airline had $2.9 billion in unrestricted cash.
--------------------------------------------------------------------------------
Trebor Banstetter, (817) 390-7064 tbanstetter@star-telegram.com
