Goal: Better Balance Sheet: AMR Corp. seeks to reduce debt level
By D.R. STEWART World Staff Writer
10/25/2006
AMR Corp., the parent of American Airlines, launched a tender offer Tuesday to purchase for cash $338 million in high-interest-rate debt securities over the next 30 days.
AMR's tender offer will expire at 5 p.m. Eastern time Nov. 22, company executives said.
The debt securities, which are not secured by AMR's assets, were issued between 1986 and 1992 at interest rates ranging from 9 percent to 10.55 percent, company executives said.
"We have been saying pretty consistently that balance sheet repair is a priority of the company," AMR spokesman Andy Backover said in a telephone interview.
"We have made $1.1 billion in principal payments (on long-term debt) through Oct. 18. In addition, we have purchased $128 million of outstanding debt since the beginning of the year."
AMR has posted more than $8 billion in losses in the past six years amid stagnating passenger traffic, soaring fuel prices and mounting security costs.
Last week, the company reported a third-quarter net profit of $15 million. Including AMR's $291 million second-quarter profit, the company posted consecutive quarterly profits for the first time in six years.
On Sept. 30, the end of AMR's third quarter, its total debt was $19 billion compared with total debt of $20.1 billion on Dec. 31, 2005.
AMR's cash and short-term investment balance was $5.5 billion on Sept. 30, leading some industry analysts to question whether company executives could do more to pay down debt.
CEO Gerard Arpey and Chief Financial Officer Thomas Horton said the company is maintaining a cash cushion against industry uncertainties that include fuel prices and availability, war and terrorism.
"We're carrying more cash than we have historically and that's, in part, by design, because of the high level of volatility in the industry," Chief Financial Officer Thomas Horton said last week in a conference call with industry analysts.
"As I think most of you know, a dollar change in oil price has about an $80 million impact to our bottom line.
"So oil has retreated a fair bit from where it was just a few months ago; it was in the high-$70s. That's about a $1.5 billion difference (for AMR) on an annualized basis. . . . So, clearly we've got some flexibility and as I said earlier, we're looking at a range of alternatives, but I think we will consider moving more quickly on balance sheet repair."
John Pincavage, who follows the airline industry for Pincavage & Associates in Westport, Conn., said AMR's tender offer to purchase debt securities is "good financial management."
"It cleans up their balance sheet and brings interest costs down," Pincavage said in a telephone interview. "I don't know where they might be able to borrow money today, but it's sure lower than 10 percent or 9 percent interest."
In the first nine months of the year, AMR's interest payments on its debt totaled $780 million, an 11.9 percent increase compared with its $697 million in interest payments during the first nine months of 2005.
"If you're AMR," Pincavage said, "you clean up your high-interest debt and make yourself more financially efficient. You have improved your operational efficiency. Now it's time to clean up the balance sheet."
AMR shares closed Tuesday at $27.70, down 5 cents. More than 11.2 million shares were traded.
American Airlines employs more than 7,000 people in Tulsa, where it operates its Maintenance & Engineering Center.
________________________________________
D.R. Stewart 581-8451
[email protected]
By D.R. STEWART World Staff Writer
10/25/2006
AMR Corp., the parent of American Airlines, launched a tender offer Tuesday to purchase for cash $338 million in high-interest-rate debt securities over the next 30 days.
AMR's tender offer will expire at 5 p.m. Eastern time Nov. 22, company executives said.
The debt securities, which are not secured by AMR's assets, were issued between 1986 and 1992 at interest rates ranging from 9 percent to 10.55 percent, company executives said.
"We have been saying pretty consistently that balance sheet repair is a priority of the company," AMR spokesman Andy Backover said in a telephone interview.
"We have made $1.1 billion in principal payments (on long-term debt) through Oct. 18. In addition, we have purchased $128 million of outstanding debt since the beginning of the year."
AMR has posted more than $8 billion in losses in the past six years amid stagnating passenger traffic, soaring fuel prices and mounting security costs.
Last week, the company reported a third-quarter net profit of $15 million. Including AMR's $291 million second-quarter profit, the company posted consecutive quarterly profits for the first time in six years.
On Sept. 30, the end of AMR's third quarter, its total debt was $19 billion compared with total debt of $20.1 billion on Dec. 31, 2005.
AMR's cash and short-term investment balance was $5.5 billion on Sept. 30, leading some industry analysts to question whether company executives could do more to pay down debt.
CEO Gerard Arpey and Chief Financial Officer Thomas Horton said the company is maintaining a cash cushion against industry uncertainties that include fuel prices and availability, war and terrorism.
"We're carrying more cash than we have historically and that's, in part, by design, because of the high level of volatility in the industry," Chief Financial Officer Thomas Horton said last week in a conference call with industry analysts.
"As I think most of you know, a dollar change in oil price has about an $80 million impact to our bottom line.
"So oil has retreated a fair bit from where it was just a few months ago; it was in the high-$70s. That's about a $1.5 billion difference (for AMR) on an annualized basis. . . . So, clearly we've got some flexibility and as I said earlier, we're looking at a range of alternatives, but I think we will consider moving more quickly on balance sheet repair."
John Pincavage, who follows the airline industry for Pincavage & Associates in Westport, Conn., said AMR's tender offer to purchase debt securities is "good financial management."
"It cleans up their balance sheet and brings interest costs down," Pincavage said in a telephone interview. "I don't know where they might be able to borrow money today, but it's sure lower than 10 percent or 9 percent interest."
In the first nine months of the year, AMR's interest payments on its debt totaled $780 million, an 11.9 percent increase compared with its $697 million in interest payments during the first nine months of 2005.
"If you're AMR," Pincavage said, "you clean up your high-interest debt and make yourself more financially efficient. You have improved your operational efficiency. Now it's time to clean up the balance sheet."
AMR shares closed Tuesday at $27.70, down 5 cents. More than 11.2 million shares were traded.
American Airlines employs more than 7,000 people in Tulsa, where it operates its Maintenance & Engineering Center.
________________________________________
D.R. Stewart 581-8451
[email protected]
