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A Heavy Load for Airline: American Says Results Must Be More Robust to Whittle Down Debt

Posted on: Thursday, 26 January 2006, 15:00 CST

By Eric Torbenson, The Dallas Morning News

Jan. 26--FORT WORTH -- The worst may be behind American Airlines Inc., but the world's largest carrier must improve its finances sharply if it hopes to outrun debt payments, executives said Wednesday.

"We've got an awful lot of interest to pay on our debt," said James Beer, American's chief financial officer, speaking at a media event at the company's headquarters.

Interest and principal payments on the debt will exceed $2 billion this year, adding cost pressure to an airline again facing oil prices near $70 per barrel.

Analysts project American parent AMR Corp. will turn a modest profit this year, its first since 2000.

Still, Mr. Beer said, American must produce more robust results to whittle down its long-term debt. "We need to address that as swiftly as we can," he said.

American's capital spending has declined sharply. The carrier spent $3.2 billion on aircraft, airport projects and other product improvements in 2001. The figure is $600 million this year.

Until American's financial results improve, new aircraft and other enhancements aren't in the mix, Mr. Beer said.

American continues to scrutinize every expense, said chief executive Gerard Arpey, in luncheon remarks to the journalists.

For example, executives recently engaged in a "spirited" debate over whether to spend $15,000 to re-frame artwork at Tokyo's Narita airport. American's total costs last year were nearly $20 billion.

"One of my executives asked, 'Will people want to buy a ticket on us based on having new frames on the art?'" Mr. Arpey said.

For American's union, that kind of focus on saving every last dime puts an executive payout program under a harsh spotlight.

The program is likely to pay out more than $75 million to just under 1,000 of American's top executives in April.

Those payments have caused an uproar among many rank-and-file employees and union leaders.

American's 80,000 employees collectively sacrificed $1.8 billion a year in wages and benefits in the past three years, though most also received stock options that have appreciated in value.

Late Tuesday, American's three major unions said they would file a grievance against the airline, saying the payouts violate their collective bargaining agreements.

Collaborative aim

In a joint release, they also said they would continue to collaborate with airline management in American's Working Together program, in which union representatives, front-line employees and managers help plan operations.

"We are hopeful that we can resolve the bonus issue to our mutual satisfaction and build on the progress we have made toward restoring American Airlines to a position of industry leadership," the joint union release read.

The dispute underscores how hard the collaborative effort is, said Jeff Brundage, senior vice president of human resources.

"It doesn't mean we're going to be buddies all the time," he said, but it does mean the two sides should be able to find common ground on many issues.

Common ground

The one thing both sides agree on is that neither can accomplish much without a healthy airline, he said.

American's strategy for returning to healthy profits includes increased focus on international routes, such as its newest offering between Chicago and New Delhi, which is performing better than expected, and on its Chicago to Shanghai, China, route that debuts in April.

Most of American's capital spending is on improved seats and service on its largest planes, which do most of the carrier's international flying.

Some of American's best revenue results have come from its European and Latin American operations, and the concern among analysts remains that other traditional network carriers are pouring as much capacity as possible into international routes.

The good news for American is that the new flying -- primarily from Delta Air Lines Inc. -- won't overlap directly on American's best routes across the Atlantic Ocean, said Henry Joyner, senior vice president of planning.

A flood of new seats is a concern of Mr. Arpey's, but he's hopeful that American's global reach will continue to win it a disproportionate number of customers and drive revenue.

"It's a very interesting story," Mr. Arpey said. "I just wish I knew how it was going to turn out."

Shares in AMR gained 9 cents Wednesday to close at $19.88.

E-mail etorbenson@dallasnews.com

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Source: The Dallas Morning News

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