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Airline parent seeks new credit line because
of sluggish finances
Thursday, September 23, 2004
DALLAS (AP) --
American Airlines is reducing some flights
and considering charging for onboard food amid increasing
fuel prices and intensifying competition from low-cost carriers,
the company's chairman and chief executive said Thursday.
Gerard Arpey's comments to financial analysts
in New York came one day after American's parent, AMR Corp.,
said it was discussing refinancing an $834 million line of
credit. AMR said in a filing with the Securities and Exchange
Commission that it needs additional relief since August revenues
fell short of expectations.
The disclosure further worried analysts
already uncertain about American's outlook.
J.P. Morgan analyst Jamie Baker predicted
that AMR would lose $1.70 per share -- about $270 million
-- in the third quarter, instead of the 30 cents per share
that he had previously forecast. Until Friday, Baker had been
more optimistic than his counterparts -- the consensus prediction
of 10 analysts surveyed by Thomson First Call was a third-quarter
loss of 50 cents per share.
Similar concerns prompted Merrill Lynch
analyst Michael Linenberg to lower his ratings on Continental,
Delta and Air Tran airlines, citing concern about overcapacity
on their East Coast routes. He maintained "buy"
ratings on Southwest Airlines Co. and JetBlue Airways, saying
that the two low-cost carriers could capitalize on the problems
of older carriers.
AMR shares fell 68 cents, or nearly 8 percent,
to close at $8.06 Thursday on the New York Stock Exchange.
Finances for AMR, which avoided bankruptcy
last spring and reduced its annual costs by $4 billion, remain
fragile.
Arpey said Thursday that American Airlines
is making cautious plans for 2005, including reducing some
midweek and Saturday night flights at its Miami and Dallas
hubs respectively. He said American is considering new sources
of revenue, including charging for onboard food and renting
portable entertainment systems.
American, in response to high fuel prices,
raised its fares $5 each way on Wednesday in another attempt
to pass costs along to travelers. But major carriers' earlier
attempts to raise fares have failed. Other carriers are still
considering matching the latest increase.
In its SEC filing Wednesday, Fort Worth-based
American also said that its total debt load exceeds $22 billion,
including aircraft leases, and it must increase profit to
service that debt.
AMR's cash balance of $3.6 billion meets
the minimum required under its existing credit line, the airline
said. But its financial results won't meet a provision in
its loan agreement regarding the ratio of its pretax earnings
to debt payments.
AMR now wants to refinance or replace the
loan.
In the filing, the company also said September
revenue will be hurt even more by the series of strong storms
that hit Florida and the Gulf Coast.
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