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Topic: AMR Bankruptcy Imminent from NY Times
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TWA Fan 1
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Member # 1926
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posted
American Airlines Is Called Close to Seeking Bankruptcy
By EDWARD WONG and RIVA D. ATLAS
American Airlines, its business suffering as war fears ground travelers, may seek bankruptcy protection as early as next week, according to two bankers who have been briefed on the carrier's efforts to line up financing ahead of a filing.
Executives at the airline, the world's largest, worry that labor cost cuts under discussion with unions may not be enough to return the carrier to profitability, one of the bankers said yesterday.
Tara Baten, a spokeswoman for American, said that the airline, a unit of AMR, still hoped to avoid a Chapter 11 filing.
"There's been rampant speculation on this for many weeks, and the fact is that our commitment, our plan and our focus is to do everything possible to avoid bankruptcy," she said. "We continue to have face-to-face negotiations working around the clock, and we remain hopeful that we can restructure the company consensually with our labor groups, rather than in the courts."
A bankruptcy filing by American would almost certainly be the largest in aviation history, and it would follow closely on the heels of filings last year by the No. 2 airline, United, and by US Airways, the No. 6 domestic carrier.
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According to the bankers, American is looking to put together more than $1.5 billion in debtor-in-possession financing, which would allow it to maintain its operations. The potential lenders, the bankers said, are Citibank, a unit of Citigroup; J. P. Morgan Chase; and the CIT Group. Citibank, which issues a credit card tied to American's frequent-flier program, would be the lead lender.
One banker said that the package could be assembled over the weekend. The other said that even if American did not reach an agreement with the lenders by next week, the airline could still file for bankruptcy protection and complete the financing shortly afterward. If its financial situation looked bleak enough, American would want to file for bankruptcy protection as soon as possible to preserve its cash.
"People are being asked by AMR to work as quickly as possible," this banker said. "People are still in analysis mode. People weren't working on a time line for next week. They were working for a little bit beyond that." Previously, he said, bankers had expected that American would not file before late in the spring.
Passenger traffic has declined sharply for all airlines since the United States invaded Iraq last week. American has announced plans to cut 6 percent of its seats, all from international routes; even before the war began, it had planned to cut its capacity by 7 percent in April, from domestic flights.
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Shares of AMR closed at $1.79 yesterday, down 18 percent. The stock was over $26 a year ago.
Early last month, American said it was asking its workers for $1.8 billion in annual wage, benefit and work rule concessions, aiming to cut a total of $4 billion from expenses every year. It has requested $660 million from the Allied Pilots Association, whose negotiators are expected to present a cost-cutting package equaling that amount to union leaders by the weekend. The leaders will probably vote on the cuts before Tuesday.
Gregg Overman, a union spokesman, said yesterday that the union presumed that American's accelerated search for bankruptcy financing was "part of the airline's contingency planning."
On Wednesday, the union said American was engaging in "bad-faith negotiations" by saying it might have to lay off 1,000 pilots. The union argued that American had agreed not to seek cost savings beyond the $660 million. American said the layoffs were part of cuts that had already been announced.
Both sides stuck to their positions yesterday.
"We're saying we have kept our word, and we're not changing what we're asking of our employees," said Ms. Baten, the American spokeswoman.
Mr. Overman said that the layoff threat "seems nonsensical." The $660 million cost-savings package will include job cuts, he said, as pilots are required to work more hours.
Still, Mr. Overman added, negotiators were meeting with company officials in Texas until late into the night.
"We agreed that they have a situation that needs to be addressed," he said.
Yesterday, American said that it had reached a tentative agreement for concessions from its 16,300 fleet service workers. The workers are one of eight groups represented by the Transport Workers Union, one of the three big unions at American.
Both the airline and the union declined to give details of the tentative agreement.
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One bankruptcy lawyer in Fort Worth, where American is based, said that the airline might file in its hometown because it would probably get a favorable reception in the bankruptcy court there.
But the lawyer noted that Weil, Gotshal & Manges, the law firm that American asked in January to look into a bankruptcy filing, is based in New York, so the airline might file there. If so, American's would be one of several huge recent bankruptcy filings in that court, including those of Enron and WorldCom.
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L1011Ret
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posted
The Kansas City paper is guessing as early as Sunday night.
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JFK Fleet Service
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Line in Vegas says Sunday in the Southern District. ![[Wink]](wink.gif)
I personally am suprised they waited this long.
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TWAnr
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March 29, 2003
Strategy Split Is Reported in Top Ranks of American
By EDWARD WONG
Executives at American Airlines are divided on whether to file for bankruptcy protection, though the company is still asking bankers to put together financing as quickly as possible in case it decides to do so, one banker who had been briefed on the discussions said yesterday.
The banker said executives at the airline, the world's largest, had basically fallen into two camps. Donald J. Carty, the chief executive of AMR, parent of American Airlines, and several colleagues want desperately to avoid bankruptcy and would rather work out labor and supplier concessions outside of court, he said.
But executives close to Mr. Carty were arguing that no matter what American does, no matter what labor concessions it wrings out now, there is no way to avoid seeking Chapter 11 protection from creditors because of the bleak industry outlook, he said.
"They're looking at both options very closely," the banker said. "It's tough, though. The war hasn't helped American, United or any of the other airlines."
On Thursday, two bankers said that American might file for bankruptcy protection as early as next week because of the steep decline in revenue. But with the executives still divided, the timing seems uncertain now, one banker said.
Another person briefed on the discussions said American was not having a problem raising financing, because it has enough assets to offer as collateral.
Bankers say that American is trying to put together more than $1.5 billion in debtor-in-possession financing that would allow it to keep operating if it filed for bankruptcy protection. The lenders involved are Citibank, which issues American's frequent-flier credit card; J. P. Morgan Chase; and the CIT Group, they said. Citibank, a unit of Citigroup, would be the lead lender.
One banker said yesterday that GE Capital, the financing arm of General Electric, might also provide financing. An official at GE Capital, however, said he was not aware of any financing talks.
American had $2.7 billion in cash at the end of last year, with $775 million of that restricted. It reported then that it was using up $5 million a day. Since then, passenger traffic in the industry has dropped significantly because of the start of the war in Iraq, and American has been forced to cut its capacity.
The company is negotiating with all its labor groups for $1.8 billion in annual wage, benefit and work rule concessions. Negotiators for the pilots are expected to present a concession package worth $660 million to union leaders, who will probably vote on the cuts before Tuesday. If they approve the package, the membership will then vote on it.
Todd Burke, a spokesman for American, said that the Association of Professional Flight Attendants presented a concession package to airline officials yesterday afternoon. Mr. Burke declined to talk about details of the proposal, but said the company was looking for $340 million a year in cuts from its flight attendants.
"We are now in the process of jointly costing out the proposal to determine whether it meets the cost targets established," he said.
On Thursday, American and the Transport Workers Union reached a tentative agreement on concessions for the airline's 16,300 baggage handlers. The baggage handlers form the largest of eight labor groups represented by the T.W.U. Mr. Burke said American was still in talks with the other T.W.U. groups.
Earlier this week, the pilots accused American of negotiating in bad faith after the company said it might have to lay off 1,000 pilots. The company said it had already warned the union of those layoffs in previous talks.
US Airways, which is expected to emerge from bankruptcy protection on Monday, received approval yesterday from a bankruptcy judge to replace its pilot pension plan with a less costly one. The Pension Benefit Guaranty Corporation, the federal agency with oversight of corporate pension plans, also approved the plan yesterday. US Airways will put it into effect on Tuesday, though pilots have complained that it will drastically reduce their retirement benefits.
The New York Times
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TWAnr
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NEWS ANALYSIS
Some Question Bankruptcy Role in Airlines' Cure
By EDWARD WONG with MICHELINE MAYNARD
Even as US Airways prepares to roll off the operating table on Monday, American Airlines is steeling itself to go under the scalpel of bankruptcy court restructuring.
But industry analysts and economists are questioning whether the kinds of cuts that carriers make in Chapter 11 are deep enough to cure the industry's fundamental ills. After all, they note, the airlines went through a wave of bankruptcies in the early 1990's, only to end up in their worst shape ever today.
So while US Airways will undoubtedly look leaner on Monday — when it is scheduled to end its bankruptcy — than when it filed for protection last August, it does not expect to turn a profit this year or next, and even its chief executive acknowledges it could still fail.
United Airlines is using the leverage of bankruptcy laws to press its unions to let it start a low-cost carrier. But such experiments have failed in the past, because they could never fully copy the successful model of Southwest Airlines.
It is unclear, in the meantime, what American Airlines, the world's largest carrier, will do if it enters bankruptcy court, as bankers have said it might next week. There are no indications that American — or any major rival — is seriously rethinking how it does business.
Skeptics say that the problem with sticking to the old-school focus on cutting labor costs is that it has not worked in the long run. When the airlines eventually eke out a profit, unions demand significant wage and benefit increases, because executives bludgeoned them so hard during the downturns.
To break out of the cycle, the carriers need to take stronger medicine, experts say. Their prescription includes permanent and far-reaching changes in complicated fare structures that have driven away business travelers, in route networks and schedules that guarantee an oversupply of seats and in an archaic mind-set that counts on the government to bail the carriers out, like a prodigal son who keeps asking his parents for rent money.
"Bankruptcy can do a lot of things for you on the cost side and the capital structure side," said Samuel Buttrick, an analyst at UBS Warburg. "Bankruptcy can't build you a good airline network."
Mr. Buttrick pointed out that when US Airways emerges from bankruptcy, it will simply have gone from being an airline with the highest costs in the industry to an airline with high costs. And that is after wringing out annual savings of $1.9 billion — 63 percent coming from labor — and cutting capacity by 28 percent since the attacks of Sept. 11, 2001. US Airways said on Thursday that it would cut capacity by another 5 percent next month.
Few doubt that David N. Siegel, the airline's chief executive, has used bankruptcy protection about as efficiently as possible. But the US Airways business model, which relies on charging high walk-up fares for profit, is unchanged. And Mr. Siegel recently acknowledged the obvious — that market conditions are far from ideal.
"Our short-term survival and long-term success after we emerge from Chapter 11 are conditioned on our taking decisive, proactive steps to limit the airline's financial exposure from the war," he said.
Since the industry's deregulation in 1978, the traditional airlines have been consigned to a cycle of boom and bust, with some carriers fizzling out during down times — Pan Am, Braniff and many more — and others starting up to take their place.
That could happen again now. The consequences might not be so bad for consumers, except for those travelers with tickets or frequent-flier accounts on the airlines that fail. Generally, though, air fares have fallen in lock step with the financial woes of the industry.
In part, those falling prices reflect the chronic excess capacity on routes served by the six largest airlines. In the last week and a half, all those carriers have announced cutbacks in flight schedules because of a steep drop in passengers after the United States-led invasion of Iraq. The capacity reductions range from 5 to 12 percent.
But well before the war began, analysts say, there was a 15 to 20 percent oversupply of seats in the market. Executives knew that, yet stubbornly kept their planes in the air.
Terry Trippler, an air fare expert at Cheapseats.com, said that some major routes still looked overstocked, even after the recent cuts. There are 94 scheduled nonstop flights on April 15 between New York and Chicago, and 29 scheduled nonstops (along with 11 direct flights) between New York and Los Angeles.
"You don't want to cut too much unless the other guy cuts," said Raymond L. Neidl, an analyst at Blaylock & Partners. "That's always been a problem with the airlines. They always want to guard market share."
Gordon M. Bethune, chief executive of Continental Airlines, said it was not so easy for carriers to park their planes. The airlines still have to pay lease rates on parked aircraft, as well as the salaries of workers they do not lay off. So carriers prefer to keep the planes flying to squeeze out whatever little revenue they can, he said, even if that means oversupplying various markets.
Some experts say the most efficient way to bring down capacity is to allow the industry to consolidate. If there were only two or three giant airlines competing to fly just about everywhere, each might be able to make consistent profits, they say. Now, the only profitable carriers are low-fare operators like Southwest Airlines that have avoided building comprehensive nation-spanning route systems.
Washington, though, has been hesitant about allowing consolidation. Federal officials blocked a proposed United-US Airways merger and put stiff conditions on a code-share partnership among Continental, Delta Air Lines and Northwest Airlines.
The most immediate prospect for consolidation lies in the shutdown of United Airlines — a possibility that United has raised as it negotiates concessions from its workers. United's seats add up to about 17 percent of domestic capacity.
But even United's liquidation would only partly solve the oversupply problem. If United disappeared, its rivals would put planes on some of its routes, and other entrepreneurs could buy United's planes to start new airlines. Mr. Buttrick, the UBS Warburg analyst, predicted that if United failed, 60 to 70 percent of its capacity would return within two years. In the meantime, 72,000 United workers would have lost their jobs, and 40 million travelers could lose their frequent-flier miles.
Many experts say that besides grounding some planes, the airlines need to simplify their fare structures. Most still charge astronomical fares for walk-up tickets — a holdover from the dot-com boom, when businesspeople would pay almost anything for a last-minute flight. Ticket-booking Web sites and the simplified fare structures of low-cost airlines — with about five fare types rather than dozens — have made travelers resentful of the opaque pricing of the major carriers.
So far, America West Airlines is the only network carrier to overhaul its fares. The other large carriers have experimented, lowering walk-up fares in markets that account for about a third of total domestic revenue, according to Jamie Baker, an analyst at J. P. Morgan Chase. United has said its limited tests have added $20 million to $25 million to its monthly revenue, but the airline has yet to overhaul fares systemwide.
"We don't have the formula down and comfortable," said Douglas A. Hacker, executive vice president for corporate strategy at United.
During down cycles like today's, airline executives traditionally go to Washington, tin cups in hand. They argue that airlines provide an essential service, like a public utility, and so cannot be allowed to fail. If this made sense during the era of regulation, critics say it rings false in a free market environment — especially when those same executives ask the government to lift limitations on mergers and foreign investment.
Citing potential losses totaling $10.7 billion this year because of the war, the airline industry is asking lawmakers to suspend several taxes, pick up the costs of heightened security, permanently underwrite war-risk insurance and tap oil reserves to help bring down the price of jet fuel.
"Airlines, like all the other firms in the U.S., are notorious for being crybabies, always looking for government handouts," said E. Han Kim, a professor of finance at the University of Michigan School of Business Administration. "They look for their big mother, for mother's milk. And that's Uncle Sam."
But the milk supply may be running low. In December, the government refused to give United a $1.8 billion loan guarantee, forcing the airline into bankruptcy protection. On Wednesday, Senate Republican leaders said they would support financial relief, though the proposed package would probably be under $3 billion, far less than what the airlines want.
Some leading lawmakers are expressing their disgust at the industry's performance. On Thursday, Senator John McCain, chairman of the Senate Commerce Committee, criticized Leo F. Mullin, Delta's chief executive, after learning that his pay last year jumped 120 percent to about $13.5 million, while Delta was losing $1.27 billion.
John Kennedy, a company spokesman, said Delta executives were paid less than executives at similar-size companies.
But that does little to take the bite out of Senator McCain's choice words for Mr. Mullin. "You ought to be ashamed of yourself," he said.
The New York Times
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donuway
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quote:
Originally posted by L1011Ret:
The Kansas City paper is guessing as early as Sunday night.
They seem to favor those Sunday Night BKs,,,circa 1-7-01. (Or 1-8-01,,,very early AM)
Don
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TWA Fan 1
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Question: United & US Airways are in bk. Continental was there twice. If I'm not mistaken America West has been in bk. And TWA, fuggahdaboudit!
Has AA ever been in bk before?
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Bewildered
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posted
If memory serves both TWA & AW have filed for bankruptcy three times.
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TWA Fan 1
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quote:
Originally posted by Bewildered:
If memory serves both TWA & AW have filed for bankruptcy three times.
TWA definitely filed for bankruptcy three times. America West I just don't know exactly.
But I'm guessing this is American's first trip to Federal Bankruptcy Court.
I hope they see the light and start putting the accent on value as opposed to service cuts, which has turned away a lot of cost-conscious business flyers such as myself.
T1
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dragitin
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The airline industry is dead as we know it. Even if all the airlines were LCCs, we all be in trouble because there's just way too much capacity and we'd all be competing for the same too-few customers.
If you don't like air travel now, wait a year . . . you'll really hate it and you'll be paying through the nose for it. Go Greyhound and leave the driving to us!
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B-757-200
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quote:
Originally posted by Bewildered:
If memory serves both TWA & AW have filed for bankruptcy three times.
Actually, AWA only filed once, from just after Gulf War 1 in '91 until late '93. Analysts predict they're 6 months away from another chapter 11 filing if revenues/yields don't improve.
TWA's 3rd bankruptcy was forced by AA, to dispose of Icahn's Karabu and other assets/liabilities AA did'nt want.
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LATREAL
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No AA has NEVER filed bankruptcy before EVER. Yet those loyal TWAer are calling for AAers to leave already because no one can fathom sitting through 2 bankruptcies AND continuing to lose money.
Does not seem like AA is anywhere close to what TWA was and I mean before AA came into the picture.
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MrMarky
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Latreal--
AA has lost $5.3 Billion in the last two years. That's more money than TWA lost in its entire 76 year history combined!
And TWA suffered through a spate of international strife that AA was never subjected to because AA had no international routes and was not viewed by terrorists as the flag of America, as TWA and PanAm were in the 60's, 70's and going into the '80's.
TWA suffered terrorists hijackings, blown up aircraft, murder and mayhem unknown to AA prior to 9/11. And neither the government or anybody else doled out financial relief to TWA as a result.
TWA survived WWII, Korea, Vietnam, the Cold War, Gulf I and the tragedy of flight 800. Prior to Gulf I, AA was pretty much safely tucked away within US domestic routes perhaps with the occasional hijacking to Cuba in the '70's.
AA led a sheltered domestic life at a time when TWA carried our flag around the world, and often paid the price.
Jack Frye, Howard Hughes and Juan Trippe built the airline industry (including the development of countless airports around the world so they'd have a place to land, and the development of countless more foreign airlines who did not have the resources or technical know-how to build a successful airline) while the likes of AA and United were salvaged by Herbert Hoover's Postmaster General.
That's the way it was and that's the way it is.
mAArky ![[Smile]](smile.gif)
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LATREAL
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Got it Marky,
But this thread is about BK.
And my remark was about remarks made about AAers leaving AA because of BK.
The way it is is that AA has lost more money than any carrier and somehow has not filed BK ONCE !
Testament to all other carriers (including twa) who have been forced to file BK while losing a fraction.
Not gone boast about losing money though because a loss is a loss in my book.
But this downturn of losses started on that faithful day (and I'm not talking about 9/11).
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JFK Fleet Service
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quote:
Originally posted by MrMarky:
AA has lost $5.3 Billion in the last two years. That's more money than TWA lost in its entire 76 year history combined!
mAArky, I'll ask you the same thing I asked Bill Chamberlin on USAviation, can you back that up with numbers?
No question AA has lost an assload of money the last two years, but to say AA has lost more in two years than TWA did in seventy six years is quite the moon shot.
[ 03-31-2003, 09:28: Message edited by: JFK Fleet Service ]
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B-757-200
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It's true, Fleet. Even in the 1980's, the most TWA ever lost was only $150-160 million in their worst year. Before that, airlines were subsidized by the federal government and losses never amounted to much more than $30-40 million per year. In the 90's, TWA lost as much as $350 million once or twice, but never more than that, even in years leading up to, or in---bankruptcy. TWA just was'nt big enough to lose a billion dollars, much less $3.5 billion.
So, cumulatively, in its entire history, TWA never lost $5.3 billion dollars. AA did that in 2 short years.
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LATREAL
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So like you said basically, TWA was never big enough to lose 5.3 billion.
Someone do a asset to loss ratio.
Ehh, nevermind, really not necessary, we are comparing losses. Why?
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DC9
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:)American Airlines reached tentative agreement with all three of its unions, avoiding bankruptcy, a source familiar with the situation said Monday. The source, who spoke on condition of anonymity, said technicalities still needed to be worked out, but that it appeared that American, the world's largest carrier, achieved the $1.8 billion in labor concessions that it needed to avert Chapter 11. Any agreements reached between union and company negotiators would still need to be voted upon by the employees.
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LATREAL
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quote:
Originally posted by DC9:
:)American Airlines reached tentative agreement with all three of its unions, avoiding bankruptcy, a source familiar with the situation said Monday. The source, who spoke on condition of anonymity, said technicalities still needed to be worked out, but that it appeared that American, the world's largest carrier, achieved the $1.8 billion in labor concessions that it needed to avert Chapter 11. Any agreements reached between union and company negotiators would still need to be voted upon by the employees.
So still not one BK ehh!!
I'm just having light hearted fun. I do realize that after UA and U got concessions they still filed BK.
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donuway
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quote:
Originally posted by LATREAL:
quote:
Originally posted by DC9:
:)American Airlines reached tentative agreement with all three of its unions, avoiding bankruptcy, a source familiar with the situation said Monday. The source, who spoke on condition of anonymity, said technicalities still needed to be worked out, but that it appeared that American, the world's largest carrier, achieved the $1.8 billion in labor concessions that it needed to avert Chapter 11. Any agreements reached between union and company negotiators would still need to be voted upon by the employees.
So still not one BK ehh!!
I'm just having light hearted fun. I do realize that after UA and U got concessions they still filed BK.
They reach tentative agreements,,,and they have already avoided the BK that was so "imminent". They know how to play their cards,,,,
Don
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L1011Ret
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Yes, they do seem to know how to play their cards especially when they have a winning hand that no one is going to call. This seems to have been done well despite all the pain that is going to ensue.
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donuway
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When I made my previous post, I didn't have time to mention that "they" were not just AMR. IMO, in this game of cards, I believe AMR had their financing sources assisting them with their hand.
Just a few short weeks ago, AMR was still touting that a BK was not in the cards. They announced the cuts from Labor they needed. It seemed to me, at least from the news, that these cuts were being welcomed with anything but open arms. In a very short time frame, BK financing sources emerge.
Even though some on this board were calling for Mr. Cartys removal, no displeasure seemed to be coming from other upper management. I believe most in the know knew this trump card was being held between AMRs chief financing sources and AMR.
Only time will tell if this was what was really needed, just a band-aid to slow some bleeding, or a tactic used to lower labor costs. If AMR doesn't make drastic changes to its business model, and starts losing 3 billion less, then these cuts served their purpose. If their model stays the same, business stays the same, and they start making tons of money again, this was a tactic to beat down labor.
Today will be an interesting day for AMR on Wall Street. Two things have happened that I have noticed in my short investment career that Wall Street loves. A company seems to have avoided BK, and they have beaten down labor costs.
Don
[ 04-01-2003, 08:10: Message edited by: donuway ]
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LATREAL
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So basically no matter what the outcome, as far as you are concerned... BAD AA , huh?
[ 04-01-2003, 08:19: Message edited by: LATREAL ]
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donuway
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quote:
Originally posted by LATREAL:
So basically no matter what the outcome, as far as you are concerned... BAD AA , huh?
If you are eluding to my post, I think I allowed history to play out 3 options;
(Only time will tell if this was what was really needed, just a band-aid to slow some bleeding, or a tactic used to lower labor costs. )
The first does NOT say "bad" AA, the second shows a desperate AA, and the third eludes to a "deceptive" AA. As I mentioned, time will tell.
I am talking about a VERY large, VERY connected AA, that obviously has more cards to play than most other airlines in these troubled times. They have a right to play hard, and play smart. It's that fine line between smart and deceptive that brings out a players true colors.
Don
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Draginitin
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Draconian labor cuts aren't going to save AA. Given the competence of leadership right now, it's the only thing they can think of.
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gambit3131
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SFGate Article
How American dodged Chapter 11
Kathleen Pender Tuesday, April 1, 2003
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How was American Airlines able to avert bankruptcy -- at least for the moment -- while United Airlines, which had a similar cost structure and faced many of the same problems -- could not?
The answer boils down to management, money, motivation and timing.
Some experts say American's leaders were able to steer the company clear of Chapter 11 because they had far more experience in the turbulent airline industry than United's management.
Donald Carty, chief executive officer of American parent company AMR, has spent most of his career at the nation's largest airline. A protege of storied American chief Robert Crandall, Carty has been AMR's chairman, president and CEO since 1998.
Since 1998, United parent UAL Corp. has had four CEOs, three from outside the airline industry.
UAL's current CEO, Glenn Tilton, spent most of his career in the oil business before joining UAL in September. The previous CEO, Jack Creighton, came from the forest products industry and was with United less than a year.
Creighton's predecessor was Jim Goodwin, a United veteran who served as CEO for less than two years. Before him came Gerald Greenwald, a former executive with Chrysler and Ford.
"It's been a revolving door at United," says Bill Haug, an American pilot who flies out of the Bay Area. "They've just been adrift."
Although Haug, who has been promoting an employee takeover of American, is no fan of management, he says Carty "has been relatively consistent, and has come up with a rational plan for getting us out of this."
Haug points out that AMR's top management also has a bigger financial stake in their airline.
AMR officers and directors as a group owned 6.9 percent of the company's stock, as of the April 2002 proxy statement. Carty alone owned 3.6 million shares, or 2.3 percent.
At UAL, officers and directors as a group owned only 3 percent of the stock,
with no individual owning more than 1 percent, as of the March 2002 proxy.
In a bankruptcy, stock almost always becomes worthless.
American's longer-tenured leaders also may have had more pension money at risk if the airline filed for bankruptcy.
Although both airlines were devastated by the Sept. 11 terrorist attacks, "American had more financial flexibility prior to (the attacks)," says Richard Bittenbender, a bond analyst with Moody's.
United started losing money before American. American also had more unencumbered assets, meaning it had more assets it could borrow money against. And it had more cash.
"They both got sick, but United was weaker to start with and so it failed," says Bittenbender.
Many observers said UAL would never file for bankruptcy because its employees, excluding flight attendants, owned as much as 55 percent of the company. Despite their majority ownership, United employees had only three of 12 board seats.
United never was able to get all three of its unions to agree to the concessions it said it needed to avoid bankruptcy.
But it wasn't labor alone that pushed United into Chapter 11.
On Dec. 4, the federal Air Transportation Stabilization Board refused to guarantee a $1.8 billion loan UAL needed to pay off $920 million in debt due the following week.
The board said the company's business plan was not fiscally sound and was based on "unreasonably optimistic revenue projections."
United filed for Chapter 11 on Dec. 9. It is working with its unions and creditors on a reorganization plan and hopes to emerge from bankruptcy.
American didn't apply for a federal loan guarantee before the window of opportunity closed. Depending on who you talk to, this is because American management thought their business would improve or because they didn't think AMR would qualify for a federal loan because it still had access to the credit markets when the application deadline passed.
AMR is not in imminent danger of defaulting on any loans. At year's end, it had unrestricted cash and investments of $1.9 billion. It also expects to receive a cash tax refund of more than $550 million.
However, because of its current financial situation, the airline is expected to violate a bank covenant on June 30, which would force it to immediately pay off $834 million in loans.
Unless American has secured substantial labor savings by then, the banks probably would not defer the payments, which could force AMR to file for bankruptcy.
If bankruptcy were a certainty, AMR would be better off filing now while it still has a tidy pile of cash rather than waiting until June. That's why AMR reportedly said it might file for bankruptcy this week if its unions didn't agree to a total of $1.8 billion in cost savings by Monday.
"American wanted to avoid the fate of United, which is why they were going to file for bankruptcy earlier rather than later while they still had more liquidity," says Raymond Neidl, a stock analyst with Blaylock & Partners. He does not own stock in American and his firm doesn't do banking business with the airline.
American announced late Monday that the leaders of its three main unions have agreed to the necessary cuts. The agreements still have to be approved by union members.
If the agreements are ratified, American still could be forced into bankruptcy if the airline industry continues to deteriorate.
For now, however, bankruptcy seems to have been averted.
Bittenbender says that American may have gained an advantage from the experiences of United and US Airways, which filed for bankruptcy in August.
"This is a case where being first isn't a good thing. The unions at US Air and United said, 'We're not going to accept pay cuts,' and the eventual result was a bankruptcy," he says. It's a case of "the first time shame on you, the second time shame on me and third time -- maybe you shouldn't be there."
Posts: 176 | From: Fort Worth, TX
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Gumby
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It was not due to superior management abilities at AMR. They used the fear of BK on labor to bully their positions. Now, with 6 year contracts that will take an additional two to renegotiate, the bonuses will flow while it will take decades for the employees of AMR to recover their loss of income and benefits. Of course, for the majority of the former TWA employees, we will see little, if anything.
Now, if they had mentioned the management of SWA, then we would have had a true journalistic piece.
Really pissed,
John
Posts: 522 | From: Litchfield, Ohio
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Bewildered
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Would you have rather have been pissed off or pissed on?
As unpleasant as the concession package may be it is much better than anything the creditors would have implemented and better than what the courts would have ordered.
Give both AA & the Unions on the property credit for stepping up and doing all they could to protect the futures of their membership which is more than what I can say for the unions at TWA.
TWA's demise could have been prevented if they were more concerned about the futures of their members than about their dues.
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dave carr
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quote:
Originally posted by Bewildered:
Would you have rather have been pissed off or pissed on?
As unpleasant as the concession package may be it is much better than anything the creditors would have implemented and better than what the courts would have ordered.
Give both AA & the Unions on the property credit for stepping up and doing all they could to protect the futures of their membership which is more than what I can say for the unions at TWA.
TWA's demise could have been prevented if they were more concerned about the futures of their members than about their dues.
Bewildered
Could you please expand on this posting. In particular I would like to know how the unions could have done more to make TWA a survivor? I don't disagree with you, I'd just be interested in knowing how this could have been accomplished.
It seems to me that after two bankruptcies, numerous concessionary contracts, an attempted employee ownership, and other efforts our unions (meaning us, as we were the members) just ran out of options. "Maybe" many years ago something might have been done, but at the end TWA just seemed to be too burdened with debt, Carl Icahn, high aircraft leases, high interest rates, no ability to hedge fuel, etc., etc.
If I'm not mistaken, when AA bought TWA, compared to other trunk carriers, we as TWA employees were operating cheaply, competently, effeciently, and even on time. JD Powers certainly was impressed. At this point what more could the unions have done?
Dave Carr
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Bewildered
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I'll try to elaborate a little. Yes we provided a good service to our customers. Actually we provided a quality service. There is no doubt about that but TWA had some of the worse work rules in the industry.
Try all the mechanical work we did internally where our competition farmed-out work. We were not allowed to do modular replacement on engines, paint work, component overhaul was the worst in the industry. We were one of the only companies where A&Ps did receipt & dispatch yet we couldn't hire enough mechanics to work in the hangar. We had ac sitting in MCI because we couldn't farm them out but we didn't have enough mechanics to work them.
Commissary- we used 2 drivers in JFK for servicing. One in STL. Our competition used either one or had the caterer service the ac. We couldn't use cheaper labor to clean ac. Staffing of shifts was restrictive.
Agents- restrictive staffing rules. Full time benefits for part time service. That’s $6,000 yr for a person that produces half as much as a full timer.
FAs. FAs that were perpetually on leaves got medical even though they performed no services for us. That’s about $6,000 yr for a person that doesn't produce anything. These folks had their own businesses that we were subsidizing. There were FAs that didn't work a day in years but got medical benefits.
Pilots - 14.5% DAP. Full pay not to fly.
What about free medical at $6k per person.
If you add it up it is a lot of money that could have bought job security. Believe me this is only the tip of the iceberg there was a lot more.
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B-757-200
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quote:
Originally posted by Bewildered:
Give both AA & the Unions on the property credit for stepping up and doing all they could to protect the futures of their membership which is more than what I can say for the unions at TWA.
TWA's demise could have been prevented if they were more concerned about the futures of their members than about their dues.
You're out of your mind.
AA unions SOLD OUT their junior people, and if they vote NO will lose THOUSANDS more members.
TWA unions DID give up alot and WERE concerned for their members. Where have you been? You obviously don't know the history of concession packages TWA unions gave the company to keep working. Much more than your unions are willing to concede I'll bet.
Just wait 'til the hard-line radicals (the ones who say: "FULL PAY to the LAST DAY") see what happens when a judge and creditors GUT their CBAs in Chapter 11. Believe me, it will be a bloodbath, and many more will get furloughed.
Posts: 1278 | From: Los Angeles,Ca,USA
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dragitin
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The vote will probably be YES, but it won't help. Carty doesn't have a clue on a business plan. AA and all the traditional majors will continue to lose boatloads of money even after huge concessions by employees. I predict more concessions, another 1500 furloughes on top of the 2500, gutting of retirement, and finally BK in a few months. The APA and all airline unions are basically irrelevant at this point. The cost of the war in Iraq and it's aftermath will bleed the country into an even more serious recession, if not depression in even more industries (like we are now in commercial aviation).
TWA? Zero importance. STL? Dead. Those issues are about as relevant as one flea on a dying dog. Time to find another line of work. At least you might be able to go home at night without being depressed.
[ 04-08-2003, 10:50: Message edited by: dragitin ]
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Bewildered
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B-757-200
Your probably right I may be "out of my mind" but there are tens of thousands of folks in this industry and thousands at AA/TWA that didn't get to vote on what their future will look like. You did! One thing I always try to remember is that there is always someone worse off.
I know its tough. At least you got to pick your poison. Many others didn't have that luxury.
There are a lot of folks got NOTHING and that lost EVERYTHING. Wage concessions are the least of their concerns.
I lost thirty years of my life. What greater loss is there than that? I lost them because of stupidity.
If TWA had gotten these same concessions from the Unions, Karabu would have expired and TWA would still be here today. Would you have been better off? ABSOLUTELY.
Good luck.
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B-757-200
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quote:
Originally posted by Bewildered:
Your probably right I may be "out of my mind" but there are tens of thousands of folks in this industry and thousands at AA/TWA that didn't get to vote on what their future will look like. You did! One thing I always try to remember is that there is always someone worse off.
Bewildered, no vote here; I've been furloughed 3 months. This horrible mess may eventually get sorted out if the Senate holds hearings.
Posts: 1278 | From: Los Angeles,Ca,USA
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captoza
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The latest US Airline Bankruptcy victims;
US Aiways (Since exited)
United
Hawaiian
Many so called industry observers predict the following:
**United will eventually go into Chapter 7 and/or be a very small airline if and when they exit bankruptcy. (I hope they can fill all the holes in the bottom of the cup, to stop the flow of $$$$)
**American will enter Chapter 11 despite employees giving up the house in salary. (I give it at least six months, if that.)
**Northwest & Continental are the next two headed towards Chapter 11, but which one will be first is not clear.
This industry is clearly in trouble and unless something can be done to stop the red ink, the US Airline Industry may be down to airline types like Southwest, AirTran & Jet Blue. Let' not forget America West (Gov Loan) and US Airways (Gov Loan). The economy clearly sucks in most sectors, if not all.
I hope and pray my feelings are wrong and the US Airline Industry rebounds strong and soon.
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L1011Ret
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The company is in for difficult times. They have admitted they have lost all trust with the employees. Their explanations about executive compensation and retirements leave a lot to be desired, some posters labeling them as if they came from the Iraqi Information Minister. The voting "irregularities" that accompanied the F/As vote will likely be challenged in Federal court. To sweeten the pot to encourage F/As to vote yes, they offered 6 month passes to furloughed F/As if they have perfect attendance. That little sweetner has been derided as discriminatory towards those who have genuine medical problems. A sorry way of doing business. AA is being labeled "Enron Air" by other posters. To their credit they have apologized and promised to regain employees trust. It is going to be tough sledding for AA.
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donuway
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Kind of a quick turnaround huh?. How many of the labor cuts have already really taken place??
Anyone else think that the troubles weren't as bad as they seemed when this thread started?,,Or are they really pouring smoke on Wall Street now?
Don
Posts: 414 | From: St. Louis, Mo
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MrMarky
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Interesting theory, Don.
After all, AA does have some experience with making an airline appear broke and on the brink of failure. They got lots of practice doing it with TWA.
Take care,
mAArky
Posts: 434 | From: Concourse C
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JFK Fleet Service
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quote:
Originally posted by donuway:
Kind of a quick turnaround huh?. How many of the labor cuts have already really taken place??
One positive month of cash flow from operations does not a turn around make.
As for labor cuts really happening, contract cleaning services are now performing all overnight aircraft cleaning at all locations.
The system bump and roll continues unabated, I now work with guys who have been displaced from Aircraft Maintenance, MIA,EWR,JFK,BOS,SJU and a few other stations.
With the June 14 Reduction in Force about 100 or so people from LGA who couldn't displace into another location have gone to the street.(And no, none were TWA)
[ 06-27-2003, 01:40: Message edited by: JFK Fleet Service ]
Posts: 184 | From: New York City
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JFK Fleet Service
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quote:
Originally posted by MrMarky:
After all, AA does have some experience with making an airline appear broke and on the brink of failure. They got lots of practice doing it with TWA.
We got lots of practice doing it with TWA?
Carl Ichan and piss poor management lacking any kind of strategic vision made TWA "Appear broke and on the brink of failure" long before Carty started whispering in Comptons ear.
It is said a drowning man will grasp even the point of a sword if offered.
Posts: 184 | From: New York City
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donuway
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JFK Fleet,
I wholeheartedly agree with your posts.
The "cash flow" statement that Arpey made LATE Wednesday was pretty darn vague, but the analysts love it.
Glad to see you are still working. From some recent articles in the St.Louis Business Journal, and a recent Interview of a controversial St. Louis economist in our Post Dispatch, I think STL may be seeing lots of displaced workers soon also. The overall feeling on the street is that Lambert will at best be a mini hub,,,,, with a few real nice underused runways!
Don
Posts: 414 | From: St. Louis, Mo
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webmoonchild
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posted
Bookings at American are very very good according to Wall Street. Travelocity emails me every two weeks with special fares. Guess what? Ticket prices have increased. A lot. Now the good news...folks are going to training for STL and then resigning in unusually high numbers. The speculation here is that manpower needs (actual) is higher than manpower needs (planned). I'm keeping fingers crossed for early recalls. AMR stock up 22.5% for the month to date.
Posts: 141 | From: MIA
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MrMarky
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quote:
Originally posted by JFK Fleet Service:
We got lots of practice doing it with TWA?
Carl Ichan and piss poor management lacking any kind of strategic vision made TWA "Appear broke and on the brink of failure" long before Carty started whispering in Comptons ear.
Hi JFK,
No argument with you regarding Icahn and some of the others at TWA.
But you also need to remember the Chapter 11, section 363 filing that AA forced TWA to enter into, despite TWA NOT being bankrupt, the sudden depletion of TWA cash -- paying off $100 million notes they had already said they could refinance, etc, etc. AND--the lies to Congress, waving the "failed company" flag in order to get the deal past governmental and regulatory scrutiny.
Bill Compton gave sworn testimony to the US Senate that the TWA BK was AA's idea, not his.
Let's understand one thing. AA's sleazy strongarm management tactics are nothing new. Deceit cost Carty his job, and maybe your employees tons in wages and benefits (and jobs) and the TWA-style management ineptitude has almost run the airline into the tank.
It seems to me that in addition to competence, it is imperative that the company be run with the highest of ethical standards and the same be expected of the employees, who should be treated as prized assets, not adversaries.
Let's hope Arpey can right the ship -- so far so good. The numbers for May and June are heartening, as is the climbing stock price.
I think the question others may be wondering about with regard to the May numbers is whether they reflect the work group concessions and if that is why they have turned more positive.
Take care, and I'm very glad you're still working.
mAArky
Posts: 434 | From: Concourse C
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JFK Fleet Service
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posted
Wasn't 363 the only way to avoid having Karabu applied to the entire AMR network in the event of a traditional merger/acquisition?
I'd also venture that if bankruptcy was such a distasteful option to Compton, he could have said no and told Carty to pound sand.
You'll get no arguement from me regarding strong arm AA tactics, I've experienced them up close and personal.
Treating the employees as assets as opposed to liabilities will be a bit like turning the QE2, it's not something that is just done, it takes time.
Would I like to see it? Absolutely, but Arpey has a tough row to hoe, Carty poisoned the well of employee morale and it is going to take time and straight forward dealings with us to change that.
Arpey has spent his entire career at AA, I'd like to think he wants to see this company return to prosperity and growth just as much as I and many others do.
Regarding the May numbers, they do reflect the lower labor costs as well as lowered expenses from vendors and lessors.
Labor savings alone this quarter are $200 million and that increases to $400 million in Q3 and $450 million in Q4.
Yes, I am still working,for now...we'll see what the weeks and months ahead hold in store.
Posts: 184 | From: New York City
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MrMarky
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quote:
Originally posted by JFK Fleet Service:
Wasn't 363 the only way to avoid having Karabu applied to the entire AMR network in the event of a traditional merger/acquisition?
Yes, that's correct as I recall. Yet that does not indicate that TWA was bankrupt, only that AA wanted Karabu out of the way (who could blame them?) and they found an effective way to accomplish that.
quote:
I'd also venture that if bankruptcy was such a distasteful option to Compton, he could have said no and told Carty to pound sand.
What would Compton care? He had decided to sell the airline and so it made little difference if he did it with or without bankruptcy, so long as he could close the deal. The BK filing was made solely to satisfy AA's demands -- it was their ticket to getting the deal past regulatory hurdles and getting rid of Karabu, exhorbitant aircraft leases and a number of other TWA financial obligations.
Please see TWAnr's post at USAviation, of Sherry Cooper's recent testimony before a Congressional committee, as she had inside knowledge of these things as a member of the TWA Board of Directors at the time of the transaction.
One can only speculate as to whether the TWA union groups might have been in a stronger position without the BK, and perhaps not forced to surrender their scope clauses under the duress of a "failed company" scenario. For AA and its unions, the BK had the added benefit of avoiding true labor integration and instead lining up almost the entire TWA workforce before a firing squad, while promising all of them a secure future and testifying to that before Congress.
I'm sure that the sense of decency and ethics which you have always displayed in your posts is also present among many of your coworkers. Unfortunately, it was not there among the AA management and union leadership who were calling the shots during this transaction and its aftermath.
Take care and best of luck to you,
mAArky
Posts: 434 | From: Concourse C
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JFK Fleet Service
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I'm wondering if on some level Compton went along with the bankruptcy suggestion in order to see Ichan take it in the shorts.
Have someone stick it to him instead of him sticking it to someone else, as was so often the case.
With regard to the unions, I agree they would have been negotiating from a stronger position absent the bankruptcy.
However, only the TWU went to binding arbitration as called for by the contract language.
The other two unions (Non AFL-CIO) had a free hand and we see what they did with that free hand.
The arbitration decision raised as many questions as it answered, but it is better than nothing.
We have a sizeable group of former TWA working here at LGA,and for the most part the two groups have meshed rather well.
In fact, we are on the verge of getting a former TWA guy in as a shop steward on afternoons.
Posts: 184 | From: New York City
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TWA Fan 1
Post Captain
Member # 1926
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posted
quote:
Originally posted by JFK Fleet Service:
I'm wondering if on some level Compton went along with the bankruptcy suggestion in order to see Ichan take it in the shorts.
Have someone stick it to him instead of him sticking it to someone else, as was so often the case.
With regard to the unions, I agree they would have been negotiating from a stronger position absent the bankruptcy.
However, only the TWU went to binding arbitration as called for by the contract language.
The other two unions (Non AFL-CIO) had a free hand and we see what they did with that free hand.
The arbitration decision raised as many questions as it answered, but it is better than nothing.
We have a sizeable group of former TWA working here at LGA,and for the most part the two groups have meshed rather well.
In fact, we are on the verge of getting a former TWA guy in as a shop steward on afternoons.
I'm glad to hear that the LGA integration is working at least this well.
I think Compton wanted to stick it to Icahn, but I think he looked at the remaining commitment TWA had to Icahn with Karabu and he felt that the airline would have a tough time surviving. TWA had been forced to shed its remaining European destinations (except CDG) because of long-term obligations in those stations, and was now operating with a STL hub and a crushingly diminished JFK operation.
TWA had spent a lot of money modernizing the fleet on costly leases. Additionally, the cost of fuel without having enough cash to hedge fuel purchases, was devastating.
I do believe Compton thought that the AA acquistion was the best available option to save as many TWA jobs as possible. Remember, when the deal was made AA was the uncontested success story of the airline industry. Hingsight is 20/20, but who could have predicted in late 2000 that AA would lose six billion dollars?
As far as the unions, I think all parties did whatever they could to defend their interests, and, clearly, the AA unions had the leverage.
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