AMR takes more steps to boost liquidity in light of revenue headwinds

By Jennifer Lanning Drey

Portland, Ore., July 15 - AMR Corp., the parent of American Airlines, continues to take steps to bolster its liquidity while facing steep revenue declines resulting from decreased air travel due to the economic downturn, volatile fuel prices and challenging capital markets, AMR's chief financial officer Thomas Horton reported Wednesday during the company's second-quarter earnings conference call.

AMR ended the second quarter with $3.3 billion of cash, which included $66 million in proceeds from an aircraft sale-leaseback transaction that closed in the quarter, Horton reported during the call.

The company's second-quarter consolidated revenues of $4.9 billion were down nearly 21% from revenues in the comparable prior-year period. The second-quarter net loss was $390 million, compared to a net loss of $1.5 billion in the second quarter of 2008.

"These are obviously disappointing results and they reflect the challenges we continue to face on a variety of fronts," Gerard Arpey, AMR's chief executive officer, said during the call.

Boosting liquidity

Among its second quarter activities, AMR priced a $520 million public offering of enhanced equipment trust certificates that closed July 7. With the completion of the offering, AMR now believes it has arranged committed financing to cover all of its planned aircraft deliveries through 2011, Horton said.

AMR made scheduled principal payments on long-term debt and capital leases of $400 million during the second quarter and ended the period with total debt of $14.2 billion. The debt figure compares with $15.2 billion of debt at the end of the same period in 2008.

Horton said that after the public offering, AMR had unencumbered assets and sources of liquidity estimated to be worth $3.7 billion. The company expects to unencumber another $500 million worth of collateral with its debt maturities this year.

"Our industry, and we are not alone, is facing a challenging capital markets environment, but we continue to pursue opportunities to use our unencumbered assets to bolster liquidity," Horton said.

Full-year scheduled principal payments on long-term debt and capital leases are expected to total about $2.0 billion. Of that amount, $1.2 billion has already been paid in the first half of the year.

Reduced capacity

Looking to the third quarter, AMR expects mainline and consolidated capacity to be down nearly 9% versus the 2008 period, Horton said during the call.

AMR previously announced plans to reduce system-wide capacity by 7.5% for full-year 2009, as compared to 2008 levels. The reduction came on top of what Horton said was already a conservative plan. The company will continue to monitor revenue to see if additional measures are needed, he said.

"There is great uncertainty for the remainder of 2009. The near-term environment, volatility of fuel and tightness in the capital markets all present significant hurdles, but we continue to take steps to position American to weather these challenges," he said.

AMR is a passenger airline based in Fort Worth, Texas.

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