AA and Eagle!

[Hopeful]

It's amazing how these things get reported based on speculation.. Either these reporters have a connection inside AMR who they are talented at making predictions!
http://www.bloomberg.com/news/2011-12-12/amr-bankruptcy-creates-opening-to-speed-cutbacks-at-eagle-unit.html?cmpid=yhoo

 

[damajagua]

I do believe a lot of eagle current fleet might be gone sooner then a lot of people think.
Eagle fleet is not competive at the current price of oil.
The interesting thing to figure out is how is AA going to address its
feeding to the main line?

 

[WorldTraveler]

Solving the "Eagle problem" is absolutely essential for AA in BK... they not only have to substantially reduce if not put a defined end to the number of 50 seaters in their fleet but they have to think towards the next generation of network planning which may or may not many regional carrier operations. Large RJs flown by regional carriers do have CASMs on par with mainline aircraft but the industry can move rapidly.
It is highly possible that AA will change its entire network model and no longer focus on chasing the hundreds of small cities throughout the country that can only be served by RJs. Given that AA's network is built around the largest cities in the country, it may well be that AA finds that it is not worth the cost of trying to compete in small markets with fares that are increasingly not much differentiated from much larger markets.

As a smaller airline than DL and UA and with hubs in highly competitive markets - MIA and DFW will increasingly become highly competitive - AA may recognize that its network needs to be much more efficient and less focused on trying to serve the number of markets it once did (and currently do serve). AA's international markets are much more heavily focused on large global markets instead of smaller cities within the region, with the exception of Latin America. A hybrid point to point and hub based network is probably quite likely.
No US carrier has used BK to substantially change its business model but AA might be the first to use BK to restructure to gain the type of business model that is most capable of competing with WN and other low fare carriers who gravitate to high density markets which more accurately describes AA's network than that of DL or UA - or US.
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It is very hard to know how AA's network will change but I think it is a given that there will be dramatic changes - and the fleet will change to support it.

BTW, according to AMR's 2010 Annual report, the AE fleet is entirely owned, not leased.

 

[AAviator]

The last company proposal to the APA which the APA agreed to had a pay band for the Q400 and Crj700/900. Hmm. Having those at mainline would throw a wrench into contract negotiations over at DL and UA.

 

[will fix for food]

The last company proposal to the APA which the APA agreed to had a pay band for the Q400 and Crj700/900. Hmm. Having those at mainline would throw a wrench into contract negotiations over at DL and UA.

It loooked like it had pay bands that included about one hundred different aircraft types including the 747 and A380. I doubt that because a pay band exists for a type it necessarily means you will be flying it.

 

[FWAAA]

AA's proposal to the APA included allowing the APA to fly at mainline all new jets with more than 50 seats. I expect the APA to agree to those terms in the bankruptcy (there may be some disagreement on the exact greenbook rates for all the planes). Dunno if that offer is still on the table now, though. Maybe Horton will demand a relaxed scope clause that permits AA to contract out large numbers of 70-100 seaters.

 

[WorldTraveler]

APA's willingness to fly 70-90 seaters depends on what AA says they intend to do with mainline. If they actually order all the aircraft they say they will, then AA mainline should stay the same size. If the intent is to get the APA to agree to fly large RJs and then shrink the size of mainline, I doubt if the APA will be quite as interested.
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The APA might have no choice but to fly large RJs at rates AA wants to give but mainline pilot unions have been very careful to keep a big line between mainline and RJ pilot groups because the thinking has been that having low RJ pilot rates mixed in with the mainline pilot group will serve to bring down the mainline pilot rates.
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Not sure what will happen but it seems that AA must have something smaller than a 319 in its fleet if it seeks to be competitive in its hub service... the 319 and 320 might be well suited to developing point to point or non-hub routes, though.

 

[BoeingBoy]

Unfortunately for APA, as well as the other unions, their level of interest in changes to the contract won't mean much beyond trading a bigger cut in one section for a smaller one in another section. Ultimately the choice will come down to accepting contract terms or having the judge impose them.

FWIW, AA is moving swiftly to secure the shorter-term aircraft deliveries (those due by the end of 2012 from Boeing) and it's ability to enter into sale/leasebacks on them under "normal industry terms". Note that this doesn't affect Eagle in any way since the aircraft covered aren't RJ's. I suspect that the recent announcement that Eagle will be picking up two EAS markets is something of a holding pattern while decisions about Eagle's future size/aircraft requirements are beiing decided - better to temporarily put small RJ's in subsidized markets than fly them unprofitably in at-risk markets.

Jim

 

[WorldTraveler]

FWIW, AA is moving swiftly to secure the shorter-term aircraft deliveries (those due by the end of 2012 from Boeing) and it's ability to enter into sale/leasebacks on them under "normal industry terms".

Jim

indeed.... AMR is also seeking to obtain the ability to continue its fuel hedges and they have apparently agreed with Morgan Stanley in order to do so at some additional cost.
Given that airlines in previous C11 cases have typically not been able to take on new aircraft or engage in commodities or financial hedges, AA's BK is another step in the process in which BK is a tool for dealing w/ the parts of the operation/finances that a company wants/needs to change while keeping the rest operating as usual.
Given that AA's ability to compete effectively requires it to continue its fleet replacement program and to protect itself from fuel price spikes, both of these are major steps forward that not only increase AA's chances of emerging as a standalone company but also at not being put at a disadvantage to its peers because of the BK process.
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For good or bad, BK is becoming something like robotic out-patient surgery where you can return to your normal activies much faster and with far fewer of the side effects.

 

[BoeingBoy]

I see that as a factor of entering bankruptcy with plenty of cash rather than an intrinsic part of bankruptcy itself. With ~$4.1 Billion and aircraft orders in place when it filed, AA has options that the other carriers didn't have when they filed.

Jim

 

[WorldTraveler]

I see that as a factor of entering bankruptcy with plenty of cash rather than an intrinsic part of bankruptcy itself. With ~$4.1 Billion and aircraft orders in place when it filed, AA has options that the other carriers didn't have when they filed.

Jim

you only need "so much" cash.... some carriers ran very close to the fumes but others had more than enough to do what they had to do in BK.... it is possible that maintaining high levels of cash does increase the flexibility to enter into contracts, but I think it is more a reflection of the change in BK as being a failure of an enterprise to one of being able to shed debt in a controlled manner. Remember, all of that cash AMR had was provided by financing anyway... so it isn't that AA had an advantage that others didn't... it's just that they chose to walk into court until they had no other choice. But other companies gained by staying out of court longer ....

the real measure will be how fast and how successfully AA can restructure. Given the instability of energy markets over the past 10 years, it could be suicide to not be able to hedge for 18 months - so there is alot of incentive for the creditors to allow it even though it does expose the estate to additional financial risk.
If AA achieves many of the non-employee aspects of BK that DL and UA achieved, then they have a very strong chance of emerging quite strong... but the expectations everyone has is that labor will pay a disproportionate price for AA's turnaround and AA employees will sink to the bottom of airline pay ranks, or close to them.... if that is what BK achieves, then I'm not sure so many at least here will proclaim it a great victory.
Given that Eagle has been a long-standing problem for AMR that wasn't addressed a long time ago, the expectations are very much that AE will bear a much higher price than other network carrier regional operators did since AE has to probably move 2 generations worth of thinking in terms of regional carriers.

 

[will fix for food]

AA's proposal to the APA included allowing the APA to fly at mainline all new jets with more than 50 seats. I expect the APA to agree to those terms in the bankruptcy (there may be some disagreement on the exact greenbook rates for all the planes). Dunno if that offer is still on the table now, though. Maybe Horton will demand a relaxed scope clause that permits AA to contract out large numbers of 70-100 seaters.

All new jets with more than 50 seats?

How do the Codeshare provisions factor into that?

 

[FWAAA]

All new jets with more than 50 seats?

How do the Codeshare provisions factor into that?

Yep, all new jets with more than 50 seats. Outsourced 70 seaters would be capped at the current 47 plus the currrent 43 ATRs. Here's the executive summary:

http://aanegotiations.com/documents/AAComprehensiveProposal_ExecutiveSummaries_000.pdf

The codeshare proposals were for BOS-LGA-DCA shuttles (presumably with USAir), Alaska on the west coast and B6 at JFK.

 

[will fix for food]

Yep, all new jets with more than 50 seats. Outsourced 70 seaters would be capped at the current 47 plus the currrent 43 ATRs. Here's the executive summary:

http://aanegotiations.com/documents/AAComprehensiveProposal_ExecutiveSummaries_000.pdf

The codeshare proposals were for BOS-LGA-DCA shuttles (presumably with USAir), Alaska on the west coast and B6 at JFK.

I wonder why AMR wanted to double the ASM cap in the TWU contracts if all new flying wil go to A/A?

Historically AMR has pushed the Eagle fleet to the limits of SCOPE. They have fought in court to get more CRJ's. They even had the 140's purpose built to skirt the SCOPE clause. I wonder why now, with them able to get significant relaxations through the court system, are they dismantling the regional feed system that Eagle is.

It seems strange to me.

 

[Buck]

I wonder if the American Eagle maintenance can be performed at TUL?