It''s Time for New Leadership at American

MrMarky

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There's an old saying that a fish rots from the head down. Today, American Airlines is decomposing badly and it is the responsibility of management to keep the company healthy. American is a business and like any business the primary goal is to make money. American has lost $3.5 billion in 2002 alone, and $5.3 billion in the last two years. The buck (or lack thereof) must stop somewhere, and as far as I'm concerned, it stops with those in charge.
Consider this:
As far as an AA bankruptcy, my two word answer is God forbid. But a cold hard look at the facts say do the math. They've lost as I pointed out, $3.5 billion in 2002 alone. That represents almost 25% of their total revenue! In other words, they not only failed to find a way
to earn money on almost $17 billion in revenue, they spent close to $20 billion proving they couldn't! That can't continue unabated without crippling them financially. The bigger they are the harder they fall.
Not every full-service carrier is losing money. Alaska for example is profitable. And internationally so are Air France, Lufthansa and several Asian carriers. Among other US carriers, CO, NW and HP are suffering much
smaller losses as a percentage of revenue than AA. Most projections indicate profitability soon for all three barring an Iraqi war. So AA's relative position seems far worse and they have a tremendous amount of work
to do to try and fix it compared to some of these others.
Should AA wind up in BK, the vultures will be circling just as they are at United. BK is a very serious and unpredictable course. To me, any bankruptcy is catastrophic. I do not have the resources to do an analysis but it doesn't take a rocket scientist to conclude that they are in serious trouble. Those AA folks who downplay this and have no doubt about AA's ability to weather the storm are in denial.
All we can do is hope for the best. Of course we can also expect the worst. I'm not trying to be a pessimist here but I really don't think the following scenario is out of the question, though I sure hope it is:
1) Labor turmoil and the resulting exacerbation of AA's problems. AA's militant unions are going to refuse give-backs.
2) Carty out by summer. How long will the BOD continue to support a CEO presiding over billions in losses and labor unrest, regardless of the circumstances.
3) BK by the 3rd quarter. AA will not foolishly put it off and continue to burn much-needed cash into the 4th quarter like UAL did.
4) Desperation code-share deals. Ironically, AA finds themselves in the same situation that TWA was in with regard to potential domestic code-share partners. There ain't any. While AA was busy buying TWA instead of code-sharing with them, everyone else found a date to the prom. UA-US, and now NW-DL-CO has been approved. So there's nobody left except TWA's old partner, HP. Of course AA can expand their code-share with AS, but it doesn't bring a helluva lot to the table. Perhaps AA is big enough to survive without the
need for domestic code-sharing, but it prevents them from gaining the cost savings of downsizing. So they'll remain saddled with too much girth for these times, and unable to downsize without ceding market share and their own feed.
5) Why downsize? To cut costs. They've already done a fair bit, and they'll have to do more. That means more than just parking airplanes and furloughing employees. (Their all-Boeing fleet being so huge also spells big trouble for Boeing--doesn't look so lucrative any more when they start parking/selling aircraft at the expense of new orders for Boeing).
Downsizing also means closing stations and reducing facilities. What happens to the STL hub? Remember the early 90's and AA's last economic austerity measures. BNA, RDU and SJC hubs were ALL shut down. And that downturn was mild compared to this one. I wouldn't be surpised to see the MCI MX facility go on the chopping block -- don't forget, Carty is looking for $4 billion/year in cost savings. That's not chump change--it's more than staying home for dinner once a week instead of dining out. Finally, it would not
surprise me to see the new, $multi-billion 59-gate terminal at JFK open in a couple of years just in time for occupancy by jetBlue.
6) AA will come to reget their anti-ATSB loan posture. The door they helped slam in United's face is now closed to them as well.
7) AA will lobby for some form of re-regulation in a last ditch attempt to save themselves.
Let's hope the above worst case scenario never plays itself out, but it's not like we haven't seen it happen before.
It is interesting to note that while AA and the others vigorously pursue cheap fares these days, they spend all of their energy on cost cutting measures by taking it out of the hides of their customers. Hard to even get fed in first class. Pay for this and pay for that--baggage fees, paper ticket fees, change of itinerary fees, blah, blah, blah. What idiots. How is it that AA and friends differentiate their product from low-fare carriers?? Getting pretty hard to tell these days.
Their strategy is obvious--they want to torture us into coming back. I'm no expert, but I have no doubt whatsoever that I could show them how to save substantial sums while at the same time enhancing their product, especially first class and upgrades, to keep their best customers coming back.
With $3.5 billion in losses for 2002, it's time for new management at AA. I don't want to hear excuses, I don't want to hear about the economy, and I don't want to hear about 9/11 and security hassle issues. These guys have done nothing but shoot themselves in both feet, and mismanage their way to the steps of the courthouse. It is unacceptable, inexcusable and completely unnecessary in my opinion. As Forest Gump likes to say, stupid is as stupid does. There's very little wrong with the US airline industry today. It's the
people running the companies that are the problem. Give 'em a complimentary downgrade.

Take care,
m[b]AA[/b]rky
 

PHX Flyer

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Sep 23, 2002
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AA had without doubt the best product of all major network carriers in the U.S., both in coach and premium class. From a strategic viewpoint, AA had (and still has) the best route structure , with a major presence in all of the largest markets, incl. New York, Chicago, Los Angeles and Miami, from where AA dominates the South American market. On top of that AA was blessed with rather moderate unions, and salaries have been well below those of other airlines.
Considering the above, one would think that no other major airline should be in a better situation to cope with the current situation.
I don't have the time to do the number crunching, but I would like to know, what AA's balance sheets over the past two years would look like, if all expenses resulting from the acquisition of twa were subtracted.

I agree with Mr Marky that AA needs to downsize: the STL hub adds no network benefits of any relevance to AA's system; the Midwest is covered entirely by Dallas and Chicago, and AA makes no use of TWA's former JFK presence. The logical consequence is that AA needs to stop the continuing integration (and the expenses associated with it) and consider the divestiture of TWA. Maybe that's one project the bankruptcy lawyers are looking into.
American does not need new leadership - the current one has served the airline well for the longest time. Changing the team is nothing but a waste of time, and time is of the essence. (I wonder, what United would looked like today, if the unions had listened to Goodwin's message, rather than killing the messenger, and delaying the inevitable restructuring process for 2 years).

I think that there are still great opportunities out there for upstarts. Hence, Carty should give Icahn* a buzz to find out if he still sees it the same way., and if so, if he would uphold his last offer from two years ago. Since AA has done a lot of the clean-up at TWA since then, that Uncle Carl wouldn't have to tackle anymore, he might get a bargain deal.

* I am not suggesting this because I am aiming to start a flaming battle on this message board. However, Carl Icahn was the only other party that showed an interest in TWA, so it's only logical to contact him first. As a neutral observer, I don't buy into the anti-Icahn rethoric, which is usually prevalent on TWA boards. Obviously his casino and hotel business is doing quite well, so some employees must like working for him. Aside from that I would like to remind of a fact that everyone likes to ignore, when talking about Icahn and TWA: during his term TWA recorded the largest profits ever in its history. The bankruptcy was not a result of mismanagement on his side, it was triggered by events beyond his control.
 
OP
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MrMarky

Advanced
[blockquote]
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On 1/24/2003 10:29:27 AM AAquila wrote:

[blockquote]
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Carty's is the man for AA future well-being , make no mistake, he's got my vote.

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[/blockquote]

[b]$5.3 BILLION[/b] in losses over the last two years and he's got your vote??

I'm glad you don't manage my money. It's time to bring in a Captain to right this ship before it sinks altogether. And sink it will--before this year is out--unless something major is done. Just ask Crandall.


[blockquote]
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[b]Eric says:[/b]

Yes, AMR's loss was a larger percentage of revenue, which is staggering by itself, but the other solvent carriers who have posted losses aren't doing all that much better:


Losses as a percentage of Revenue:

AMR 19.25%
AWA 9.74%
DAL 9.84%
NWAC 8.92%
CAL 3.71%

Not to minimize the losses, but you have to remember that there are some paper losses included in AMR's numbers such as writing down the value of goodwill and aircraft.

If you exclude special items from AMR's numbers, the loss as a percentage of revenue is "only" 12%.

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[/blockquote]


Come on Eric, don't be an apologist, be a realist. AA's loss as a percentage of revenue is about [b]double[/b] that of the next nearest carrier, the once beleagered, maligned, bankrupt, ain't-gonna-make-it HP, who is running rings around AA without benefit of a huge network or any of the other assets AA is mismanaging.

As far as write-downs, special items and all the other excuses for these staggering and unsustainable losses, these explanations sound like they came right out of TWA's finance department. You sound like Palumbo. "If it hadn't been for this we would have been profitable", "If it hadn't been for that we would have made money", "If it hadn't been for the fact that we [i]spent more money than we took in[/i] we would have shown a tidy profit."

Tell it to the shareholders. How much equity have they lost since these numbers started popping up? Your company is [i]borrowing[/i] money to make payroll!!! TWA did that too. TWA also posted the industry's best performance numbers prior to going under. Looks like AA is taking every opportunity to emulate TWA.

Perhaps you are being less than objective due to your employment with and loyalty to AA. I honor you for that. You are a fine man and AA is lucky to have you. But it does no good for anyone at AA to make excuses or be in denial. The problems have to be fixed and fast. The first step in doing so is to recognize they exist, understand the potentially fatal seriousness of the problem, and DO SOMETHING ABOUT IT!

If you guys want to save some money, start with ending those ridiculous MD-80 power-backs at DFW. Power backs went out with wagon trains. Both engines started at the gate instead of one started at the runway. Substantial thrust levels and fuel burn just to back up a plane instead of using a tug. Not to mention the potential for FOD from all that muck the engines stir up.

There's cost-saving idea number one you can take upstairs, with my compliments--no charge. There's lots more where that one came from.

m[b]AA[/b]rky

PS -- I forgot to mention that AA's $5.3 billion loss over the past two years would really be $6.3 billion if not for the gift of public funds they received in the form of a cash handout of taxpayers' money from the ATSB to the tune of $1 billion.

No sane, responsible, financially prudent person can look at these numbers and pronounce themselves confident in the company's management. AA needs a major housecleaning, starting at Carty's office. How much you wanna bet that Bob Crandall agrees with me. That poor guy has had to sit there and watch the money-making empire he built crumble before his eyes.
 

AAquila

Senior
Sep 22, 2002
357
0
[blockquote]
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On 1/24/2003 8:42:07 AM PHX Flyer wrote:

AA had without doubt the best product of all major network carriers in the U.S., both in coach and premium class.
[/blockquote]

Score one, PF Flyer.

Regarding Uncle Carl, the man's a greenmailer. He's only interested in making a quick buck. He quickly sold the LHR routes to my present employer. Crandall's TWA employment made him a believer earlier on that TWA route structure, active or dormant would be the perfect fit to make American a household name from Bombay to Bogota. But Crandall's Patton'ist didn't mix well with the BOD, yielding our Canadian friend. The LHR routes gave AA equal footing with BA which will eventually yield the coveted AA/BA alliance the OALs fear.

Carty's is the man for AA future well-being , make no mistake, he's got my vote.
 

autofixer

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Aug 20, 2002
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So AMR is going to dismantle the TWA route structure? Sounds familure--USAirways dismantled the PSA and Piedmont (to a lesser extent) route structure after they spent billions to purchase them.

Airline management truly is a one song show. Let us get big and bigger--because we do not want our competition to have what we can buy--when the bad times hit, let us dismantle what we just purchased.
 
[blockquote]
Not every full-service carrier is losing money. Alaska for example is profitable. Among other US carriers, CO, NW and HP are suffering much smaller losses as a percentage of revenue than AA.
[/blockquote]

Find some better examples... Alaska was profitable in the 3Q, but still has a running loss for 2002 before posting its 4Q numbers.

Yes, AMR's loss was a larger percentage of revenue, which is staggering by itself, but the other solvent carriers who have posted losses aren't doing too all that much better:
[pre]
Losses as a percentage of Revenue:
AMR 19.25%
AWA 9.74%
DAL 9.84%
NWAC 8.92%
CAL 3.71%
[/pre]

Not to minimize the losses, but you have to remember that there are some paper losses included in AMR's numbers such as writing down the value of goodwill and aircraft.

If you exclude special items from AMR's numbers, the loss as a percentage of revenue is "only" 12%. I haven't put together how much it affects the other carriers yet (that's on the plate for next week), but it certainly does put AMR's number back in perspective a bit.

Back to Alaska... ALK's 1Q loss/revenue was around 10%, and their 3Q profit was enough to offset down to 2%, but if they post a 4Q loss as expected, it won't surprise me to see them close the year with a loss of between 4% and 8%.
 

1AA

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Aug 20, 2002
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www.usaviation.com
FOD? The bigger risk of FOD comes with aircraft taxiing into the gate, and not the reverse (no pun intended). If anything, powerbacks help ensure that the FOD gets blown towards the buildings, and doesn't remain on the ramp where it can be ingested!

Where do you think the air that sustains combustion at reverse thrust comes from? The inlet which will suck massive amounts of air including every thing in sight that can overcome gravity. The air flow goes around in one big circle and the more power you apply the more trash you stir up. Also the MD-80 engines are tail mounted so the chance of sucking up a rather large or hard piece of damaging trash is very minimal at idle/ taxi power. This discussion about powerbacks is really meaningless. Most stations do not allow it.
 
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MrMarky

Advanced
Eric--

The only problem with the management changes at UA and US is that they took wAAy too long to do it. Is AA going to follow in their footsteps?

If Segal had been brought into US much earlier, and Racket and Wolfy shown the door, they might have avoided their fate. Yet Wolf remains Chairman and Racket walked away with millions upon millions.

At UA, the bumbling Goodwin should have never been CEO to begin with. They had an excellent CEO in Greenwald, but apparently the "employee-owners" were not happy with his reluctance to totally capitulate to their whims. Finally, by the time they brought in Tilton, there was little he could do except pick out the coffin for the funeral.

If you are viewing AA's numbers from the perspective of a shareholder, you might be well advised to sell your shares and salvage what you can.

I know there is little you can do at AA except try to ride out the storm. You know I wish you the very best. But Captain Carty and his crew are simply rearranging the deck chairs on the Titanic. There's still time to change Captains before you hit the iceberg. What do you have to lose except maybe a few more $billions??

mAArky
 
Marky, I'm looking at it as a shareholder, and not an employee. I've always viewed financials without emotional attachment, and am such a cold-hearted bas[span]tard[/span] when it comes to dealing with the facts.

The fact is that AMR lost a lot of money. It is also a fact that a portion of that was book value, not cash.

Changing senior management at this stage in the game won't do a dam[span]n[/span] thing right now except distract people from trying to right the ship.

It certainly didn't do anything for UAL or US...

[blockquote]
No sane, responsible, financially prudent person can look at these numbers and pronounce themselves confident in the company's management.
[/blockquote]

I think you've got it wrong, Marky.

No sane, financially prudent person would looks at the high level number and makes their judgement. Those who do are making an emotional decision, and not one based on analysis.
The devil is in the details, something that the print media and day traders like to overlook.

Looking at the details, I've got a lot more confidence in the management at AA to deliver than I do a couple of other carriers who will remain nameless. Maybe because I realize that management goes way beyond just the figurehead.


Powerbacks? Please... On an annualized basis, the cost of using pushout tractors is more than the cost of the incremental fuel burned doing a pushback. That's based only on the cost of maintaining and fueling them, and doesn't take into consideration the fuel burned by aircraft waiting for towbars to be disconnected, or aircraft blocked by other aircraft waiting for towbars to be disconnected.

FOD? The bigger risk of FOD comes with aircraft taxiing into the gate, and not the reverse (no pun intended). If anything, powerbacks help ensure that the FOD gets blown towards the buildings, and doesn't remain on the ramp where it can be ingested!
 

AAquila

Senior
Sep 22, 2002
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[blockquote]
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On 1/24/2003 11:55:28 AM MrMarky wrote:

I know there is little you can do at AA except try to ride out the storm. You know I wish you the very best. But Captain Carty and his crew are simply rearranging the deck chairs on the Titanic. There's still time to change Captains before you hit the iceberg. What do you have to lose except maybe a few more $billions??

mAArky
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[/blockquote]

The Captain will stay and see this through.

"We'll dive so deep as to miss the iceberg, and then resurface," prepare for a bow shot, Load torpedo tubes (JFK) and (MIA ) and prepare to fire in ' 04 "

The Captain has spoken.
 

UnitedChicago

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"From a strategic viewpoint, AA had (and still has) the best route structure..."

Not to get into a "who's better" fight...but it goes beyond just opinion from UA that UA has the best route structure in the industry. Just about every airline expert would agree. AA's route structure is certainly strong...but they lack big West coast and Pacific presence.
 

UnitedChicago

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As I said, I don't want to get into that form of debate.

And it's more than just Chicago opinions. Find any credible airline analyst or expert that doesn't think UA has the best route structure.

There are too many to list that agree they do - so show me those who don't.

AA has a very strong route structure, but you cannot effectively argue it's the best.
 
[blockquote]
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On 1/24/2003 2:13:36 PM UnitedChicago wrote:

Not to get into a "who's better" fight...but it goes beyond just opinion from UA that UA has the best route structure in the industry. Just about every airline expert would agree. AA's route structure is certainly strong...but they lack big West coast and Pacific presence.
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[/blockquote]

Please. Perhaps airline experts in Chicago would agree, but UAL has a great North Pacific presence and a decent "west of the eastern time zone" network. UAL's east coast network is no better than AMR's is on the west coast. UAL also has very little presence in the Caribbean, Central America, or South America, and aside from LHR and Germany, an ever shrinking presence in Europe.
 

UnitedChicago

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I bashed analysts that had no airline experience and the press that had no airline experience. Notice I said "credible" analysts in my previous post.

And no need to paste, I'm aware of what I type.

Regardless...I'll drop it. Bigger fish to fry and points to get across...like saving the industry.

Have a nice weekend.
 

La Treal

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Sep 18, 2002
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UnitedChicago
Are you now asking for analysts opinions when you so mercifully bashed all analysts because of their views on Uniteds' situation?

TWAnr will cut and paste them if you can't remember.