- Nov 4, 2003
- 7,550
- 3,767
American employees wary
A low level of debt, a high rating for maintenance and safety and solid labor-management relations all could be jeopardized in a hostile takeover of the AMR Corp., the parent company of American Airlines, analysts and labor leaders say.
Some are discounting the threat of billionaire New York real-estate developer Donald Trump in the wake of the withdrawal of his $120-a-share offer for the company Monday. But some American employees - there are 10,000 in Tulsa and another 50,000 around the world - say it's not over yet.
"We are glad he withdrew his offer, but we are afraid he
could come back with a lower offer for the company," said Ed Wilson, president of the Transport Workers Union Local 514.
"He said he wanted the airline. I think he still wants it."
Twelve days after Trump announced his intention to buy the nation's largest airline for $7.5 billion, AMR stock Monday plunged $22 to $76.50. On Oct. 5, the stock peaked at 107 1/4 per share.
"The rumor (on Wall Street) is that he's in there (Trump's 3 million shares, or 4.9 percent of the company) between
$70 and $80 per share," said Peter Adamson, an airline
analyst with Houchin, Adamson, 11 W. Fifth St.
"On the purchase of the shares, he would lose a little (at current values). I suspect he's going to wait and hope somebody else comes along - maybe the Bass Brothers."
In a letter to the Board of Directors of AMR Corp. Monday, Trump wrote: "In light of the recent change in market conditions and the huge drop in the value of the AMR Corp. stock, please let this letter represent a withdrawal of my offer to acquire AMR for $120 per share in cash.
"I am currently reviewing all my options with respect to AMR, including making another offer at a lower price, increasing my existing position in AMR, selling my AMR stock or taking any other actions that I may deem appropriate. I intend
to closely monitor developments."
Analysts in Tulsa and in New York said Trump's bid was jeopardized all along by Wall Street's perception that one of American's strengths was President Robert Crandall's good relationship with the airlines' unions.
In a time of crippling strikes at Eastern Airlines and the Boeing Co., Crandall's ability to keep wages below those
of his major competitors while retaining solid backing from workers is no small matter to be considered by those who
would finance a hostile takeover of the company, analysts and labor leaders said.
"American is the leading airline, is financially sound, and we would oppose anything that would cause great debt
- especially if they (those involved in a hostile takeover attempt) are going to ask the employees to make up the debt (with wage concessions)," said John Kerrigan, international vice president of the Transport Workers Union in New York.
"A lot of the reason for American's sound financial position is the collective bargaining agreements the company has
with the unions."
Wilson agreed.
"As far as leveraged buyouts, they are a negative function as far as the worker is concerned," Wilson said.
"They don't produce anything except debt. Instead of the company building, growing, we would be working to service the debt."
Assuming Trump's previous bid, analysts said Trump would have had interest payments of up to $750 million a year.
"That's without paying anything on the principal," said Adamson.
"Very likely he would have had to sell planes and lease them back or liquidate other parts of the company. The Sabre (computer reservation system) has a value of about $2 billion."
Thom Albrecht, an analyst with A.G. Edwards & Sons Inc., said AMR's cost structure is already lower than either NWA, the parent company of Northwest Airlines, or UAL, the parent of United Airlines.
Therefore, Albrecht said, there is less room for cutting costs after a buyout.
"AMR has already announced that it expects softer earnings in 1990 - an estimated $7.74 billion - meaning that in all likelihood that a leveraged buyout would have to be financed out of a smaller cash flow."
Combined with effective cost controls, solid union contracts, the Eastern strike and higher air fares, American's second quarter results were excellent, analysts said.
Earnings during the quarter rose 26 percent as revenues rose to nearly $2.7 billion.
A low level of debt, a high rating for maintenance and safety and solid labor-management relations all could be jeopardized in a hostile takeover of the AMR Corp., the parent company of American Airlines, analysts and labor leaders say.
Some are discounting the threat of billionaire New York real-estate developer Donald Trump in the wake of the withdrawal of his $120-a-share offer for the company Monday. But some American employees - there are 10,000 in Tulsa and another 50,000 around the world - say it's not over yet.
"We are glad he withdrew his offer, but we are afraid he
could come back with a lower offer for the company," said Ed Wilson, president of the Transport Workers Union Local 514.
"He said he wanted the airline. I think he still wants it."
Twelve days after Trump announced his intention to buy the nation's largest airline for $7.5 billion, AMR stock Monday plunged $22 to $76.50. On Oct. 5, the stock peaked at 107 1/4 per share.
"The rumor (on Wall Street) is that he's in there (Trump's 3 million shares, or 4.9 percent of the company) between
$70 and $80 per share," said Peter Adamson, an airline
analyst with Houchin, Adamson, 11 W. Fifth St.
"On the purchase of the shares, he would lose a little (at current values). I suspect he's going to wait and hope somebody else comes along - maybe the Bass Brothers."
In a letter to the Board of Directors of AMR Corp. Monday, Trump wrote: "In light of the recent change in market conditions and the huge drop in the value of the AMR Corp. stock, please let this letter represent a withdrawal of my offer to acquire AMR for $120 per share in cash.
"I am currently reviewing all my options with respect to AMR, including making another offer at a lower price, increasing my existing position in AMR, selling my AMR stock or taking any other actions that I may deem appropriate. I intend
to closely monitor developments."
Analysts in Tulsa and in New York said Trump's bid was jeopardized all along by Wall Street's perception that one of American's strengths was President Robert Crandall's good relationship with the airlines' unions.
In a time of crippling strikes at Eastern Airlines and the Boeing Co., Crandall's ability to keep wages below those
of his major competitors while retaining solid backing from workers is no small matter to be considered by those who
would finance a hostile takeover of the company, analysts and labor leaders said.
"American is the leading airline, is financially sound, and we would oppose anything that would cause great debt
- especially if they (those involved in a hostile takeover attempt) are going to ask the employees to make up the debt (with wage concessions)," said John Kerrigan, international vice president of the Transport Workers Union in New York.
"A lot of the reason for American's sound financial position is the collective bargaining agreements the company has
with the unions."
Wilson agreed.
"As far as leveraged buyouts, they are a negative function as far as the worker is concerned," Wilson said.
"They don't produce anything except debt. Instead of the company building, growing, we would be working to service the debt."
Assuming Trump's previous bid, analysts said Trump would have had interest payments of up to $750 million a year.
"That's without paying anything on the principal," said Adamson.
"Very likely he would have had to sell planes and lease them back or liquidate other parts of the company. The Sabre (computer reservation system) has a value of about $2 billion."
Thom Albrecht, an analyst with A.G. Edwards & Sons Inc., said AMR's cost structure is already lower than either NWA, the parent company of Northwest Airlines, or UAL, the parent of United Airlines.
Therefore, Albrecht said, there is less room for cutting costs after a buyout.
"AMR has already announced that it expects softer earnings in 1990 - an estimated $7.74 billion - meaning that in all likelihood that a leveraged buyout would have to be financed out of a smaller cash flow."
Combined with effective cost controls, solid union contracts, the Eastern strike and higher air fares, American's second quarter results were excellent, analysts said.
Earnings during the quarter rose 26 percent as revenues rose to nearly $2.7 billion.
Strange how things turn isn't it?
