Prospects For Profitability

[TWAnr]

From TheStreet.com:

Prospects for Profitability

09/10/2003

AMR got a further vote of confidence on Wednesday from Fulcrum Global Partners, which raised earnings estimates and price targets on the company, while reiterating its buy rating. Citing the company's stronger-than-expected summer performance, especially with regard to revenue per available seat mile, or RASM, analyst Jeffrey Kauffman said AMR could return to profitability sooner than many expect.

"RASM for the summer has surprised us on the upside as well, with July RASM up 9% to 11% year over year, vs. our estimate of about 3%," said Kauffman, in a note. "And August RASM is expected to top Continental's reported August year-over-year increase of 4% to 6%."

The performance of AMR, which was on the verge of bankruptcy six months ago, is so strong that Kauffman said the world's largest airline will lose just 10 cents in the third quarter and will post a profit of $1.10 in fiscal 2004. The current consensus for AMR calls for a third-quarter loss of 86 cents a share and a fiscal 2004 loss of $1.67.

"All in all, we believe that the combination of industry discipline, improved economic outlook, and better-than-expected traffic and cash levels leave our once 'pie-in-the-sky' survival scenario somewhat conservative looking toward 2004 and 2005," Kauffman said.

Airlines End Mixed Despite Upgrades

 

[Skyyggoddess]

I find this hard to believe after the judge said it was okay to go ahead and sue the airlines for the terrorist attacks on 9-11.
Terry

Reuters
UPDATE - Judge won't dismiss Sept. 11 cases versus airlines
Tuesday September 9, 1:48 pm ET
By Gail Appleson


NEW YORK, Sept 9 (Reuters) - A federal judge on Tuesday refused to
dismiss Sept. 11th lawsuits brought against airlines, aircraft makers
and World Trade Center owners by victims' families and those injured,
who charge that negligence played a key role in the attacks two years
ago.

The ruling by U.S. District Judge Alvin Hellerstein allows the
litigation to proceed against the American Airlines unit of AMR Corp.
(NYSE:AMR - News), UAL Corp.'s (OTC BB:UALAQ.OB - News) United
Airlines, jet maker Boeing Co. (NYSE:BA - News) and other defendants
including the Port Authority of New York and New Jersey and World
Trade Center Properties.

Hellerstein's ruling does not determine liability but paves the way
for the next stage of proceedings.

The plaintiffs charged that the airlines were negligent in failing to
carry out adequate security measures. They argued that the airlines
are liable for the attacks because they failed to stop hijackers from
entering the cockpits of the four hijacked planes.

The airlines argued they should not be held liable because the
unprecedented attacks were unforeseeable and they had followed safety
measures required by the federal government.

Boeing was sued for what the plaintiffs called negligent plane design.

The plaintiffs accused the owners and operator of the World Trade
Center of negligently designing buildings without adequate evacuation
routes.

The ruling is being widely watched by families who must choose
whether to join the litigation or seek payment from a national
compensation fund.

The deadline for filing with the fund, which was created by Congress
to help protect the airline industry from litigation, is Dec. 22. As
of late August, some 2,275 claims had been filed but about 1,700
families had yet to decide whether to enroll with the fund or join
litigation.

The lawsuit before Hellerstein was brought by 70 of the injured and
representatives of those who died as well as by 10 entities that
suffered property damage. Many other cases have been filed but have
not yet been heard.

A federal act passed in the weeks following Sept. 11, 2001 dictates
that all suits over damages growing out of the hijackings be filed in
Manhattan federal court.

About 3,000 people were killed in the hijacked airline attacks on the
World Trade Center and Pentagon and in the air crash in rural
Pennsylvania.

 

[L1011Ret]

I believe there is a cap on liability under some legislation passed post 9/11. S & P says thay are not concerned and did not see any negative impact for AMR. I said on other BBs some time ago that AMR was going to have a huge turn around once concessions took effect as they are doing now. I still believe 3rd quarter earning are going to be a positive shock to many.

 

[FA Mikey]

Will 3Q results have the majority of the employee subsidies included in the numbers.

 

[FWAAA]

Will 3Q results have the majority of the employee subsidies included in the numbers.

Yes, $200 million of the concessions was included in Q2, $400 million will be reflected in Q3 and the full $450 million (equal to an annual total of $1.8 billion) will show up in Q4. That, plus lower lease rates, lower fuel prices, and myriad other lower vendor/lessor/creditor rates, along with significantly higher RASM will probably result in a slight profit for Q3 and a small profit for Q4.

 

[TWAnr]

I find this hard to believe after the judge said it was okay to go ahead and sue the airlines for the terrorist attacks on 9-11.
Terry

Terry,

Had you read the full article (my post has a link to it), you would have seen the following:

Analysts were quick to note the ruling will have little impact on the industry, since the government had moved to limit airlines' exposure to liability, meaning insurers will end up footing the bill for lawsuits.

 

[Skyyggoddess]

I find this hard to believe after the judge said it was okay to go ahead and sue the airlines for the terrorist attacks on 9-11.
Terry

Terry,

Had you read the full article (my post has a link to it), you would have seen the following:

I should have carried my post a bit further. Sometimes when I write, I forget that people aren't thinking just like I am.

Pam Am was insured and it didn't keep them going after the bombing over Lockerbie. Also, I believe one of our insurance carriers has gone belly up. In addition, if victims of 9-11 accepted from the Victims Fund, they supposedly were not going to be allowed to sue...well, it is probable that this will be challenged in court and likely to end up all the way to the Supreme Court. This decision to allow people to "either or" can be done after the fact but not retroactively.
These are my thoughts and concerns...because of the enormous number of victims, there is not enough insurance money to cover this litigation. It will bankrupt every insurance carrier just litigating.
I believe AMR will have to declare bankruptcy just to protect itself.
Terry

 

[Skyhungry]

:huh:

Skyyggoddess,


I do not claim to be a lawyer but I believe being under bankruptcy protection will not protect an entity from being sued. If anyone has any knowlege on how this works or if I'm in error please correct me. <_< As far as the lawsuits are concerned, we all know how long these things can take. The judge ruled that the lawsuits can proceed; and that ruling will be appealed. In other words the party has not even started. My feeling is that the lawyers will probably be the big winners once everything is settled. Most importantly we must not forget the tragic events of 9/11.

 

[jimntx]

:huh:

Skyyggoddess,


I do not claim to be a lawyer but I believe being under bankruptcy protection will not protect an entity from being sued. If anyone has any knowlege on how this works or if I'm in error please correct me. <_< As far as the lawsuits are concerned, we all know how long these things can take. The judge ruled that the lawsuits can proceed; and that ruling will be appealed. In other words the party has not even started. My feeling is that the lawyers will probably be the big winners once everything is settled. Most importantly we must not forget the tragic events of 9/11.

In general, when someone wins a civl suit against a company which is in, or then files for, bankruptcy, the winner of the civil suit becomes an unsecured creditor. That means that the company's assets may not be attached to settle the civil suit debt until ALL secured debts have been settled. Usually, a company would have to be liquidated before there would be any chance of unsecured creditors getting anything.

Case in point, all of the asbestos suits that were won several years ago. A number of the losing companies just filed for bankruptcy and the debt was wiped out. Also, the stockholders of a company are unsecured creditors. How many times have you seen a company go into bankruptcy, repudiate its stock, then emerge from bankruptcy while issuing new stock--none of which goes to the former stockholders unless they buy it on the market like everyone else. Happened to me with Just for Feet. My 4000 shares were wiped out. Just for Feet is still in business with new stock.

 

[Andre1980]

Now getting back to the main point, I had always believed that AMR's finanical performance will be better than the last quater and the equivalent quater of 2002 even before the stock price went up lately since I did my own calculations on what I would expect the results to be. Last year AA lost around $495 million in that quater along with special charges that were around $480 million and as a result a figure of nearly 1 billion dollars in losses was reported.

Between now and then AMR has laid off a lot of employees (I have lost count), retired the most of the fokkers that are usually a mechanical burden, got some concessions from its workers and suppliers and implemented the rolling hub for productivity reasons. AMR said that they expect a total of $400 million in savings as the new work rules are now being implemented by employees and when you subtract 400 million from 495 million you have $95 million. Now sense air travel is now in the recovery stages I believe my estimated number may be lower especially with lower gas prices. However, I am wondering about the effects of the north eastern black out on my estimate since it could probably add to about 10 million dollars to the losses. I guess that I will have to wait until they publish the results like the rest of you.

Now about the next quater, if everything goes well I expect to see a very small loss or a small profit since they lost around $500 million during the same period last year and this time around they expect a savings of $450 million which equals a loss of aroound $50 million but remember air traffic numbers are recovering and AA is about to dismantle some of the routes out of STL and lets not forget that they want to close a maintenance base and this could result in more savings and also the cost of fuel could be lower and this would be AA's greatest oppurtunity to earn a profit.

With the ruling allowing the victims to sue AA, I believe AA will win this one. However, I think this case will take years to come up with a result.