Stock Article

[MiAAmi]

BusinessWeek Online
Airlines: Buy American?
Friday March 18, 3:56 pm ET
By Gene G. Marcial


A value player who looks for well-known but depressed stocks in troubled industries, Vince Carino winds up with some out-of-favor companies. One such is AMR (AMR), parent of American Airlines (NYSE:AMR - News), the world's largest carrier. Its stock, which soared as high as 40 in 2003, has plunged to 8.65 -- down from 13.93 on Apr. 5, 2004. Airline stocks have dived some 25% this year, mainly because of high fuel prices. But Carino, chief of equity investments at Fidelity National Financial (NYSE:FNF - News), which has bought shares, is convinced AMR will hit 50 in two years. Yes, 50. He sees AMR boosting fares and sales amid reviving traffic and contracting capacity. To offset fuel increases, AMR and Northwest (NasdaqNM:NWAC - News) upped fares on Mar. 11 for most flights in the U.S. and Canada -- by as much as $20 for a round trip -- the second increase in two weeks. Other airlines quickly followed suit. Carino says the top and bottom lines he sees for AMR -- adjusted for competition and based on fare hikes and cost-cutting -- are extraordinary and far exceed the Street's forecasts. Carino expects AMR to be still in the red in 2005, on revenues of $20 billion, but should earn $460 million, or $2.80 a share, in 2006 on sales of $23 billion and $1.7 billion, or $10 a share, in 2007, on $25 billion. Carino notes that AMR traffic in the past two months has risen 5.3%, to 20.17 billion revenue passenger miles, up from 19.6 billion a year earlier, and average seat occupancy has leaped from 69% to 73%. Susan Donofrio of investment firm Fulcrum Global Partners (she owns shares), rates AMR a buy, with a 12-month target of 17. She expects AMR to ask its employees for further wage cuts, and to increase revenues by adding airplane seats and revving up the international business.

 

[jimntx]

As they say...
From Mr. Carino's lips to God's ear.

 

[WingNaPrayer]

I've got news for Ms. Donofrio - if she thinks her stock is going to go up just because AMR is going to "ask" employees for wage concessions, well that's one thing. What she isn't speculating is what will happen to the stock when they don't get any concessions!

American Airlines is in hock up to it's lugnuts! There is nothing left to leverage. Asking the people who hold the wrenches to give up more of their paychecks just so the status quo can continue in Texas - business as usual, this time around would be like asking them to hold the pins out of grenades while Arpey juggles them.

Ain't gonna happen!

 

[TIME FOR CHANGE]

This guys is smokin some good sit

40 dollars

take another toke

 

[Pa-ting gyingst]

gless your a loser

 

[nyc6035]

If I'm not mistaken Fidelity was a fairly big holder of TWA securities (in the 8 to 12% range) not very long before the end.

 

[Hopeful]

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Business > Story

Oil prices may force AMR to seek concessions
By Tim McLaughlin
Of the Post-Dispatch
03/18/2005

American Airlines planes
(Frank Franklin II/AP)


Story continues below ad
Sky-high oil prices may force American Airlines to seek new concessions from union workers and to pursue asset sales to keep cash balances at a healthy level, a leading credit-rating agency said Friday.

Fitch Ratings estimated that if fuel prices average $50 a barrel this year, the world's largest airline would spend nearly $5 billion to keep its fleet in the sky, or about $900 million more than in 2004.

So far, it doesn't look good. Light, sweet crude for April delivery closed Friday at a record $56.72 a barrel on the New York Mercantile Exchange.

"Moves by other U.S. legacy carriers to negotiate labor concessions are likely to increase pressure on American to reopen collective bargaining agreements with its unions by year-end," Fitch analyst William Warlick said. "New labor agreements at Northwest Airlines, if successfully negotiated by fall, could bring additional pressure on American to drive labor costs lower."

American declined to comment on that scenario. The company already has made a number of moves to cut costs, relying heavily on workers to come up with ideas. Gerard Arpey, chairman of American parent AMR Corp., is set to give a financial outlook Tuesday at a conference held by Goldman Sachs.

AMR posted a net loss of $761 million in 2004. But American has a healthier balance sheet than its network carrier peers, who are either in bankruptcy or on the verge of seeking Chapter 11 protection from creditors.

American held $2.9 billion in unrestricted cash and short-term investments at the end of 2004.

Calyon Securities analyst Ray Neidl estimates the airline will burn through $2 million of cash each day this year, lowering its unrestricted cash balance to $2.2 billion by year's end. Continental Airlines, which may be forced into bankruptcy, will have a dangerously low cash balance of $672 million at year's end, Neidl estimated.

"When you give away your product, customers will tend to use it en masse," Neidl said. "Right now that seems to be what is happening in the U.S. domestic airline industry, where sometimes it costs the same to get to the airport as it does for the actual airplane ticket."

Meanwhile, American's cost-cutting isn't able to keep pace with the employee-benefit slashing that United Airlines, for example, can do, thanks to bankruptcy rules that favor the company.

Fitch's Warlick expects American to raise cash through asset sales and through asset-based financing by using aircraft, engines and spare parts as collateral. He also speculated that AMR could raise money by selling its American Eagle regional airline subsidiary.

Fitch revised its rating outlook on AMR's debt to "negative" from "stable."

American and its peers would love to jack up ticket prices, but they can't because low-cost carriers continue to add flights in an industry with too many seats already in the sky. Business fares are down 38 percent compared to last year, Fulcrum Global Partners analyst Susan Donofrio said in a research note.

Donofrio expects Northwest to negotiate labor concessions from flight attendants and mechanics, followed by American, the largest operator at Lambert Field.