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On 1/27/2003 9:48:59 PM eolesen wrote:
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On 1/27/2003 5:07:29 PM Buck wrote:
There is no way you could forsee such a thing. That is the same if the TWU had not accepted the B-scale in 1983 that bankruptcy would have followed. Pretty big statement Eric.
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Well, it isn't rocket science... Look at the damage UAL suffered from their "summer of fun" pilot action. There are people to this day who refuse to fly UAL just because of that. And they were still operating a full schedule...
Had the strike gone on, AA would have been shut down for days during President's Day, and we'd have thrown a lot of customers into UAL and DAL's lap forever. Memories on the East Coast are a hel1uva lot longer than on the Left Coast... Just ask NHBB...
I stand by my pretty big statement.
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So with all of the issues that have befallen AA by not going through a strike or by filing bankruptcy we are now the industry leader? It could be that the industry would be better off had some of the termoil happen in the past and when the industry had some assets to deal with it. Now with the problems of mismanagement the only answer is to attack labor. The main thing that I am thankful for is that we at AA did not find ourselves in an ESOP. As for throwing customers in the lap of the other airlines, it really does not matter anymore since American cannot manage it's product anyway. Or is it that they are just attempting to bluff the industry and the labor whom has kept them afloat over the years?
Eric I would also like to know your take on the following report:
Posted 1/25/03
The Baumert Report January 24, 2003
AMR's 4th Qtr. Report
AMR ended the year with $2.7 billion in cash and, according to Smith
Barney estimates, $7 billion in unencumbered assets. Also, the company will be
getting a $550 million tax refund sometime in the current quarter.
Contrary to their statement regarding uncertain access to capital markets, as late
as December AMR completed a $675 million private aircraft financing deal.
During the last major downturn in the early nineties, premium carriers
continued to have access to the capital markets and that still appears to
be the case with AMR.
Much has been made of the $834 million of debt due on June 30, but that
appears to be much ado about nothing. The $834 million is from a bank
revolver that CFO Jeff Campbell said should not be a problem in
renegotiating either through a higher fee or more collateral.
In trying to snatch concessions from labor, AMR management's negotiating
ploys have included "leaking" the hiring of bankruptcy lawyers, talking as
if the current revenue environment is permanent and the access to capital
markets is uncertain. On the latter, one analyst feels this was said just
to “put labor’s feet to the fire." However, it's obvious what a
rationalization of capacity and stronger GDP growth would do for AMR and other carriers’ profits. Here's what some respected analysts had to say about AMR's
current bankruptcy chances:
Glen Engel at Goldman Sachs wrote, "We believe bankruptcy fears on AMR are
overblown." And "We see no near term liquidity crunch." Mr. Engel also
believes that AMR's cash loss per day will end up averaging over 40% less
for the year than what AMR is currently stating.
Smith Barney's Brian Harris said that the company's financial firewalls
"appear thick enough to withstand the crisis this year . . ."
Ray Neidl at Blaylock & Partners said it is too soon to consider American
a bankruptcy candidate since it has several assets it can sell to raise
cash.
AMR's fourth quarter loss was much less than analysts had predicted,
revenue growth was better than expected and AMR's unit costs declined more than
the industry average, with its costs dropping 3.4% year-over-year. AMR's
fourth quarter loss of $3.39 per share beat consensus estimates of a loss of
$3.73 and revenues were $70 million more than Smith Barney expectations. Here's
how revenue per available seat mile (RASM) growth stacked up
geographically:
Europe: +19.6%
Pacific: +16.5%
Latin Am: +4.2%
Caribbean and domestic RASM growth was flat.
Still, AMR continues to be overexposed to business travel and Latin
America, while having too little exposure to the rising profits of Asia routes. Mr.
Campbell stated that if AMR just had the geographic mix of the industry
average then the company would have made $90 million more in revenues and
more than doubled unit passenger revenue growth from 2.6% to 5.3%. What’s
the wait, then?
AMR's pension return assumptions continue to indicate denial in Dallas. In
2002, with the bear market fully entrenched, AMR scarcely lowered their
assumption from 9.5% to 9.25%. Now, they say they got it down to a still
unrealistic 9.0%. Warren Buffett on high pension returns assumptions like
AMR
uses: "I’m a sporting type, and I would love to make a large bet with the
chief financial officer . . . that over the next 15 years they will not
average the rates they’ve postulated."
AMR likes to blame the stock market and low bond yields for their
under funded pension. Yet, if that were the whole reason then every company
with a pension would have under funding troubles, but it's mainly the ones
that had (and still have) high pension return assumptions that have
dramatic funding problems. Now, just when the company needs cash the most, AMR had
to fund its pension last year with $250 million in cash and is looking at
funding another $200 million or so in cash this year. And that's in
addition to wiping out $1.1 billion in shareholders, equity for their under funded
pension.
Despite the implications of AMR management, labor costs are not to blame
for AMR’s crisis (as I outlined in "Origins of a Cash Crunch"), nor will
slashing labor costs solve it. Slashing labor costs will not help AMR
management's inability to allocate capital profitably. Slashing labor
costs will not make AMR's inefficient network more efficient. Slashing labor
costs will not diversify revenue away from Latin American and US business
centers
and toward Asia. Slashing labor costs will not bring pension return
assumptions in line with reality. Nor will it create the kind of improved
productivity that accompanies good labor relations.
A drastic reduction in labor costs is not the panacea that premium airline
CEO's make it out to be. If it were, then "budget" carriers with so-called
low labor costs would never go out of business. Yet, they do. If it were,
then every company that cut labor costs via bankruptcy would have a huge
competitive advantage that would allow it to best its rivals. Yet, since
1982, 63% of major airlines that declared bankruptcy have had to declare
bankruptcy again. Where was the supposed competitive advantage?
Thus, lowering labor costs, through bankruptcy or other means, is not a
cure-all by any stretch. In a commodity service industry, wiping away a
bunch of liabilities and a drastic reduction in labor costs doesn't do
much good if you have poor morale, bad labor relations and a management team
that can't make good decisions.
Steven Baumert
The Baumert Report
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