ByrdluvsAWACO

I'm not sure it was a failure of management to "break" the union since AA had no leverage to wield against the pilots. Other than caving in to expensive union demands, very little could be accomplished that would satisfy both management and labor.

Of all the unions, the pilots are the one group that has strategically hurt AA the most. The scope and route distance issues have hindered AA's Asia-Pacific abilities.

While it would be nice to see everything resolved out of court, AA's unions are just too pig headed in their "Take us back to 2003" demands. Bankruptcy is the only solution right now.

bernardd

It looks that way to me as well. Most PE deals replace equity with debt whereas AA is hopelessly over leveraged and desperately needs a ton of equity in place of some of the current debt mountain to buy themselves time to rebuild. Unfortunately the PE funds also don't have a great record of managing the business for the long term - they seem to want relatively yet turns on their investments and AA is going to take a long time to rebuild.

iahphx

"Facts" don't control Wall St panic. You don't need any fundamentals to cause a huge stock price movement.

I can assure you that there is nothing "new" about AMR's fundamentals. They are what they are, and what they are is publicly available to those who look for it.

That said, those fundamentals aren't great, especially compared to their peers. That's why I didn't buy any AMR stock yesterday even though I knew it was a phony panic. What is an unprofitable airline with ineffective management worth in the current market? I have no idea.

swag

Yup. Form what I've read, the trigger for yesterday's sale was the news about the retiring pilots. But really, I doubt the pilots have an accurate insider's view of whether bankruptcy is imminent. They may be reacting to the same rumors that have been discussed here on FT for months (years?). Or they may just want to do the safe cash-out, and if the chances of bankruptcy are even 10%, that may be wise for them, it is their retirement money, after all.

But even if the falling price is unwarranted, that doesn't make it a buy for the individual investor. Unless there's a regular, reliable and substantial dividend, or a buyout offer, a share of stock is worth only what the next investor will pay for it. Even if AMR "should" be at $5 based on fundamentals, if the market says it's worth $2, then it's worth $2.

econometrics

Yep, that is the truth. Decent read from this morning's Dallas Morning News on yesterday's activity: http://www.dallasnews.com/business/a...o-tailspin.ece

Everyone in the markets are walking on eggshells right now, so it's hardly wise to attribute most sell offs to fundamentals right now.

hazelrah

What alternative to BK is there? United, Northwest, Delta, US, all used BK or threat thereof as a hammer to cut labor costs.

Unfortunately in a competitive environment this puts AA at a disadvantage. I just don't see the labor giving up anything; the pensions costs alone must be a killer for AA. It's not fair to be taken down by zombies created by BK but hey life's not fair.

lobo411

Labor isn't the problem, but just for the sake of argument, I'll assume that AA's labor is overcompensated.

The idea that AA's management is incompetent--and in fact, that AA's managers are merely looting the company for every penny they can get before the thing crashes and burns--is seemingly universally held.

So you cut AA's labor costs, oh, say, 50%. Just for the sake of argument. Would AA prosper?

Of course not. You'd still have the same criminal gang in charge of AA. Management would merely pocket 50% more loot.

bernardd

Why is everyone so intent on piling all this at the door of "labor"? To the best of my knowledge the staff at Southwest earn more individually than their equivalents at AA, yet WN has a long history of profit and dividends; AA doesn't.

The answer is the WN staff are more productive, and they've been MUCH better led. AA CAN get out of this, CAN avoid a trip through the bankruptcy court and CAN be restored to good financial health, but it 's going to need a radical change in management to achieve it - if you want to see how it works, google for Colin Marshall and "Putting people first" - those guys took a basket case of an unprofitable nationalised airline that people avoided and made it one of the strongest international brands. AA needs something similar though the current managers don't seem to have a clue where to start.

hazelrah

Absolute salary is only part of the compensation package. Nobody gets gold-plated defined benefit packages anymore except for CEOs. Many have moved to defined contribution plans.

Work rules are also a factor in labor cost and since you brough up Southwest part of its labor productivity is streamlined work rules.

Labor cost is a part of AA's problem.

FWAAA

US East narrowbody pilots are paid less than jetBlue's pilots on similar equipment. That alone accounts for much of US' financial "success" since the merger with HP. In addition, US West pilots are paid substantially less than industry averages (and have always been low-paid, dating back to the beginning of HP).

US flight attendants, fleet and mechanics are paid less than industry averages. Doug Parker has said that US cannot match the pay of UA or DL or AA because of the inferior revenue potential of its hubs, which are not in the primary, major business markets of the USA.

Agreed. Problem is, even after a bankruptcy at AA, it's not certain that a merger with lower-revenue US (dooming its employees to lower pay, according to Parker) would be a wise move.

The US flight attendant above who advised downsizing at JFK in favor of PHL? Absolutely laughable. Acquiring yet another Southeast hub at CLt as a good thing? As if AA didn't learn that lesson at RDU and BNA over the years? A hub in the desert (PHX) not very far from Los Angeles (a huge market)? Pointless.

Better move in my view? After a bankruptcy, AA buys jetBlue, regaining key assets in NYC (primarily slots plus customers), BOS (customers/market share) and eliminates a transcon competitor (financial problems will eventually cause VX to implode, eliminating that transcon competitor).

FLLDL

The main difference in cost structure between AA and US/UA/DL is in the cost of labor.

US/UA/DL have all turned a profit of late, while AA continues to bleed.

The high labor costs and resulting losses leave AMR with few options, none of them very attractive.

toomanybooks

Wonder what the odds are the Administration and federal judges step in, hose the bondholders, and hand the company to the unions?

hazelrah

Depends on what your definition of "hosed" is; the shareholders are always hosed though, hence AMR stock trading at around $2.38.

toomanybooks

Oh, let's go back and look at what happened to GM and Chrysler bondholders. How about that? Gotta save those jobs, right?

Cattle Airlines

Now it may be time to gamble! If it is $2, it could easily go to $5, representing more than double in value. However, $2 could also drop to $1 or even bankruptcy. For me, I have no stomach for that. I prefer a stable company at $50 with the likely chance of it being $40-65 in the future.