Scott the flier

I heard this morning that AA is now exploring the possibilities of filing Chapter 11. Supposedly they are burning through $5 million per day and are digging heavilily into their reserves. Any insiders with more info.

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Cheers Scott

avek00

An article in USA Today highlighted the fact that AMR's retirement plan managers are now dumping AMR stock in order to protect the employees from a complete loss of stock value. Does that mean that BK is imminent or inevitable? No, but it does mean that there is a significant likelihood of BK, IMHO.

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Thank you for choosing Continental Airlines, a proud member of the SkyTeam Alliance.

martin33

geez, Read a little FT before posting something so evocative, can't you?

NO. AA is not "seriously considering" Ch 11 filing anytime soon.

The situation REMAINS as follows: Structural cost cuts in operations and nonunion labor are producing the desired effect--- overall costs per unit are indeed falling in the latest reports. Unfortunately, revenue per unit has fallen quickly too.

Upshot? AA has a chance, perhaps 6-10 months or so, to reset its union labor structure. Either lower wages or higher productivity will ensue. Make no mistake: if this fails, then Ch 11 WILL become inevitable.

Prospects? looking better than they did two weeks ago. First, NW has announced they want $800m a year from their labor groups. Combine that with UA and US, and it will be difficult for AA labor not to deal. Second (see alliedpilots.org and apfa.org), AA's negotiations with its pilots seem to be at a critical stage-- they are discussing nothing less than the effective re-integration of Eagle into mainline, at least for pilots' purposes. Solve the pilot situation, and the rest of the labor groups will come along, in all likelihood.

The wolves are NOT, repeat, NOT yet (!) at the door.

richard

I think AA's avoiding BK is wishful thinking. They are where UA was last year. It is very likely they will have to file.

Their labor unions are very contentious.

Their huge pension obligations are costing them billions.

They have enormous debts...very little equity (least of the majors).

I find it very unlikely they will not file. BUT...this could change if UA goes under, as AA could absorb some of that capacity and raise fares. You never know!

Meanwhile, I wouldn't jump ship to AA thinking that they will definitely survive in their current form.

Scion

And, that is just what it is... Your "humble" opinion...

Thanks Martin 33 for pointing out that negotiations are, indeed, taking place with APA and APFA that would mean in the long run that AA would end up operating 70 and 100 seat aircraft on mainline routes at Eagle's current cost structure. That would go a long way toward achieving the $1.8 billion dollar cost-savings that AA announced today that it wants from labor.

AA has some time to get it done. In the long run, the integration of Eagle into AA will only make the AA brand stronger, help to bring down costs on the mainline side, and create jobs for those AA employees on forlough. I hope all parties realize what a win-win situation this is for everybody.

In the meantime, Avek, why don't you ponder how much more difficult it is going to get for Continental and Northwest when their pilots ask for one list. Oops, I guess Continental can't do that anymore because they hocked Express in order to pay some bills.

Tango

AA has delayed confronting their labor unions and that should have been their first priority. AA managemnt has bet the company that the economy would improve or UA would go away and now that it looks like these will not happen, they are being forced to address the labor cost issue. Charging $5 for a bottle of booze is not going to save the airline.

martin33

No, that's where most observers get it wrong because they don't fully account for the complexities of a business that is deregulated in the product market BUT heavily regulated in the labor market [by the Railway Labor Act].

An airline that goes FIRST to its labor groups is going to meet intransigence, incredulity, and stonewalling. Why? The labor groups would rightly point out that: 1) huge wasteful spendings were still occurring; 2) management pay rises rapidly; 3) labor concessions, once given, might lessen the incentive to even find other cost cuts. In other words, it's all political.

Likelihood of success in a "Labor Cost First" strategy?? zero.

Compare that to the chosen alternative-- chop everything in sight, including nonunion comp.. Show that unit costs have come down, but not as fast as revenue.. There is literally very little left to talk about except union labor costs.

And so, take your best shot at working it out. If it works, great. If not, well, it would have been Ch 11 anyway, and at least now the stay in the courts can be shortened because there's really only the Labour question to deal with.


[This message has been edited by martin33 (edited 02-04-2003).]

martin33

That's wishful thinking, dear. AA is at least $2bn in cost cuts ahead of where UA was last year.

It will be interesting to see if UA can even survive the next 6 weeks. Altria wants its planes back on Saturday...

Scion

Funny thing to think about... If AA managment had been running UA over the last year and a half, it probably would not have gone into bankruptcy.

As Martin 33 indicated in a previous post, AA management has been trying to negotiate work rule changes with its pilots and FA's for some time. The discussions center on radical scope reflief that would virtually mean that AA and Eagle would cease being separate entities from a labor relations standpoint.

There are far-reaching implications to this: (1) Pilots and FA would see many of their colleagues return from furlough to man the 70- and 100- seaters that Eagle would acquire. (2) Given that these 70-and 100-seaters would be operating at Eagle's cost structure, even with APA pilots, AA would now have the pricing power to compete with the LCC's. All of this would be accomplished without having to create another brand, like Delta's "Song" or United Shuttle. Heck, this integration might even lead to better customer service at Eagle.

There, of course, is the last implication. (3) By coming up with this solution, AA has now made it even more difficult for UA's unions to agree to the relaunch of Shuttle on UA's initial terms. At UA, the relaunch of shuttle is predicated on creating two employee classes, Shuttle employees and Mainline Employees. Unfortunately, even if UA could change course now and try to do something along the lines of what AA is doing, it would be harder, if not impossible, for them since they do not own all the pieces of the pie (i.e., their regional affiliates).

I hope AA can pull this off because in the long run it will make them really competitive against the LCC's while not doing a single thing to dilute the brand. For those thinking of switching to AA, this should be very good news.

Doppy

Just wait until the War. Last Gulf War, the floor dropped out on international travel to the tune of 40%; domestically about 5%. This time the war will probably go on longer, we're not really sure what the goals are, and people are still really jittery about traveling with terrorism threats. There have been plenty of claims that if we attack Iraq, we're going to again be the victim of terrorism. Another terrorist attack or two on the US or Americans abroad, regardless of the severity, is going to convince most of the population that they don't ever need to leave their homes again.

I seriously doubt that AA or any of the other majors are not going to be in Ch. 11 once the War starts.

I have a fried working on a financing deal to keep a major airline afloat. They're essentially working 24 hours a day on it, because they know once the Bush-Iraq war starts, if the deal isn't in place, they're through. There's no way they'd be able to get the money together.

d

hillrider

Old news. A little searching would have brought up this thread from 1/30: http://www.flyertalk.com/forum/Forum71/HTML/014263.html

blueeyes_austin

Well, if UA tanks in the next 4 to 8 weeks that would take a bunch of heat off of AA.

Tango

Two things:

1)Why would the unions agree to a two tier wage scale? The pilots would welcome Eagle back into the fold but only if their pay was brought up to their level, not the other way down.

2)If UA goes under it would only buy temp relief. The threat of the low cost airlines will continue and AA has to get their labor costs/work rules fixed sooner or later or else they will fail.

martin33

1) it's not a two-tier wage scale. It's one integrated, graduated tier from ERJ 135 to 777. Second, since there would be only one seniority list, every low-position pilot is automatically in the queue to reach a higher rung. Contrast this to the separate-carrier model... Also, as has been widely publicized [back in the Comair strike, and in the Boyd reports etc], pilot labor rates are not a huge determining percentage of RJ costs anyway. Finally, we don't know what if anything is happening on the productivity/work rule front.

2) you're absolutely right!

SeAAttle

Those are exactly my thoughts - well, at least some of them. The rest I will take to OMNI.