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Apr-17-2008

AMR can compete whether it merges or not, CEO says

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The parent company of American Airlines lost $328 million in the first quarter of 2008, as the higher cost of fuel swamped efficiency improvements at the Dallas-based carrier. AMR Corp. said Wednesday it paid $665 million more for fuel than in the first quarter of 2007. (More...)
The Rating Outlook for both AMR and American has been revised to Stable from Positive. (More...)
AMR expects mainline capacity in the second quarter of 2008 to decrease by 1.4 percent year over year. (More...)
For several years, the substantial progress we have made in turning our company around has been obscured by record high fuel prices (and unfortunately, the definition of "record high prices" seems to change nearly every quarter). (More...)
American said weather and maintenance-related cancellations cut revenue by $75 million to $80 million. (More...)
Moving to cash forecasts, our scheduled principal payment from debt and capital leases are expected to equal about $1 billion for the full year. (More...)
The results from AMR Corp., which earned a modest profit in each of the last two years, portend a turbulent year ahead for the airline industry. (More...)
American receives hundreds of millions of dollars a year from selling AAdvantage miles to credit card companies, hotels and rental car firms, with more than 1,000 outside participants. (More...)
Previously, the airline had forecast a slight increase in overall passenger capacity for the year. (More...)
The biggest decrease will take place in the fourth quarter, when we will operate a domestic schedule about 4.5 percent smaller than last year's. (More...)
There are 258 days left in the year. (More...)
Arpey also reiterated AMR's commitment to continue to work with the FAA to demonstrate the Company's ongoing commitment to safety and compliance with FAA's directives. (More...)
A press release outlining the American Beacon announcement is available in the Press Releases section at http://www.aa.com. (More...)
If additional cuts in domestic capacity are made, however, pressure on unit operating costs will increase. (More...)
We'''ve got a long way to go and I don'''t know capacity is entirely the answer but we'''ve got a long way to go to get our prices to the point where we'''re recovering our costs and of course every business has got to do that. (More...)
Given that the 737 800 is about 25% more fuel efficient than the MD 80 and in light of high fuel prices, it makes sense to accelerate the replacement of our MD 80s. (More...)

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The parent company of American Airlines lost $328 million in the first quarter of 2008, as the higher cost of fuel swamped efficiency improvements at the Dallas-based carrier. AMR Corp. said Wednesday it paid $665 million more for fuel than in the first quarter of 2007. It plans to cut flying by 1.5 percent this year to save on flights that aren't profitable at current fuel costs. Previously, AMR had said it expected to increase flying by 0.2 percent this year. [1] The company that owns the nation's largest airline said Wednesday it lost $328 million in the first quarter, foreshadowing similar losses at most U.S. carriers. American Airlines' parent, AMR Corp., said its fuel costs have gone up 48 percent from the 2007 first quarter, wiping out savings from measures such as taxiing planes to and from the runway on one engine.[2]

DALLAS (AP) — Whipsawed by high fuel costs and bad weather, American Airlines' parent company lost $328 million in the first quarter, and then things really turned ugly. American, the nation's largest carrier, says it began the new quarter this month by losing tens of millions more when much of its fleet was grounded for safety inspections. It warns that costs will rise the rest of this year, even for things other than fuel.[3] DALLAS (AP) — High fuel costs offset an increase in revenue and pushed the parent of American Airlines, the nation's biggest carrier, to a $328 million loss in the first quarter. That figure doesn't include a loss "in the high tens of millions" from the cancellations last week of about 3,300 flights while planes underwent safety inspections, executives said.[4]

Citing ever-rising jet fuel prices, Fort Worth-based AMR Corp., the American Airlines' parent company, reported a net loss of $328 million for the first quarter of 2008, or $1.32 per share.[5] AMR Corp., the parent company of American Airlines, reported a $328 million loss for the first quarter, as the carrier battled high fuel prices amid a slow travel period.[6]

AMR Corp., parent of American Airlines Inc., said Wednesday it lost $328 million in the three months that ended March 31, its worst first quarter since 2003 and a sharp turnaround from an $81 million profit in the 2007 period. The Fort Worth-based company also said it plans to sell its American Beacon Advisors Inc. unit for about $480 million.[7] April 16 (Bloomberg) -- American Airlines parent AMR Corp. posted a quarterly loss of $328 million, its biggest in more than two years, as jet-fuel prices jumped and demand slowed. AMR shares rose 4.1 percent as American, the world's largest airline, scaled back 2008 expansion plans today for a second time and agreed to sell its American Beacon Advisors Inc. investment unit for $480 million.[8] Chief Executive Gerard Arpey called the first-quarter results disappointing. He announced that American is cutting U.S. capacity by 3.6 percent this year and selling 90 percent of its investment arm, American Beacon Advisors Inc., for about $480 million. The company also expects to sell or spin off its American Eagle regional airline this year to raise more cash. Analysts said the moves helped AMR shares rally; they rose 35 cents, or 4.1 percent, to $8.92 in trading Wednesday. American is also speeding the replacement of its MD-80 fleet with more fuel-efficient Boeing 737-800s.[3] Analysts surveyed by FactSet Research estimated a loss of $1.32 a share on revenue of $5.72 billion. Chairman and Chief Executive Gerard Arpey also said AMR will make additional reductions to its 2008 capacity plan and is accelerating the replacement of its MD-80 fleet with more efficient Boeing 737-800s. Separately, AMR said it agreed to sell American Beacon Advisors Inc., its asset-management subsidiary, to Lighthouse Holdings Inc. for $480 million.[9]

Cyndi Dawson, a pilot and former flight attendant at American, said the airline has canceled flights and lost the accompanying revenue for lack of a ready crew, yet won't recall more laid-off pilots. She said the airline must spend money — on employees — to make more. "If we operated as efficiently as Southwest, we'd probably be doing well," she said, expressing a common sentiment among American employees about their Dallas-based neighbor, which has remained profitable through the industry downturn. AMR also said Wednesday it will sell 90 percent of its investment arm, American Beacon Advisors Inc., for about $480 million to two private-equity firms — Lighthouse Holdings Inc., an affiliate of Pharos Capital Group LLC, and TPG Capital, the buyout unit of the former Texas Pacific Group. AMR said it expects the sale to close this summer.[4] AMR expects 2008 mainline capacity to decrease 1.4%. The company said it's taking steps to address "the challenging circumstances it faces" including a hiring freeze for management, making additional reductions to its 2008 capacity plan. The company also agreed to sell its American Beacon Advisors Inc. unit to Lighthouse Holdings Inc., which is owned by investment funds affiliated with Pharos Capital Group LLC and TPG Capital, for $480 million.[10]

American Airlines' parent AMR Corp. (AMR) swung to a first-quarter loss on a 45% jump in jet-fuel cost, and warned Wednesday of additional second-quarter expenses. To address financial challenges, the Ft. Worth airline said it would sell nearly all of its holdings in American Beacon Advisors Inc., its asset- management unit, for $480 million. AMR also said it would further reduce its capacity and accelerate deliveries of new aircraft to help improve fuel efficiency.[11] Despite the gloomy outlook, shares of AMR rose 4.1% as the airline announced it was cutting back on capacity -- the number of seats for sale -- to cope with escalating jet fuel prices. It also agreed to sell its American Beacon Advisors Inc. investment unit for $480 million, giving it what it called a "cash cushion" to better weather rising fuel expenses.[12]

Analysts predict a full-year loss of $3.68 per share on revenue of $23.7 billion. ANALYST TAKE: Citi airline analyst Andrew Light on Monday cut his target price on American shares to $11 per share from $14, citing concerns about higher fuel costs, a slowing economy and other worries. That follows an earlier price target cut from $24 per share just three months earlier. "Unless AMR is able to refinance or sell assets/cancel aircraft orders, its cash balance of $4.8 billion could be eroded substantially over the next 2 years," he wrote in a note to clients.[13] AMR Corp. (AMR), the parent company of American Airlines, swung to a first- quarter loss of $328 million, or $1.32 a share, from a year-earlier profit of $81 million, or 30 cents a share, due to record high fuel costs.[10] American Airlines parent AMR Corp. launched the U.S. first-quarter reporting period on a decidedly down note yesterday, posting a $328 million net loss compared to an $81 million profit in the year-ago quarter and projecting a difficult 2008 owing largely to "very volatile" fuel costs.[14]

NEW YORK - AMR Corp, parent of the No. 1 U.S. carrier American Airlines, reported a first-quarter loss of $328 million on Wednesday, led by record high fuel costs. Get stories by e-mail on this topic.[15]

Fitch estimates that a 10-cent change in the price of jet fuel drives approximately $310 million of annual consolidated costs. Based on an average 2008 fuel price scenario of $3.00 per gallon, therefore, AMR would face approximately $2.7 billion of higher fuel costs this year compared with 2007 (holding capacity constant). In the wake of Chapter 11 restructurings at Delta, Northwest, United and U.S. Airways, AMR's labor costs are the highest in the U.S. airline industry, and it (along with Continental) retains defined benefit pension plans for its unionized employees. With fuel costs soaring, pressure to control non-fuel operating costs will intensify this year.[16] In recent weeks, some small airlines filed for bankruptcy, and major carriers could run out of cash by 2009, according to industry watchers. AMR avoided a round of airline bankruptcies earlier in the decade, an Arpey said the airline, which had $4.9 billion in cash at the end of the quarter, is committed to paying down debt and keeping cash on hand, despite the sharp rise in its fuel bill. In January, AMR posted its first loss in seven quarters, citing soaring fuel prices. Bad news continued last week, when the airline came under fire from passengers for suddenly grounding its MD-80 fleet - half of the planes it flies - for a safety check.[11]

AMR said it ended the first quarter with $4.9 billion in cash and short-term investments, including a restricted balance of $426 million, a 16.9% decrease from $5.9 billion in year-ago period. Analysts have raised concern that the higher fuel costs could rapidly eat into airlines' cash reserves, bankrupting those with weaker balance sheets.[17] The revised cost estimates -- far greater than the $30 million initially estimated by some analysts -- came after the parent company of the Fort Worth-based carrier, AMR Corp., reported that it had lost $328 million in the first quarter, primarily because of high fuel costs.[12]

AMR Corporation (NYSE: AMR), the parent company of American Airlines, Inc., today reported a net loss of $328 million for the first quarter of 2008, or $1.32 per share.[18] SAN FRANCISCO, Apr. 16, 2008 (Thomson Financial delivered by Newstex) -- American Airlines (NYSE:AMR) parent AMR Corp. (NYSE:AAR) on Wednesday said it swung to a first-quarter net loss of $328 million, or $1.32 per share, versus the $1.34 a share mean loss estimate of analysts poled by Thomson Financial.[19]

Fort Worth-based AMR was the first major U.S. airline company to report January-March results, and it posted a loss of $1.32 per share compared to a profit of $81 million, or 30 cents per share, in the same period last year.[3] The Fort Worth, Texas-based carrier, the biggest U.S. airline, lost $328 million, or $1.32 per share, compared with a profit of $81 million, or 30 cents per share, a year earlier. Revenue rose to $5.7 billion from $5.43 billion a year ago, but a 45 percent higher fuel bill — caused by higher oil prices — more than wiped out those gains.[20] The world's biggest airline by passenger traffic, reported a first-quarter net loss of $328 million, or $1.32 a share, compared with net income of last year of $81 million, or 30 cents a share. Revenue rose 5% to $5.7 billion, benefiting from an earlier Easter this year, and strong passenger traffic on some international routes.[11]

The first quarter was a challenging time for the airline industry and for AMR. In the first quarter we loss $328 million versus a profit of $81 million in the first quarter of last year. This is as Gerard said, our second straight loss and highlights the steep climb facing AMR and the industry as a whole in 2008. As Gerard pointed out we'''re finishing several hurdles this year. We'''ve got other big challenges to face down this year.[21] AMR (NYSE: AMR) reported that it lost $325 million in the first quarter as fuel charges rose $665 million over the same period last year. AMR also disclosed that it has reached a definitive agreement to sell American Beacon Advisors, Inc., its wholly owned asset-management subsidiary, to Lighthouse Holdings, Inc., which is owned by investment funds affiliated with Pharos Capital Group, LLC and TPG Capital, two leading private equity firms.[22] Chief Executive Gerard Arpey is slated to receive about $1.7 million in stock, according to the Allied Pilots Association. "By taking these bonuses they have broken their promise, destroyed their credibility and lost their ability to effectively lead this airline," said Laura Glading, the president of the flight attendants' union. She added that "if the five officers do not tender their resignations, APFA plans to expand its campaign to AMR's board of directors to demonstrate to the board that these executives simply lack the kind of judgment required of corporate leaders." The airline also announced plans to sell American Beacon Advisors, its investment subsidiary, for $480 million to Lighthouse Holdings, owned by investment firms TPG Capital and Pharos Capital Group.[6] Over the past six months we have discussed our thinking about the ownership structure of American Beacon and provided some additional details about the business during the last two calls and on our 10K. As we announced today we plan to divest American Beacon from AMR and have a definitive agreement with TPG and Pharos Capital Group. The sale is intended to allow AMR and its shareholders to recognize the full value of American Beacon while allowing AMR to focus on its core airline business. AMR expects to receive total consideration for the sale of $480 million and we expect a substantial portion of this amount to be realized as we gain upon closure of this deal this summer. This will be primarily a cash transaction but AMR will retain 10% equity interest.[21] To that end, today we announced our plan to divest American Beacon Advisors, AMR's money management subsidiary, for $480 million. American Beacon will continue to provide first-rate pension and investment management services to American, while growing its successful mutual fund and money and management business. We believe this is a good deal for AMR and our shareholders, while at the same time positioning American Beacon to pursue growth opportunities outside of AMR. The announcement this week that Delta and Northwest Airlines plan to merge is the latest example of the changes that continue to roil our industry.[23]

American Beacon had average assets under management of $65 billion in 2007, with gross revenue of $101 million and income before income taxes of $48 million. AMR expects to close the sale this summer. The company said the sale is intended to allow AMR and its shareholders to recognize the full value of American Beacon while allowing AMR to focus on its core airline business. AMR said it expects to continue its relationships with American Beacon after the closing.[24] AMR said Beacon last year had revenue of $101 million and earnings before income taxes of $48 million, a 40 percent increase over 2006. Beacon manages investments for a group of mutual funds with both institutional and retail shareholders. It also provides fixed income portfolio management services. AMR Chief Executive Gerard Arpey said his company would continue to use Beacon for its cash management services.[25] Mr. Arpey said AMR would continue to use American Beacon for cash management and would retain 10 percent ownership. AMR said it expects the sale to close this summer, subject to approval from the board of trustees of the American Beacon family of mutual funds, shareholders of the American Beacon family of mutual funds and consents from other American Beacon clients. AMR said last year that it planned to sell or spin off AMR Eagle in 2008, and AMR chief financial officer Tom Horton said those plans are moving ahead.[26]

American said it lost $75 million in revenue from the canceled flights. It saved the expense of flying the planes, but lost what it paid in overtime and passenger compensation. The Dallas-based airline employs about 9,000 people in South Florida, where it maintains one of its main flight hubs at Miami International Airport. To trim its losses, AMR announced a hiring freeze for management and support workers, and said it would further cut its growth plan for 2008. Rather than increase flying 0.2 percent, it now expects to cut flying 1.5 percent this year, or the equivalent of about 33 daily departures.[2] If AMR can't pull that off - and it would be difficult, Neidl said - it could be left picking up spare gates and other assets cast off by the merging airlines. Analysts say smaller carriers, such as U.S. Airways, might beef up American's domestic network but do little or nothing to improve its international service. American is also dealing with a near-revolt among its employees, particularly its pilots, who elected a hard-liner president last year and spent part of Tuesday picketing against American outside the headquarters of the airline's biggest customers and shareholders. Picketing pilots said they were embarrassed over last week's flight cancellations and are outraged about stock bonuses totalling up to $40 million going to executives this week. They said the company should spend more on maintenance and personnel, even while it's losing money.[27] The biggest domestic cut will come in the fourth quarter, when mainline domestic capacity is expected to decline 4.6% from a year earlier. For the first time ever, U.S. airlines this year have cut domestic capacity, trimming unprofitable routes, even if it cuts into market share. With deteriorating market conditions, airlines need to cut domestic capacity by an unprecedented 20% this year just to stay even, analyst Jamie Baker at JP Morgan wrote Wednesday. He said he had expected AMR to make deeper capacity cuts this year. Amid pressure to add value for shareholders, AMR said last fall that its American Eagle regional carrier and American Beacon Advisors were among possible divestiture candidates. Early this year, the airline said it had held talks with interested buyers for the regional airline.[11] The loss is a peek at financially challenging times ahead for the global aviation industry. While American Airlines had an average occupancy of a record-high 79.1 percent representing a 1 percent increase from 2007 level, its aviation fuel bill jumped by 45 percent, resulting to a first quarter loss. The air carrier said it would reduce additional capacity and immediately replace its MD-80 models with more fuel-efficient aircraft to cut cost.[28] OVERVIEW: Hopes of a resurgence for the U.S. airline industry have been dashed, at least for the time being, by a sharp uptick in the price of fuel. Fort Worth, Texas-based American has taken an especially hard hit because a large part of its fleet is comprised of older, fuel-guzzling planes. The carrier, the nation's largest, has tried along with its rivals to pass more of its fuel costs onto passengers through a series of fare increases. Some of those efforts have been successful, but others were rolled back within days because of stiff competition from low-cost airlines. American will be the first major carrier to report its first-quarter earnings, and as an industry bellwether its disclosures about fuel spending, profit margins and other statistics will be closely watched.[13]

CHICAGO (Reuters) - American Airlines doesn't need to take part in a big merger to stay competitive in an industry set to be transformed by consolidation, the chief executive its parent company said on Wednesday. Speaking after AMR Corp (AMR.N: Quote, Profile, Research ) reported a hefty quarterly loss due to skyrocketing fuel costs, Gerard Arpey said the No. 1 U.S. airline has not decided what its role in a consolidated industry might be, two days after Delta Air Lines (DAL.N: Quote, Profile, Research ) announced its plan to buy rival Northwest Airlines (NWA.N: Quote, Profile, Research ).[29] AMR on Wednesday reported a first-quarter loss as the company grappled with the soaring fuel prices that have walloped the industry overall. Those rising costs combined with a weak economy helped prompt the proposed Delta/Northwest deal on Monday and could spur a wave of further consolidation amid fears of falling travel demand. AMR said it would cut capacity -- the number of seats for sale -- and accelerate its fleet renewal plan in hopes of boosting revenue and cost savings. Its shares rose as much as 10 percent after an 8 percent sell-off on Tuesday, but pared those gains later in the day.[29] AMR expects mainline unit costs excluding fuel and special items to be 3.9 percent higher in 2008 versus 2007, while 2008 consolidated unit costs excluding fuel and special items are expected to increase 3.9 percent year over year. Forward-looking statements include, without limitation, the Company's expectations concerning operations and financial conditions, including changes in capacity, revenues and costs; future financing plans and needs; fleet plans; overall economic and industry conditions; plans and objectives for future operations; and the impact on the Company of its results of operations in recent years and the sufficiency of its financial resources to absorb that impact.[30]

Excluding fuel, mainline unit costs in the first quarter of 2008 increased by 3.3 percent year over year. As part of its efforts to improve the cost and fuel efficiency of its fleet, as well as lessen the Company's impact on the environment, AMR today provided an update on its plans to replace MD-80 aircraft with 737-800s.[30]

AMR Chairman and CEO Gerald Arpey called jet fuel costs staggering and noted fuel costs went up 48 percent since first quarter in 2007, from $1.85 per gallon last year to $2.74 during first quarter 2008.[5] AMR said the cost of jet fuel increased by $665 million in the first quarter compared with the year-ago period, with the operator paying $2.74 a gallon in the quarter, up 48% from $1.85 a gallon last year.[17] "Up almost 50 percent, meaning that we're spending $655 million more on fuel in 2008 for the first quarter than we did at the same time last year," said Tim Smith, AMR spokesman.[31]

Fuel has zoomed past labor as AMR's biggest single cost, accounting for 35 percent of first-quarter spending. American said last month that it expects to spend $9.3 billion for fuel this year, up from $6.7 billion last year, and some analysts think AMR may even be low-balling its fuel budget.[3] Spending on fuel jumped 45 percent, wiping out the impact of the revenue gains. American said last month that it expects to spend $9.3 billion for fuel this year, up from $6.7 billion last year.[4]

American's fuel spending jumped 45 percent, or $665 million more than a year ago, wiping out the increase in revenue.[3]

Passenger revenue yield per passenger mile (cents) 13.48 12.82 5.1 Passenger revenue per available seat mile (cents) 10.67 10.02 6.5 Cargo revenue yield per ton mile (cents) 42.57 38.36 11.0 Operating expenses per available seat mile, excluding Regional Affiliates (cents) (1) 12.63 10.91 15.8 Fuel consumption (gallons, in millions) 680 692 (1.7) Fuel price per gallon (cents) 273.2 184.2 48.3 Regional Affiliates Revenue passenger miles (millions) 2,142 2,262 (5.3) Available seat miles (millions) 3,106 3,274 (5.1) Passenger load factor 69.0% 69.1% (0.1)pts. AMR Corporation Average Equivalent Number of Employees American Airlines 71,800 71,500 Other 13,700 13,600 Total 85,500 85,100 ====== ====== (1) Excludes $721 million and $668 million of expense incurred related to Regional Affiliates in 2008 and 2007, respectively.[30] AMR Corporation, American Airlines' parent company, said it lost $328 million for the first three months of 2008 due to the soaring cost of aviation fuel.[28] As a result American Airlines parent, AMR, announced a loss of $328 million during the first three months of the year. That lost compares to a first-quarter profit last year of $81 million.[31] In the recent quarter, AMR (AMR) reported a loss of $328 million, or $1.32 a share, compared with a profit of $81 million or 30 cents a share in the first quarter a year ago.[17] AMR reported Wednesday that it lost $328 million in the first quarter, a reversal from the $81 million profit that the company earned in the same period last year.[25]

Good afternoon everyone. As you have seen in the press release we issued this morning we loss $328 million in the first quarter or $1.32 per share after six straight profitable quarters this is our second consecutive quarter we'''ve loss and it was $409 million worse than last year. It is a disappointing result and it is indicative of the challenges we'''re facing in 2008. I want to take some time to talk about some of these challenges and I also want to reinforce some of the steps we'''re taking to mitigate some of the impacts associated with them.[21] In first quarter 2007, AMR earned $81 million, or 30 cents per share, on revenue of $5.43 billion.[7] AMR estimates that weather and maintenance cancellations reduced first quarter consolidated revenue by approximately $75 million to $80 million. American's mainline passenger revenue per available seat mile (unit revenue) increased by 6.5 percent in the first quarter compared to the year-ago quarter. (Please refer to the reconciliation tables at the end of this press release for a calculation of the impact of the recent reclassification of AAdvantage revenue received from the sale of third-party miles from Passenger Revenue to Other Revenue.)[30]

Every dollar per barrel increase in the price of fuel equates to increased expense of about $80 million on an annualized basis through AMR earnings. In 14 of 60 trading days during the quarter the price per barrel of jet fuel changed by at least $3 so that equates to about a quarter of a billion dollars annual swing in earnings and this uncertainty obviously presents a challenge in planning for the future but this of course has become the new reality for American and for the industry and there'''s certainly no silver bullet to that problem.[21] Revenue in the three months ended March 31 climbed 5%, to $5.7 billion from $5.43 billion, below the consensus estimate of $5.73 billion. Fort Worth, Texas-based AMR said jet fuel prices contributed'significantly' to its first-quarter loss, as the company paid $665 million more for fuel in the quarter than it would have paid at prevailing prices from the prior-year period.[19] Again, the leveraging Gary is extraordinary. I just pulled out this morning, I was looking at the history and if you go back a few years our oil bill in 2003 for essentially the same size airline, actually a little bit smaller today than we were then we spent $2.8 billion for fuel in 2003 and the guidance that we'''ve given you today would have our fuel bill at $9.2 billion o, over $6 billion increase in fuel. Obviously, a lot of our hard work in the company has been obscured by this oil phenomena and we'''re doing everything we can to recover that on the revenue side of the equation because as you point out there are limits to what we can do on the costs side of the equation and that'''s why we'''ve been pushing hard on it in revenues for years now, why we have been a consistent price leader in the industry.[21] A couple of revenue questions first. Gerard, I think I saw somewhere and it might have been a communiqu'' issued to employees something about you were hopeful that capacity reduction in the second half would help get price a little bit towards this fuel challenge. Well, Gary I did in my letter to employees talk about the fact that a number of smaller carriers have not only filed for bankruptcy but actually liquidated and while I certainly feel for the employees of those companies it'''s surprising how much of an impact a small airline can have on pricing in a particular market. The reason I put that in the letter is because I do think this is a business that pricing is driven by supply and demand and for many, many years we have been talking about capacity, we'''ve been constraining our capacity. We took further steps today and the industry and our competitors will do whatever they'''re going to do but we'''ve got to get supply and demand to the point where we can recover our costs. I can'''t remember what I said in the employee letter, a glimmer of hope or something, but certainly it'''s positive when capacity comes out of an industry that is consistently selling its product way below the cost to produce it.[21]

"The first quarter proved yet again that fuel prices remain one of the biggest threats to our industry and our company, and we also can't ignore the ongoing concerns about the U.S. economy and the potential impact on travel demand," Arpey said in a statement. "While our first quarter financial results were disappointing, through our hard work in recent years to contain costs and strengthen our balance sheet and liquidity we are better positioned to withstand today's uncertainty," he said.[6] "The first quarter proved yet again that fuel prices remain one of the biggest threats to our industry and our company, and we also can't ignore the ongoing concerns about the U.S. economy and the potential impact on travel demand," AMR chairman and chief executive officer Gerard Arpey said.[7] "The first quarter proved yet again that fuel prices remain one of the biggest threats to our industry and our company, and we also can't ignore the ongoing concerns about the U.S. economy and the potential impact on travel demand. Clearly, it has been a challenging start to 2008, and I want to take this time to again apologize to our customers who were inconvenienced by our recent cancellations and also thank all of our employees who worked tirelessly through difficult weather and maintenance challenges to take care of our customers," said AMR Chairman and CEO Gerard Arpey.[18]

AMR paid $2.74 per gallon for jet fuel in the period, compared to $1.85 a gallon in the first quarter of 2007. AMR also announced a reduction in its 2008 capacity plans due to 'increased fuel prices and growing concerns about the economy.' The air carrier now expects its full-year mainline capacity to decrease by 1.4% in 2008.[19] For the first quarter, AMR has estimated that jet fuel prices averaged $2.73 per gallon. This compares with a full year 2007 average price of $2.13 per gallon.[16]

To sum up, total RASM was up 6.9% on a consolidated basis versus last year. While this is strong unit revenue growth by historical standards unfortunately, it is far from sufficient to offset the cost increases facing us with the escalation of fuel prices and that'''s reflected in our first quarter main line unit costs which increased 15.8% year-over-year.[21] Our fuel price came in at $2.74 consolidated, a staggering increase of 48% raising our consolidated fuel cost in the quarter by $655 million more than we would have paid at last year'''s prices.[21] Unpredictable fuel prices remain one of the biggest threats to the company. The airline was significantly impacted by high fuel costs, paying $665 million more for fuel this quarter then during the same period in 2007.[32] The $665 million in higher fuel costs dwarfs what American will lose from canceling about 3,000 flights last week to comply with a Federal Aviation Administration safety directive. The airline hasn't figured its exact losses, which will be booked in the second quarter, but estimated they will be in the "high tens of millions of dollars."[2]

AMR is expected to have a difficult time in the second quarter as well, with analysts projecting a loss of 49 cents a share, or more than $120 million. Many of those estimates don't yet take into account the impact of American's cancellation last week of some 3,300 flights, about 1.6 percent of its entire schedule for the second quarter.[7] Shares of AMR, which fell 37 percent in the first quarter, traded up 67 cents, or 7.8 percent, at $9.24 on the New York Stock Exchange. Chairman and Chief Executive Gerard Arpey also said AMR will make additional reductions to its 2008 capacity plan and is accelerating the replacement of its MD-80 fleet with more efficient Boeing 737-800s.[15] The plan comes in the wake of Fort Worth, Texas-based AMR (NYSE: AMR) reporting a net loss of $328 million, or $1.32 a share, for the first quarter of 2008.[32]

We continue struggling to make ends meet after sacrificing 33% in wages and benefits. Even assuming these officers were willing to turn their back on their commitment to American's employees, customers and shareholders, the debacle of 3600 flight cancellations in a single week, and today's reported $328 million quarterly loss, should have compelled Mr. Arpey and company to refuse their bonuses. Unfortunately, neither integrity nor shame could convince them to make the right choice. If the five officers do not tender their resignations we plan to expand our campaign to AMR's Board of Directors to demonstrate to the Board that these executives simply lack the kind of judgment required of corporate leaders.[33] The announced merger of Delta Air Lines Inc. and Northwest Airlines Corp. would displace American, and a rumored merger of United Airlines Inc. and Continental Airlines Inc. would drop American to third place. That's not what is worrying American, Mr. Arpey told investment analysts as parent AMR announced a $328 million first-quarter profit. "The real challenge is being profitable," he said, "and I think we are not unique in our struggle to meet that challenge.[34]

SAN FRANCISCO, Apr. 16, 2008 (Thomson Financial delivered by Newstex) -- AMR Corp. (NYSE:AAR) (NYSE:AMR), the parent company of American Airlines, said Wednesday it has agreed to sell American Beacon Advisors Inc., its asset-management subsidiary, to Lighthouse Holdings Inc. for $480 million.[24] The airline industry has attempted to offset fuel prices by hiking up fare tickets and fuel surcharges. The company also agreed to sell its American Beacon Advisors Inc., its asset-management subsidiary, to Lighthouse Holdings Inc. for $480 million.[15] AMR Corp. said Wednesday it would sell American Beacon Advisors Inc. to Lighthouse Holdings Inc., an affiliate of Pharos Capital Group LLC, and TPG Capital, the buyout arm of TPG, formerly Texas Pacific Group. Fort Worth-based AMR said it would keep a 10 percent stake in the business and expects to close the sale this summer. The sale would let AMR focus on its core airline business, which is under stress because of high fuel prices, the compoany said.[25] Consider AMR, parent of American Airlines. It is selling 90% of its American Beacon Advisors unitthe asset-management business you probably didn't know it hadfor $480 million to Lighthouse Holdings, co-owned by Pharos Capital Group and TPG Capital. American also is preparing to divest American Eagle, its regional network.[35] AMR said Wednesday it would sell 90% of American Beacon to affiliates of private-equity firms Pharos Capital Group and TPG Capital, for $480 million. The sale is expected to close this summer.[11]

AMR Corp., under shareholder pressure to sell assets and push up its stock price, said Wednesday that it is selling most of its American Beacon Advisors Inc. subsidiary for about $480 million.[26] Subject to the approval of the shareholders of the American Beacon family of mutual funds, it is anticipated that American Beacon will continue to be investment manager for the mutual funds. American Beacon Advisors has consistently grown since its creation in 1987, adding new products and growing average assets under management to $65 billion in 2007. For 2007, on a separate company basis, American Beacon's gross revenue was $101 million and income before income taxes was approximately $48 million, both of which increased approximately 40 percent over 2006.[36] In an exclusive interview with MFWire, Pharos managing partner and co-founder Kneeland Youngblood described the deal as "a great opportunity" for Pharos and its investors. Youngblood, who has served as chairman of the board of the American Beacon Funds, said he has "tremendous confidence in Bill Quinn and the management team a American Beacon," pointing to their "track record of performance and success they've managed to have over the years, over multiple cycles." This is Pharos' first buy into asset management, but Youngblood noted that two of his partners hail from Goldman Sachs and added that he himself is not exactly new to this side of the business. "We could bring resources to bear, as well as relationships," added Youngblood, point to his tenure from 1993 to 1999 on the board of the $100 billion Teacher Retirement System of Texas and his more recent board experience with the City of Dallas Employee Retirement System. (He also serves on the boards of Burger King and Starwood Hotels, according to Pharos' website.) Youngblood and Owen Blacksilver, a spokesman for both Pharos and TPG, confirmed that they see the move as a "growth investment". That may mean more asset management moves in the future; Youngblood said that Pharos would consider such opportunities on a case-by-case basis. This is the second recent private equity buyout of a fund firm. In November 2007, Madison Dearborn Partners closed its acquisition of closed-end specialists Nuveen Investments.[37]

"We may or may not participate in consolidation," Arpey said today, but noted that the airline may buy assets that other airlines choose to sell off.) As for the other side of the American Beacon Advisors deal, you might ask: After plowing $2 billion into WaMu, why is TPG doing such a small deal? Other than the fact that the firm surely sees tremendous unlocked value in the American Air's financial service's assets, the Fort Worth, Texas, private-equity firm has a longstanding relationship with Pharos Capital, the deal's lead investor.[35] American Beacon, also of Fort Worth, provides cash management for AMR and investment advisory services and investment management services for American Airlines' pension, 401(k) and other health and welfare plans. AMR anticipates that it will continue its dealings with American Beacon after the deal closes and will engage an independent third party to review and approve any continuing relationships. In addition to providing these investment management services and asset oversight services to AMR, American Beacon serves as the investment manager of the American Beacon Funds, a family of mutual funds with both institutional and retail shareholders, and provides customized fixed-income portfolio management services.[38] "The decision comes after a careful evaluation of the strategy that we believe will deliver the most value to our shareholders and create the ownership structure that makes the most sense for American Beacon," said AMR chairman and chief executive Gerard Arpey. "What started out more than 20 years ago as a smart way to manage AMR's benefit plans and cash has evolved and grown significantly into a successful financial management and advisory firm that is fully capable of standing on its own and is well-positioned to pursue further growth opportunities outside of AMR," he said.[26] Beacon was formed in 1987 to manage AMR's benefit plans and cash. It grew over the years into a financial advisory firm that had $65 billion under management last year.[25]

Our total debt as defined in the earnings release is now $15.2 billion. Our net debt defined as total debt less unrestricted cash and short term investments is now $10.7 billion, its lowest level since the end of 1998. This represents a $1.5 billion or 12% reduction in net debt versus the same time last year. As we move to guidance, let me point out that we'''ve included preliminary estimates of the effect of the cancellations of last week in to both our capacity and unit costs forecasts. In total, about 3,300 flights were cancelled and we expect the impact of these cancellations to be in the high 10s of millions of dollars.[21] In light of reduced capacity we'''ll likely face some unit cost headwinds moving forward and we intend to keep a close eye on our cost structure as we progress throughout the year. Moving to non-operating costs, on a consolidated basis these were better year-over-year by $26 million in the quarter driven primarily by reduced interest expense associated with our balance sheet repair.[21]

"There's really no playbook for $110 oil," Executive VP-Finance and Planning and CFO Tom Horton conceded. "That means the revenue and expense equation is broken." AA domestic mainline capacity will be trimmed for the remainder of the year, including by 4.6% year-over-year in the fourth quarter, to help defray fuel costs, he said. He added that if crude oil prices continue climbing, AA likely will "take a sharp pencil to capacity plans" and consider further cuts.[14] Chairman and CEO Gerard Arpey said that cost cuts in recent years put AA in a position to weather hard times. He added that record fuel costs have created a "new reality" that will "present a significant challenge for the foreseeable future.Our unit revenue is in no way keeping pace with the extraordinary price of oil." Adding to its woes were 3,300 flight cancellations last week owing to required MD-80 inspections ( ATWOnline, April 14).[14]

The gap between the 5.1 percent fare increase and the 48 percent fuel cost increases shows how airlines struggle to pass on costs because of competition. United Airlines raised its fuel surcharge by $10 to $20 round trip, the 12th time this year airlines have tried to raise ticket prices across much of their route networks, according to airfare research Web site FareCompare.com. Four of the past increases were rolled back, however, after competitors failed to follow with increases of their own.[2]

American Airlines' parent AMR Corp. swung to a first-quarter loss on a 45% jump in fuel costs, and warned of even higher second-quarter expenses that could drag the carrier back into the red for the year. Some of those expenses stem from a federal crackdown on airline safety that has grounded hundreds of planes for maintenance in recent weeks.[39] The buyer is Lighthouse Holdings Inc., an Affiliate of Pharos Capital Group LLC and TPG Capital. AMR blamed the loss largely on higher fuel costs, saying its fuel bill increased $667 million compared to a year earlier.[7]

On the same day, American Airlines' reported a $328 million quarterly loss due to high cost of fuel.[28] Updated from 3:03 p.m. EDT American Airlines doesn't care if it remains the largest U.S. carrier as the industry consolidates, CEO Gerard Arpey said Wednesday, as the carrier reported a $328 million first-quarter loss. "We are fortunate to have a very strong network irrespective of any consolidation that may or may not take place," he said during an earnings conference call.[40]

"Fuel prices remain one of the biggest threats to our industry and our company, and we also can't ignore the ongoing concerns about the U.S. economy and the potential impact on travel demand,'' Chief Executive Officer Gerard Arpey said in a statement today. AMR's spending on fuel, its largest expense, surged 45 percent to almost $2.1 billion.[8] Chief Executive Gerard Arpey called the first-quarter results disappointing. He said, however, that cost-cutting had put the company in better condition to withstand high fuel prices and concerns that a weakening U.S. economy could hurt travel. American said it is cutting U.S. capacity by 3.6 percent this year to save money, and it's speeding the replacement of its MD-80 fleet with more fuel-efficient planes. American grounded its MD-80s twice within the past month, disrupting travel for more than 300,000 passengers, to make the planes comply with federal safety regulations on electrical wiring.[4]

"The capacity cutbacks could have been a little deeper,'' said Neidl, who has a "neutral'' rating on AMR. "There will probably be more if oil prices keep going up.'' American will ground some MD-80s and return three Airbus SAS A300 planes to help reduce capacity late this year, Horton said. Carriers have been cutting capacity, which tightens available seats, in hopes of increasing their ability to boost fares. "We are nowhere near recovering this extraordinary increase in fuel prices,'' Arpey said.[8] The carrier said it paid $665 million more for fuel in the 2008 quarter than it would have paid at prevailing prices a year earlier. "We are nowhere near recovering this extraordinary increase in fuel price," Arpey said. CFO Tom Horton said second-quarter bookings have dropped about 0.7%, "down a little, but its fair to say bookings have held up fairly well relative to what we've seen in downturns past."[40]

During the first quarter, our cost per gallon of jet fuel increased by 48 percent versus 2007 (a $665 million increase!) while our yield - representing average fares - increased by less than 6 percent.[23] Fuel Expense and Hedging While the cost of jet fuel remains very volatile, AMR is planning for an average system price of $3.01 per gallon in the second quarter of 2008 and $2.98 a gallon for all of 2008. AMR has 36 percent of its anticipated second quarter 2008 fuel consumption capped at an average crude equivalent of $72 per barrel (jet fuel equivalent of $2.42 per gallon), with 29 percent of its anticipated full-year consumption capped at an average crude equivalent of $75 per barrel (jet fuel equivalent of $2.41 per gallon).[30] Negative rating actions (either an Outlook revision to Negative or a downgrade of the IDR into the 'CCC' category) could follow if sustained high jet fuel prices (above $3.00 per gallon) through the summer, coupled with weakening revenue per available seat mile (RASM) trends and softening air travel demand drive substantially negative free cash flow, forcing AMR to raise debt levels and shore up liquidity moving into 2009. Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.[16] AMR's estimated March 31 unrestricted cash balance of $4.4 billion provides a substantial liquidity cushion for the carrier to absorb an extended fuel and revenue shock while meeting 2008 fixed obligations (including approximately $900 million of scheduled debt maturities and an estimated $350 million of cash pension funding).[16]

Revenue for AMR, which owns American and Eagle airlines, rose to $5.7 billion in the quarter from $5.43 billion a year ago.[17] Operational Performance AMR reported first quarter consolidated revenues of approximately $5.7 billion, an increase of 5.0 percent year over year.[30]

American's 211 flights from Miami aren't a target for big cuts because international service is the most profitable segment of the airline business. In a conference call, Arpey said revenue increases were very strong in the first quarter on its flights to Central and South America, the focus of the Miami hub. Arpey also said three A-300 planes, a type used in Miami, will be returned at the end of their leases in December as part of the capacity cutback.[2] In the first quarter, flight cancellations linked to bad weather and grounding MD-80s reduced revenue by $75 million to $80 million, American said.[8] The groundings caused American to cancel 450 MD-80 flights last month. That contributed — but probably only slightly — to AMR losing $75 million to $80 million because of weather-related and other canceled flights in the first quarter.[3]

AMR said it paid $665 million more for fuel in the first quarter of 2008 than it would have paid at prevailing prices from the prior-year period.[41] AMR said it paid $665 million, or $2.74 a gallon for jet fuel in the first quarter compared with $1.85 a gallon in the first quarter of 2007.[15]

AMR ended the first quarter with $4.9 billion in cash and short-term investments, including a restricted balance of $426 million, compared to a balance of $5.9 billion in cash and short-term investments, including a restricted balance of $471 million, at the end of the first quarter of 2007.[30] The year-over-year decrease in the Company's cash and short-term investment balance is primarily related to AMR's total debt payments of approximately $2.3 billion in 2007, including prepayment of approximately $1 billion. AMR's Total Debt, which it defines as the aggregate of its long-term debt, capital lease obligations, the principal amount of airport facility tax-exempt bonds, and the present value of aircraft operating lease obligations, was $15.2 billion at the end of the first quarter of 2008, compared to $17.5 billion at the end of the first quarter of 2007.[30]

The financial data still begs the question of whether AMR can stay in business as an independent company? The company had interest expenses of $194 million in the first quarter.[22] The Company paid $665 million more for fuel in the first quarter of 2008 than it would have paid at prevailing prices from the prior-year period.[18] The company said cancellations due to weather and MD-80 safety inspections cost it $75 million to $80 million in the first quarter.[4]

Last week, however, American canceled about 3,300 flights to reinspect the same planes after falling short of federal standards the first time. That second round of cancelations will cost the company "in the high tens of millions" in the second quarter, which began April 1, said Chief Financial Officer Thomas Horton. American could be toppled from its perch as the No. 1 U.S. airline if Delta Air Lines Inc. is able to complete the purchase of Northwest Airlines Corp., announced Monday.[3] Last week, American cancelled about 3,300 flights due to inspections and maintenance of the MD-80s. Those cancellations will cost the company "in the high tens of millions" in the second quarter, which began April 1, said chief financial officer Thomas Horton. Arpey said the MD-80s were never unsafe and the groundings weren't a factor in the decision to speed up their replacement.[27]

Continental Airlines Inc. and Southwest Airlines Co. release results tomorrow. American forecast that its cost to fly each seat a mile will climb almost 18 percent this quarter and 15 percent in 2008. The increase includes costs "in the high tens of millions of dollars'' related to the temporary grounding this month of almost half American's fleet, Chief Financial Officer Tom Horton said on a conference call today. The airline still is trying to recover from the weeklong groundings of its 300 Boeing Co. MD-80s for wiring inspections.[8] American's mainline cost per available seat mile (unit cost) in the first quarter increased 15.8 percent year over year.[30] American, the first major airline to report results for the quarter, posted the loss as jet fuel for immediate delivery in New York harbor has climbed 81 percent from a year earlier.[8]

A note: Last year, the program gave the expecutives and key employees 175 percent of the target number of shares, but the top guys got theirs trimmed to 154 percent by the AMR board. An AMR spokesman said Wednesday afternoon that there's been no announcement on this year's decision for the top five. Below, Ms. Glading's hotline message to her members, plus a press release. In a campaign begun two weeks ago we demanded that the top five executives of American Airlines refuse their annual bonuses until our Flight Attendants had a ratified Contract.[33] The Association of Professional Flight Attendants criticized the top five officers of American Airlines for not turning down AMR stock Wednesday. "By taking these bonuses they have broken their promise, destroyed their credibility and lost their ability to effectively lead this airline," APFA president Laura Glading said. April 1, she had called on the five to turn down their stock awards or resign since flight attendants and other AMR employees are still working under concessions negotiated in 2003. She said the union will have to take its fight to the AMR board. We don't know exactly how much stock the top five will receive because their share will depend on whether the AMR board decides they qualify for the full 135 percent of target that other executives and "key employees" will get.[33]

Where's Gerard Arpey ? The CEO of AMR, the parent company of American Airlines, should have been far, far more visible during this difficult past week for the airline. Other than appearing at one press conference at the company's headquarters in Dallas on Thursday, the man has been virtually out of sight, and not in a good way. While news programs aired stories about entire high school classes camping out at O'Hare, and while grieving families missed funerals because they were stranded at La Guardia (actually, I'm making that one up, but it'd be surprising if it didn't happen somewhere), AMR executives were AWOL. The public relations guru for those in distress, Howard Rubenstein, calls it "the worst public relations disaster since they invented the airplane." Remember last year's JetBlue debacle? The company, a longtime favorite of Palm Beach commuters known for its efficiency, stranded and refused to feed passengers for hours on a snowy day last winter.[42] AMR today said it will reduce 2008 capacity at American Airlines by 1.4 percent from last year, including a 3.6 percent drop in domestic flying and a 2.5 percent increase in international markets. The airline initially planned to increase capacity 1 percent this year.[8]

Under the agreement, AMR, the parent company of American Airlines Inc., will receive about $480 million and will retain a minority equity stake in the business. Fort Worth-based AMR plans to close the sale this summer.[38] FORT WORTH, Texas, April 16 /PRNewswire-FirstCall/ -- AMR Corporation, the parent company of American Airlines, Inc., announced today that it has reached a definitive agreement to sell American Beacon Advisors, Inc., its wholly owned asset-management subsidiary, to Lighthouse Holdings, Inc., which is owned by investment funds affiliated with Pharos Capital Group, LLC and TPG Capital, two leading private equity firms.[36] Arpey also reiterated AMR's commitment to continue to work with the FAA to demonstrate the Company's ongoing commitment to safety and compliance with the FAA's directives. Arpey added, the Company remains focused on other ongoing efforts to deliver value to its shareholders. As further evidence of those efforts, the Company announced today that it has reached a definitive agreement to sell American Beacon Advisors, Inc., its wholly owned asset-management subsidiary, to Lighthouse Holdings, Inc., which is owned by investment funds affiliated with Pharos Capital Group, LLC and TPG Capital, two leading private equity firms.[18]

AMR agreed to sell Beacon to Lighthouse Holdings Inc., which is owned by TPG Capital and Pharos Capital Group LLC. AMR will retain a 10 percent stake in the investment management company. "They generated cash and divested a non-core business,'' said Kevin Crissey, a New York-based analyst at UBS Securities with a "sell'' rating on AMR shares. "That was considered one of the better assets they had available for sale.''[8]

"Beacon was a beacon of good news,'' Ray Neidl, an analyst at New York-based Calyon Securities, said in an interview. "It seems like it's a fair price and it's mostly cash.'' The first-quarter loss comes as American and rivals such as UAL Corp.' s United are trimming capacity and considering asset sales as rising jet-fuel costs squeeze earnings.[8]

I don't know that capacity is entirely the answer.'' American's sale of Beacon, which manages $65 billion in assets, follows the airline's earlier decision to divest its American Eagle regional carrier.[8]

Analysts polled by Thomson Financial expected American to lose $1.34 per share on revenue of $5.73 billion. American says it is also cutting additional capacity and speeding the replacement of its MD-80 fleet.[20] Fort Worth-based AMR said the loss amounted to $1.32 per share, compared to a profit of $81 million, or 30 cents per share in the same period last year. Analysts surveyed by Thomson Financial said they expected a loss of $1.34 per share.[15] The net loss was $1.32 a share, compared with net income a year earlier of $81 million, or 30 cents, AMR said. It was the company biggest quarterly loss since a $600 million deficit in 2005's final three months.[8]

In the same quarter a year earlier, American reported a net profit of $81 million, or 30 cents a share.[40] The current quarter results compare to a net profit of $81 million for the first quarter of 2007, or $0.30 per diluted share.[18]

Cancellations due to weather and maintenance reduced first quarter consolidated revenue by an estimated $75 million to $80 million, according to AMR.[5] In the first quarter our other revenue line was $522 million an increase of 6.1% year-over-year. We'''ve made a lot of progress in this category and for the quarter we saw significant improvement in Admiral'''s Club revenue, change fees and baggage fees.[21]

Just a couple of quick ones, first I think you alluded to some cuts in cap ex non-aircraft related in 2009 and beyond. Chris, really what we'''re commenting on there is in this oil economic environment is we'''re going to be real cautious with our discretionary and capital spending to make sure that anything we do in this environment we get a very quick pay back. That'''s really what Tom was highlighting there. Anything that'''s discretionary we'''ll just be really cautious in this environment going forward until perhaps we get a little bit more stable environment to deal with. That sounds like sensible decision. Just a quick detail, I think you mentioned an estimate of $75 to $80 million on loss revenue related to the weather and cancellations this quarter.[21]

AMR had a net loss of $328 million, or $1.32 a share, on revenue of $5.7 billion.[7]

AMR ended the quarter with $4.9 billion in cash and short- term investments, including $426 million reserved for specific uses. That was a drop from $5.9 billion a year earlier.[8] Following two consecutive years of improving free cash flow generation and significant debt reduction ($2.3 billion of debt payments in 2007 alone), AMR and the entire U.S. airline industry now face a weakening operating environment that will likely lead to some credit quality deterioration over the next year.[16] The results from AMR Corp., the first major U.S. airline company to report January-March results, could portend a difficult year ahead for the industry.[4]

Fuel prices seem to be hitting record highs every few days and some experts thing the U.S. economy has already entered a recession. Clearly, there is a lot of uncertainty facing the industry today but it'''s also important to point out that we have put ourselves in a much better position to face these uncertainties than just a few years ago by repairing our balance sheet and bolstering our liquidity position. That said, we'''re not sitting around hoping that oil prices drop or that the economy holds up and, as I'''ll talk about later we'''ve outlined several steps that will help us better handle these uncertainties including capacity reductions, acceleration of our fleet replacement plan and costs and capital controls.[21] Given the persistent overcapacity of our industry (i.e., too many seats chasing too few customers willing to pay an appropriate price), we have been able to pass along only a very small portion of our fuel cost increase to our customers. That said, the recent failure of several airlines - combined with the capacity reductions announced by us and some of the major airlines - may represent a glimmer of hope that our industry can establish a healthier supply and demand balance, and start to narrow the gap between fuel costs and fares as the year progresses.[23] Looking ahead, industry conditions are expected to remain challenging for at least the next year, as airlines struggle to offset record-high jet fuel prices with higher revenue and lower non-fuel costs.[16]

While we don'''t comment on unit revenue guidance I should point out that we will be facing a more difficult comparable period in the second quarter due to the timing of the Easter holiday versus last year. In light of this uncertainty combined with record high fuel prices we are revising what was already a very conservative capacity plan.[21] In the last few weeks, several smaller carriers have shut down operations after declaring bankruptcy. During the recent quarter, AMR also said that it flew more people at higher airfare prices, and reduced its mainline capacity by a.5%. The carrier said its load factor hit a record of 79.1%, up a point form last year, while revenue per seat mile grew 6.5%.[17]

In the past week, jet fuel was prices at about $3.44 a gallon, up 69% from a year ago, according to the International Air Transportation Association. Arpey also said that AMR will make additional reductions to its 2008 capacity plan and is accelerating the replacement of its MD-80 fleet with more efficient Boeing 737-800s.[17] In 2010, AMR has firm commitments for three deliveries, with options to take 33 additional aircraft. With fuel prices expected to remain high, changing out its old fleet is critical for the airline, which is working on a number of fuel-saving initiatives. As a result of increased fuel prices and growing concerns about the economy, AMR said it now expects to cut domestic seat capacity by 3.6% this year, while increasing profitable international flying by 2.5%.[11] Installation has been completed on six aircraft so far. Guidance Mainline and Consolidated Capacity As a result of increased fuel prices and growing concerns about the economy, AMR today announced a reduction in its 2008 capacity plans. The Company now expects its full-year mainline capacity to decrease by 1.4 percent in 2008 compared to 2007, with a 3.6 percent reduction in domestic capacity and a 2.5 percent increase in international capacity.[30]

as most travelers can attest - average ticket prices have climbed, as well - up about five percent overall. To counter the 45-percent rise in jet fuel, AMR will speed up the replacement of its Md-80's, pre-purchase fuel at lower prices for later use, and reduce the airline's overall capacity. That means instead of 10 flights to one city per day, there may be eight. "It's an attempt to make sure we're flying routes that make economic sense," said Smith.[31]

FORT WORTH, Texas (AP) — American Airlines parent AMR Corp. says it swung to a hefty first-quarter loss largely because of higher fuel prices.[20] Associated Press - April 16, 2008 3:35 PM ET FORT WORTH, Texas (AP) - American Airlines parent AMR today reports a hefty first-quarter loss largely because of higher fuel prices[43]

AMR Chairman Gerard Arpey said lower debt and higher cash reserves will help American in an environment of volatile fuel prices and a slowing economy.[2] Mr. Arpey said separating the AAdvantage program and its huge cash flow from the rest of AMR poses fundamental problems. "In the current economic environment and fuel prices, that seems a pretty long pass," he said.[26]

Arpey said the airlines are nowhere near recovering the cost of fuel with price increases. Earlier this week, rivals Northwest Airlines and Delta Airlines agreed to a $3.6 billion merger.[2] Spending on fuel, the airline's largest expense, nearly doubled to $2.1 billion, compared to the year-earlier period, the airline said. Record oil prices have been partially blamed in the demise of three small airlines this month and prodded Delta Airlines and Northwest Airlines to propose a merger Monday that would create the world's largest airline. It has led to speculation that other major airlines including American -- which would be surpassed by a combined Delta and Northwest as the world's largest in terms of passenger traffic -- could strike a deal.[12]

Fuel costs also offset $23 million in savings on interest payments that American gained by retiring $1.5 billion of debt.[2] For the second quarter, AMR announced that it has hedged fuel costs to average about $3.01 a gallon.[17] Massive flight cancellations and customer reimbursements are expected to cost the carrier in the "high tens of millions of dollars" in the second quarter, Horton said, and the airline has work to do to restore credibility among customers. Excluding fuel, its single biggest cost, the airline expects mainline costs in the second quarter to rise 5.9%, as it accounts for flight cancellations, labor, and other expenses.[11] In the second quarter of 2008, mainline unit costs excluding fuel are expected to increase 5.9 percent year over year while consolidated unit costs excluding fuel are expected to increase 5.6 percent from the second quarter of 2007. These unit cost projections include the estimated impact of MD-80 cancellations in April.[30] We are still working through many of the details associated with the capacity reductions but as a first step towards lowering our non-fuel costs we have implemented a hiring freeze for management support staff work groups. In total, we anticipate both the main line and consolidated X fuel unit cost to increase by about 3.9% for 2008 versus last year.[21]

The bottom line is that fuel prices look to present a very significant challenge for us and the industry for the foreseeable future. While our fuel bill is an obvious problem there are other challenges that we faced this year including operational disruptions driven by the weather and the ATC system and growing concerns about the economy. In terms of operations, last year'''s first quarter set a record for us in terms of weather disruptions but unfortunately this year was almost as challenging.[21] Record jet fuel prices contributed significantly to the Company's loss in the first quarter of 2008.[18]

AMR said it paid $2.74 a gallon for jet fuel in the first quarter compared with $1.85 a gallon in the first quarter of 2007, a 48% jump.[9] AMR said it is planning for an average system price of $3.01 per gallon in the second quarter of 2008 and $2.98 a gallon for all of 2008.[19] Turning to fuel, we forecast fuel prices to remain high with second quarter fuel price of $3.01 and a full year price of $2.98 on a consolidated basis. That is based on the April forward curve.[21] In regard to hedging we have 36% of anticipated second quarter consumption capped at an average price of $72 per barrel or $2.42 per gallon and a full year hedge of about 30% of anticipated consumption capped at an average price of $75 per barrel or $2.41 per gallon.[21]

Prices rose to $2.74 per gallon from $1.85 in the first quarter of 2007.[32] We contributed $25 million to our defined benefit plans in the first quarter, and made an additional contribution of $50 million yesterday. We have contributed over $2 billion to these plans since 2002.[23] In the first quarter our scheduled principal payments on long term debt capital leases totaled $254 million and our capital expenditures totaled $216 million.[21] The current quarter results compare with a net profit of $81 million for the first quarter of 2007.[41]

Fort Worth-based AMR lost $328 million. That compares with a profit of $81 million one year earlier.[43] For the three months ending March 31, we lost $328 million. That compares to the $81 million profit we earned a year ago.[23]

Officials noted that it spent $665 million more in jet fuel than it had for the same period a year ago. Executives said they plan to make additional reductions to their capacity this year, and are accelerating plans to replace MD-80s with more fuel-efficient Boeing 737 jets.[6] We entered the year with a conservative capacity plan for 2008 and revised our capacity forecast downward in our 10K in February. Today, as we outlined in our press release we'''re taking additional steps to pull down domestic capacity in the back half of this year and we now expect domestic mainline capacity to be down 4.6% versus 2007, a decrease of nearly five points versus what was reflected in previous guidance. The volatility of fuel makes long term planning more difficult but we think this capacity decrease is a sensible move that will allow us to better weather fuel prices and the deteriorating economic environment.[21]

In a prolonged high fuel cost scenario that assumes no significant pull-back in crude oil and jet fuel prices through early 2009, AMR and all of the major U.S. carriers will face intensifying liquidity pressures - particularly if an extended economic slowdown drives a sharp reduction in air travel demand.[16] At the end of the day I think liquidity is an industry issue at $110 oil but I think it would be in correct to single out American. Jamie, on your point on our costs structure because we didn'''t file for bankruptcy like all the other legacy carriers have done in their history at least one time. If you actually break it down, in total our total costs structure is not that far on the stage of length adjusted basis off some of those guys that went bankrupt. Our disadvantage is in our labor costs, it'''s not secret on average we have the highest paid people in the industry but on the non-labor cost side we'''ve done a very good job of controlling those costs and one of the effects you'''re seeing is this Delta Northwest merger is actually completed is you'''re going to see some labor conversions as a consequence of that. I think we have to continue to work hard to make our costs structure competitive but if you actually look at us compared to United or U.S. Air or a lot of these guys we'''re really not that far off the mark in total.[21] Potentially significant cutbacks in domestic capacity plans by virtually all of the U.S. carriers will help to support industry unit revenue in the face of a potential slackening in demand, but the airlines will continue to struggle with rapidly increasing unit costs.[16]

All in all, the airline's operating costs were 14% higher, while revenue from the passenger business was up only 1%. It swung to an operating loss of $187 million from operating profit of $248 million.[35]

First-quarter revenue rose 5% to $5.7 billion but expenses lifted 13.6% to $5.88 billion including a 45.4% leap in fuel costs to $2.05 billion.[14]

The timing is indicative of American's attempt to clean house. (Deal Journal trivia: the timing of the divestitures is interesting considering that American's passcode for today's conference call was a cheer for corporate unity: "Win Together.") American is facing a harsh reality; its fuel costs rose 45% in the first quarter from the year-earlier period, and maintenance costs rose 27%.[35] During the first quarter, American's cost to fly each seat a mile, a measure of efficiency, rose 16 percent.[8]

Following two years in the black, skyrocketing jet-fuel costs and a weak U.S. economy are expected to push most airlines to losses in the first quarter and for the full year, 2008.[11] "While our first quarter financial results were disappointing, through our hard work in recent years to contain costs and strengthen our balance sheet and liquidity we are better positioned to withstand today's uncertainty.[18]

The largest contributor to the year-over-year increase in unit costs in the first quarter of 2008 was fuel.[30] Excluding fuel our netted costs rose 3.3% main line and 3.6% consolidated. The majority of this increase was driven by reduced flying due to severe weather disruptions in the first quarter.[21]

In the second quarter we'''d expect our X fuel main line unit costs to increase 5.9% year-over-year and consolidated unit costs to increase 5.6%.[21] Given our expectations for starkly higher fuel prices we expect overall unit costs to increase about 15% year-over-year for the main line, 14.7% for our consolidated system.[21]

For the quarter fuel prices represented about 35% of our total operating costs. Not only are prices high but they are also extremely volatile.[21]

The company said it paid $665 million more for fuel in the latest quarter than it would have at year-earlier prices.[10] American has other problems. It's dealing with a near-revolt among employees, particularly pilots, hundreds of whom picketed this week outside the headquarters of the airline's biggest customers and shareholders. Pilots said they were embarrassed over last week's flight cancellations and outraged about stock bonuses totaling up to $40 million going to executives this week. They said the company should spend more on maintenance and personnel, even while it's losing money.[3] The parent of American Airlines says that it may have lost $75 million from last week's canceled flights. American Airlines said Wednesday that it may have lost about $75 million because of the cancellation of more than 3,300 flights last week after it was forced to ground nearly half of its fleet because of missed aircraft inspections.[12] DALLAS -- The parent of American Airlines said Wednesday it will sell its investment arm for about $480 million to two private-equity firms.[25] American, which controls more than 60 percent of the passenger traffic at Miami International Airport, also announced a hiring freeze for management and support workers. It unveiled an agreement to sell a money management subsidiary, American Beacon Advisors, to Lighthouse Holdings, Inc. for $480 million.[1] Arpey added that AMR is looking forward to engaging American Beacon for cash management services after the transaction closes and will remain actively engaged with American Beacon through a 10 percent ownership interest.[36] While primarily a cash transaction, AMR will retain a minority equity stake in the business. AMR expects to close the sale this summer subject to satisfactory completion of customary closing conditions as well as the approval of the Board of Trustees of the American Beacon family of mutual funds, shareholders of the American Beacon family of mutual funds, and consents from other American Beacon clients. AMR, which has been engaged in an ongoing strategic value review process related to certain businesses under the AMR umbrella, believes that the sale is in the best interests of AMR and its shareholders and will benefit American Beacon, its employees, customers and other stakeholders. The sale is intended to allow AMR and its shareholders to recognize the full value of American Beacon while allowing AMR to focus on its core airline business.[36] "We are looking forward to focusing on growing our core business, while continuing to serve the needs of our customers and building on our successful history under a new ownership structure. Our management team and employees are excited about the many opportunities that this transaction will present to American Beacon, and our customers can rest assured that we intend to provide the same high level of service and expertise that they have come to expect from American Beacon in the past." Credit Suisse advised AMR on the transaction and Rothschild Inc. continues to advise AMR in its ongoing strategic value review.[36] American Beacon provides services for AMR including cash management, investment advisory services, and investment management services for American's pension, 401(k) and other health and welfare plans.[24]

Before I turn things over to Tom, I'''d like to also mention that as part of our ongoing strategic review we also announced today our plan to divest American Beacon Advisors. I think many of you who have followed the company for a long time know that we have been working on this for quite some time and we have now found the right partner and have an agreement that reflect full value for AMR shareholders and results in a remaining equity stake for our shareholders for further upside potential in the future.[21] In the same breath, Arpey announced AMR's plan to sell American Beacon Advisors Inc., a subsidiary of AMR Corp. 'That's really about creating value of our shareholders,' Arpey said about the sale.[5] A press release outlining the American Beacon announcement is available in the Press Releases section at http://www.aa.com/ ]] http://www.aa.com/. AMR's planned divestiture of its regional carrier, American Eagle, also continues to move forward, Arpey said.[30]

Big shareholders had urged AMR to consider selling American Beacon, as well as its AAdvantage frequent-flier program; the company's maintenance, repair and overhaul operations; and AMR Eagle Inc., which holds the regional carrier American Eagle.[26]

AMR also said it will sell asset manager American Beacon Advisors to Lighthouse Holdings, which is owned by investment funds affiliated with private equity firms Pharos Capital Group and TPG Capital.[40] "Pharos and TPG believe that the asset management business is a robust sector, in which American Beacon is a strong leader, with an outstanding, 20-year track record of performance in multiple asset classes across a variety of investment cycles," said Kneeland Youngblood, co-founder and managing partner of Pharos Capital. "We look forward to working with the American Beacon team and TPG to fully leverage its strengths into industry-leading growth as well as continuing its superior customer service and performance.[36]

The site describes Pharos' ideal target as an "established, US-based business", especially "healthcare, business services and technology firms," that the private equity firm can put between $5 million and $20 million into, as "lead or co-lead. along with other institutional investors," making American Beacon a big target for Pharos.[37] The site puts TPG's target investment range as $100 million to $750 million, and the buyout of American Beacon fits in nicely.[37] Youngblood currently sits on the board of TPG portfolio companies Energy Future Holdings (formerly TXU) and Burger King. Pharos also has sold a couple of its companies to TPG investments, including its sale of Vericenter last summer to Sungard, which TPG co-owns with a bevy of other buyout firms. Youngblood also is quite familiar with American Beacon; he has served on the board of American Beacon's mutual-fund arm for a dozen years. He said his firm has been interested in American Beacon since 2003, when they first considered selling the business.[35]

"Having significantly grown our third-party revenue over the past several years, we believe the timing of the divestiture is just right for our company, our customers and our employees," said American Beacon Advisors Chairman William F. Quinn.[36]

Please visit http://www.tpg.com/. Forward-looking statements include, without limitation, the Company's expectations concerning operations and financial conditions, including changes in capacity, revenues and costs; future financing plans and needs; fleet plans; overall economic and industry conditions; plans and objectives for future operations; and the impact on the Company of its results of operations in recent years and the sufficiency of its financial resources to absorb that impact.[36] The Company expects to take delivery of a total of 34 737-800 aircraft in 2009 and 36 737s in 2010. Of these, the Company has firm commitments in place for 27 737s to be delivered in 2009 and three 737s to be delivered in 2010. This compares to the Company's fleet renewal update in January, when it said that it had firm commitments to take delivery of 23 737s in 2009. Balance Sheet Update Arpey noted that the Company's efforts to strengthen its balance sheet in recent years have better positioned AMR to face the current industry challenges.[30]

AMR management has had $300 million in bonuses and CEO Gerard Arpey, at 10.2 Million, is the highest paid CEO in the industry.[35]

The sale, mostly a cash transaction, will earn AMR approximately $480 million while the company will retain a 10 percent equity stake in the business.[5] The per-share loss exceeded the $1.27 average of 13 analyst estimates compiled by Bloomberg. AMR rose 35 cents to $8.92 at 4:15 p.m. in New York Stock Exchange composite trading, and is down 36 percent this year.[8] Analysts surveyed by Thomson Financial had expected AMR to report a loss of $1.34 per share excluding any special items.[7] The mean estimates of analysts polled by Thomson Financial were for a loss of $1.33 a share on revenue of $5.73 billion.[10]

Revenue rose 5 percent to $5.7 billion, up from $5.4 billion a year earlier but a bit short of the $5.73 billion forecast by analysts.[4] Revenue for the quarter rose to $5.7 billion from $5.43 billion a year ago.[9]

Now, turning to the balance sheet we ended the quarter with $4.9 billion leaving $426 million in restricted cash. Keep in mind that while this is about $900 million lower than a year ago we paid off about $2.3 billion of debt in 2007 including $1 billion in debt prepayments.[21] Even with the loss, we ended the quarter with net debt (total debt minus our cash) of $10.7 billion - a significant drop from last year's $12.2 billion and 2006's $15.4 billion.[23]

The eight largest U.S. carriers will post a combined first- quarter loss of $1.4 billion, according to a forecast by Michael Linenberg, a Merrill Lynch & Co. analyst.[8]

AMR stock was up 4.1% at $8.92 recently, after gaining as much as 9.6%. AMR, which would be supplanted as the world's largest airline if Delta Air Lines Inc. (DAL) completes its proposed merger with Northwest Airlines Corp. ( NWA), is the first U.S. carrier to report its first-quarter results.[11]

Greater than 100% AMR CORPORATION OPERATING STATISTICS (as reclassified) (Unaudited) Three Months Ended March 31, Percent 2008 2007 Change American Airlines, Inc. Mainline Jet Operations Revenue passenger miles (millions) 32,488 32,575 (0.3) Available seat miles (millions) 41,052 41,691 (1.5) Cargo ton miles (millions) 505 524 (3.6) Passenger load factor 79.1% 78.1% 1.0 pts.[30] AMR Corp.' s American Airlines returned to its regular flight schedule yesterday as it completed the final inspections on its fleet of Boeing Co. jets. More than 3,300 flights were canceled, including 200 Saturday, and 360,000 passengers were stranded during five days as American conducted wiring inspections and repairs on its MD-80 aircraft.[44] NEW YORK -- AMR Corp., the parent of American Airlines, reports its fourth-quarter earnings on Wednesday.[13]

Thanks, everybody. That's my 30-second synopsis of the message AMR and American Airlines chairman and CEO Gerard Arpey sent Wednesday to all employees.[23] The AA employees that gave back their wages, holidays, vacations, raises, refinanced their homes, denied their kids college, all for the sake of keeping AA alive, are soon going to be given the boot once Eagle leaves the fold. The management and investors will get rewarded while every dedicated AA employee, who essentially ARE American Airlines (a service company - where the product is the service provided by the employees' hard work), will get their jobs tossed to divested Eagle where they pay their desperate servants half as much. Shame on executive America(n) on their connivings to continually reduce worker's wages and benefits to fund their own disgusting, undeserved avarice. They should hope there's enough CEOs around to buy all the goods and services United States workers provide, because we won't be able to buy any of it.[35]

With the cancelation of 3,300 American Airlines flights during the last couple weeks, the tone for the airlines' first quarter reports was already set to be grim.[5] Flights in the first quarter were on average 79.1 percent full, a record level American said, while fares rose an average of 5.1 percent.[2] American's mainline load factor -- or the percentage of total seats filled -- was a record 79.1 percent during the first quarter, compared to 78.1 percent in the first quarter of 2007. American's first-quarter yield, which represents average fares paid, increased 5.1 percent compared to the first quarter of 2007, its 12th consecutive quarter of year-over-year yield increases.[30]

STOCK PERFORMANCE: American shares bounced early in the first quarter before resuming the downward trajectory that has been the norm for more than a year.[13] Atlantic first quarter unit revenues were down slightly versus last year on increased capacity.[21] In our domestic markets first quarter main line unit revenue increased by 6.9% compared to last year on 3.5% less capacity.[21]

Turning to other revenue items, first quarter passenger revenue for our regional affiliate operation increased by 4.1% compared to last year and showed a unit revenue improvement versus last year of 9.8%.[21]

Our unit revenue for the quarter held up well versus last year but we are mindful of what seems like a growing chorus of concern about the country'''s economic growth or lack therefore and certainly our unit revenue is in no way keeping pace with the extraordinary increase in the price of oil.[21]

Fitch remains cautious about the risk of a follow-on fuel price spike and a slowdown in the airline's unit revenue growth rate for 2008 and 2009.[16] The carrier therefore faces a more difficult task in working with labor to pursue cost-saving initiatives designed to offset fuel price pressure and a potential softening of unit revenue trends.[16]

The Rating Outlook for both AMR and American has been revised to Stable from Positive. Ratings for AMR and American reflect the high degree of leverage in the carrier's capital structure, its heavy fixed cash obligations and the ever-present operating risks it faces in an industry that remains uniquely vulnerable to fuel and demand shocks. [16] I think also still important to keep in mind that what'''s being considered or what'''s being talked about is a separation of Advantage and which sort of involved dividing AMR into two parts, a cash flow driven business with a potential to generate ongoing dividends and the remaining business without the Advantage cash flow. That, as we said in the past, raises some fundamental questions that must be addressed around cash usage and risk profile and such and in the current economic environment, fuel prices, that seems a pretty long pass.[21] Fortunately, we have been working hard for a number of years to strengthen our balance sheet reducing and refinancing debt and building our cash reserves so we believe we are in far better shape to endure a slowing economy coupled with record fuel prices than we would have been just a few years ago. We were very opportunistic in taking these actions while the capital markets were more stable and favorable and in hindsight I really can'''t over estimate the importance of those decisions given the conditions we now face. That doesn'''t mean we'''re standing back in fact, we are taking further action to mitigate risk and improve our results.[21] Well Jamie, I think we have demonstrated we have a demonstrated track record of how hard we are willing to work to protect the interest of our shareholders. In fact, having spent the first two years on this job teetering on the edge of bankruptcy in 2003 and 2004 I have been very mindful of that experience and that is why we have for many years been working very hard on our capital structure and our cash balance and the pay down of debt and putting ourselves in the best possible position to weather this kind of storm. In terms of the guidance in terms of the risks for this company or any other airline for that matter in this oil or economic environment I'''d just point you to our 10K and 10Q and you can look at the highlights of all of the risk factors. There'''s a reason why we built that cash balance and you will recall me being heavily criticized in the 2006 era for building such a large cash balance but I think there was a reason for that.[21]

To your credit Gerard, on hording cash it'''s just amazing to me to think that six or eight months ago there was so much pressure being applied to you to pay a dividend. Well, we'''re proceeding with Beacon and with Eagle because we think those are sensible things for the shareholder. I think there is a heightened sense of urgency around righting the revenue cost equation for us and for the whole industry so that'''s what the steps we talked about were all about and we'''re going to keep looking at all of those things.[21]

Cyndi Dawson, a pilot and former flight attendant at American, said the airline has canceled flights and lost the accompanying revenue for lack of a ready crew, yet won't recall more laid-off pilots. She said the airline must spend money — on employees — to make more. "If we operated as efficiently as Southwest, we'd probably be doing well," she said, expressing a common sentiment among American employees about their Dallas-based neighbor, which has remained profitable through the industry downturn.[3] American's pilots are asking for big pay raises, while rivals Delta Air Lines and Northwest Airlines are heading to the altar to form the nation's largest airline. With the prospect of consolidation in the industry, American has to make sure its house is in order, and soon. (American chief executive Gerard Arpey said today that the firm is still considering whether to merge with a rival.[35] American Airlines Inc. has a strong enough brand, network and frequent-flier program to do well even if it doesn't get involved in mergers or asset purchases, chairman and chief executive Gerard Arpey said Wednesday.[34]

The pension and short-term cash assets of American Airlines are managed by American Beacon Advisors. American Beacon Advisors also manages the American Beacon Funds, a series of low-cost, no-load mutual funds open to institutional investors, retirement accounts such as IRAs and individual investors.[36]

As pump prices rise for every American, so goes the price of jet fuel for every American Airlines plane. That's how the airline's explaining its staggering first-quarter loss.[31] American's award-winning website, AA.com, provides users with easy access to check and book fares, plus personalized news, information and travel offers. American Airlines is a founding member of the oneworld Alliance(R), which brings together some of the best and biggest names in the airline business, enabling them to offer their customers more services and benefits than any airline can provide on its own. Together, its members serve nearly 700 destinations in over 140 countries and territories.[36] Of the 200 billion miles issued by American Airlines in 2007, half were sold to program participants.[26]

The airline had $4.5 billion in unrestricted cash on hand at the end of the quarter.[6] If we did we could go out and pursue that as we have in the past and if we were unable to resolve that on terms that we thought were sensible we'''d simply pay it off. Its $400 million against the cash balance of $5 billion. That number use to be a lot bigger years ago.[21] Well, we have about $1 billion of debt repayments this year which are embedded in the guidance we'''ve offered up and that includes the convertible debt facility that we have that is about $300 million.[21]

In the comparable period a year ago, the company earned $81 million, or 30 cents a share.[19] Shares of AMR rose 54 cents, or 6.3 percent, to $9.11 in afternoon trading.[25] Shares of AMR stock (ticker: AMR) were up 27 cents at $8.84 in mid-morning trading.[6] AMR shares were trading up Wednesday morning 66 cents, or 7.7%, at $9.23.[10]

AMR expects mainline capacity in the second quarter of 2008 to decrease by 1.4 percent year over year. It expects consolidated capacity to decrease 1.6 percent in the second quarter of 2008 compared to the prior-year period. [30] AMR now expects regional affiliate capacity for 2008 to decrease by 2.1 percent versus 2007, with the majority of the reduction relative to what was reflected in prior guidance occurring in the fourth quarter.[30]

For the second quarter, AMR expects mainline capacity in to decrease by 1.4%, and expects consolidated capacity to fall 1.6%.[19]

Arpey detailed a hiring freeze for management and support staff, which is part of a plan the airline has to cut non-fuel spending and stay afloat despite losses. AMR also plans to cut its 2008 capacity goals.[5] We also recognize that we have a lot more hard work ahead of us and that our efforts must be ongoing." Arpey noted that the Company is taking numerous steps to address the challenging circumstances that it faces, including its recent hiring freeze for management and support staff and today's announcements that AMR is making additional reductions to its 2008 capacity plan and is accelerating the replacement of its MD-80 fleet with more efficient Boeing 737-800s.[18]

As we lay the groundwork for the future, we must act responsibly to navigate our company through our immediate challenges of high fuel costs and a slowing economy. We have instituted a hiring freeze for management and support staff, and today we are announcing some reductions to our schedule for the second half of this year.[23] And, of course, as we reduce capacity in the near term we will face unit costs pressure because it takes time to extract related costs from the system. Our aim this year is to at least partially offset this and other cost pressures such as our increased maintenance expense and accelerated depreciation on MD 80s that we'''ll see as we move faster on our retirement plan for that fleet.[21]

What kind of changes do you think you need and obviously there'''s cost reduction, there'''s capacity reduction due to the fact that oil prices are high but how do you deal with the fact that energy is so volatile? You think about a $30 swing, boy that'''s a heck of a lot of difference.[21] UAL's announcement of ticket price hikes comes a day after oil prices reached $114 per barrel for the first time.[28]

For several years, the substantial progress we have made in turning our company around has been obscured by record high fuel prices (and unfortunately, the definition of "record high prices" seems to change nearly every quarter). [23] Domestic and international passenger capacity will be cut throughout the year, but the decreases will be most noticeable during the fourth quarter, Arpey said. During this period mainline domestic capacity is expected to decline by 4.6 percent from fourth quarter 2007 levels.[5] Most of the cuts will come in the fourth quarter, when domestic capacity will decline 4.6 percent, suggesting that year-end holiday flights on American will fill quickly.[2]

American planes flew on average 79.1 percent full in the first quarter, a record level.[1] Filling seats wasn't a problem — average occupancy hit a record 79.1 percent in the first quarter, up 1 percentage point from a year earlier.[4] To say 2008 is off to a challenging start would be a serious understatement. As you know, we have faced a litany of financial and operational challenges so far this year, and the magnitude of those challenges is reflected in the first quarter result we announced this morning.[23] As I did last week, I want to thank you for doing your best under very trying circumstances. Our first quarter challenges, both financial and operational, have clearly followed us into the second quarter, and we need to prepare ourselves for the reality that 2008 is going to be a very challenging year.[23]

Filling seats wasn't a problem - average occupancy hit a record 79.1 per cent in the first quarter, up one percentage point from a year earlier.[27]

Mainline capacity, or total available seat miles, in the first quarter decreased by 1.5 percent compared to the same period in 2007.[30] Unit revenue improvements were particularly strong in Dallas, Chicago and St. Louis. On the international front we saw solid unit revenue growth in the first quarter versus 2007 on both yield and load factor improvement.[21] I'''ll point out that the first quarter was helped by the timing of the Easter holiday. That said, our first quarter main line unit revenue increased by 6.5% year-over-year on record low factors and improved yield while unit revenue for our consolidated system was up 6.7%.[21]

What we'''re seeing is our Trans Atlantic revenue for ASM in the first quarter was actually down slightly. The rest of Europe was up pretty significantly so the net of those two leaves to the number I reported to you earlier.[21]

American said weather and maintenance-related cancellations cut revenue by $75 million to $80 million. [40] As we think about breaking that out loss revenue is in the neighborhood of $75 million.[21]

A long-awaited agreement between the two will create the world's largest carrier. It will require regulatory and shareholder approval, and would produce a company with annual revenue exceeding $35 billion.[40] Total revenues at the carrier were up about 5 percent, to $5.7 billion.[6]

Moving to cash forecasts, our scheduled principal payment from debt and capital leases are expected to equal about $1 billion for the full year. [21] We expect capital expenditures of almost $1.2 billion in 2008. This includes over $600 million in pre-delivery payments associated with 737s.[21] About TPG Capital TPG Capital is the global buyout group of TPG, a leading private investment firm founded in 1992 with more than $50 billion of assets under management and offices in San Francisco, London, Hong Kong, New York, Minneapolis, Fort Worth, Melbourne, Menlo Park, Moscow, Mumbai, Beijing, Shanghai, Singapore and Tokyo.[36]

There is another East Texas-based backer of Lighthouse Holdings, the official buyer in the roughly $480 million move. That other buyer is a Dallas and Nashville-based private equity firm founded in 1998 called Pharos Capital Group.[37] AMR will receive about $480 million and will retain a 10% stake in the business.[40]

On the pension front, we contributed $25 million to our defined benefit pension plans during the quarter and we contributed another $50 million yesterday.[21] Consolidated consumption for the second quarter is estimated at $771 million gallons.[21] Consolidated consumption for the second quarter is expected to be 771 million gallons of jet fuel.[30]

Mainline and Consolidated Unit Costs For the second quarter of 2008, mainline unit costs are expected to increase 17.7 percent compared to the second quarter of 2007, while second quarter consolidated unit costs are expected to increase 17.0 percent compared to the second quarter of 2007.[30] For the second quarter we anticipate overall unit costs to increase 17.7% year-over-year for main line and 17% for consolidated.[21]

We'''re also experiencing costs headwinds on a variety of fronts during the quarter. These included higher material and repair costs, added distribution costs associated with the increase in passenger revenue and higher depreciation expense as a result of our fleet replacement strategy.[21] We'''ve also standardized the 777 fleet around our flagship fleet and the next generation business class seat will be on the entire 777 fleet by midyear. We shifted both of our DFW to London flights from Gatwick to Heathrow and we look forward to starting service from JFK to Barcelona and Milan as well as Chicago to Moscow in the coming months. Latin America continued its positive performance in the quarter as unit revenue increased year-over-year despite an increasingly competitive environment in some markets.[21] Interesting how the flight attendants, pilots and other groups are asking for the board to refuse their bonuses due to the poor performance of the airline. Hey, if that is the case, how about the flight attendants who are: rude to Executive Platinums, scold innocent children for crying and demanding the poor passenger who has the nerve to move to the last row of seats to relax (which, by the way, are blocked as a COURTESY, not an APFA contract right),they have their pay reduced for providing shoddy service? The loss of future revenue due to the poor customer service they provide needs to be addressed via the FA's pay.[33]

Average fares paid rose 5.1 percent, as airlines raised ticket prices. Executives said they were concerned about the weakening economy and even more worried about paying their fuel bills.[3] Previously, the airline had planned to add 23 Boeing 737 planes next year. Total passenger capacity will be cut 1.4 percent this year, with a 3.6 percent reduction in domestic capacity while international capacity will increase by 2.5 percent.[6] For comparison, in previous capacity guidance from February 2008 AMR said that it expected mainline capacity for the full year 2008 to increase 0.2 percent from 2007, with a 1.1 percent reduction in domestic capacity and a 2.5 percent increase in international capacity, and it expected consolidated capacity to be flat compared to 2007.[30]

For the full year, we expect American's capacity to be down approximately 1.5 percent, with the domestic schedule down by approximately 3.5 percent and our international capacity up by 2.5 percent.[23] American will reduce mainline capacity by 1.4% during 2008, reflecting a 3.6% domestic reduction and a 2.5% international increase. Consolidated capacity will drop by 1.5% this year.[40]

Arpey said American would benefit from the Delta and Northwest deal in the sense that wage increases at the combined carrier would bring labor costs closer to what American pays.[40] American alone had to cancel more than 3,000 flights in early April at a cost it estimates will be in the "high tens of millions of dollars" when it reports second-quarter results in June, the carrier said.[39] The nation's largest carrier said the final tally would probably be in the "high tens of millions of dollars" but it wouldn't know the exact cost until it had calculated the additional expense of reimbursing stranded passengers. Those costs could be offset somewhat by savings from not having had to fly the planes, the airline said.[12]

The move comes as airline companies struggle with high fuel costs. They have been raising fares and considering selling assets, such as frequent-flier programs.[25] To counter rising fuel costs, the company said it expects to take delivery of a total of 34 737-800 aircraft in 2009 and 36 737s in 2010.[32] The Boeing uses less jet fuel than the MD-80, which Arpey said could lower fuel costs in the future.[5] If fuel costs continue to rise and the recession cuts revenue, it will be hard.[22]

Fuel has zoomed past labor as AMR's biggest single cost, accounting for 35 percent of first-quarter spending.[4] Fuel has zoomed past labour as AMR's biggest single cost, accounting for 35 per cent of first-quarter spending.[27]

On the expense side, cost per available seat mile, excluding fuel, rose by 3.3%.[40]

The results from AMR Corp., which earned a modest profit in each of the last two years, portend a turbulent year ahead for the airline industry. [3] On a conference call with analysts, Arpey tried to knock down any notion that American must remain the biggest. He said the airline was well-equipped with the industry's biggest frequent-flier program and strength in many markets including Dallas, Chicago, Miami and trans-Atlantic routes. "We believe we will remain competitive irrespective of any consolidation that occurs," he said.[3] WHAT'S AHEAD: Investors and analysts are awaiting a possible announcement of a deal from Delta Air Lines Inc. and Northwest Airlines Corp., which media reports suggest may be imminent. A combination would dramatically reshape the industry, knocking American from its coveted No. 1 perch and possibly setting in motion a chain reaction of airline consolidation that could put American in play.[13] If it doesn't, American risks falling from the top position in the industry to second, or possibly third if a rumored United Airlines deal with Continental Airlines comes to pass.[2]

American's bankers re-started the sale process late last year, and Pharos brought TPG in as a partner. "Given their expertise in the financial-services area and their depth of relationships in the airline business," it made sense to partner with TPG on the deal, said Youngblood in an interview with the Deal Journal.[35] Delta Air Lines Inc. and Northwest Airlines Corp. announced a deal Monday to leapfrog American as the biggest carrier in the U.S. And sources said UAL Corp's United Airlines and Continental Airlines Inc. have discussed a combination that would be even bigger than Delta-Northwest.[27] Speaking from American'''s perspective I think there will be an appropriate time to cross that bridge. If you look at what'''s actually happened since the Open Skies agreement the U.S. and carriers alone have found 16 slot pairs to operate U.S. London service in that critical Trans Atlantic window and that'''s equivalent to American'''s operation so there'''s no shortage of slots if you'''re willing to go out and trade for them and that'''s what has happened.[21] American "may or may not'' take part in consolidation among U.S. carriers, Arpey said.[8]

AA plans to "accelerate" replacement of MD-80s with more fuel efficient 737-800s and "plans" to take delivery of 34 in 2009 and 36 in 2010. Arpey said he's not concerned about AA losing its status as the world's largest airline owing to mergers ( ATWOnline, April 16). "Size is not the issue," he said.[14] In a teleconference with analysts, Arpey said the airline didn't need to take part in a big merger to stay competitive.[12]

During a conference call with analysts Wednesday, Arpey said, "We may or may not participate in industry consolidation." Operating a strong route network is more important than being the largest carrier, he said.[11]

"To say 2008 is off to a challenging start would be a serious understatement," Chief Executive Gerard Arpey said in an internal memo to employees Wednesday. "Our first-quarter challenges, both financial and operational, have clearly followed us into the second quarter."[12] I think Tom said we got 32% in the second quarter somewhere in the $70 range.[21] Over the past quarter century, the second quarter has been AMR's most profitable, ahead of the third quarter.[7]

AMR Corp. has agreed to sell American Beacon Advisors Inc., its asset-management subsidiary, to Lighthouse Holdings Inc.[38] About American Beacon Advisors, Inc. American Beacon Advisors, Inc. is an experienced provider of investment advisory services to institutional and retail markets.[36]

American Beacon was always an odd fit for American; most airlines have junk credit ratings, while financial-services ventures typically call for triple-A ratings, signaling the highest credit quality.[35] The last point I'''d make is our sale of American Beacon which we announced earlier today was really all about creating value for our shareholders, something we'''ve been working on for some time. It does have the benefit of adding to the liquidity cushion that I just referred to.[21] American Beacon Advisors serves defined benefit plans, defined contribution plans, foundations, endowments, corporations and other institutional investors.[36]

American also introduced enhancements that allow travelers to book flights, view fare specials, request upgrades, enroll in the AAdvantage(R) program, purchase Admirals Club(R) one-day passes, and change flights for many domestic reservations via the mobile site. -- Employees at American's Kansas City maintenance base completed the first aircraft installation of the Aircell(R) Internet broadband connectivity solution. In 2008, American plans to install and test the technology on all 15 of its Boeing 767-200 aircraft that primarily fly transcontinental routes.[30] As all of you unfortunately know we had about 450 cancellations during the quarter due to the first round of inspections of wiring bundles on our MD80s that added to our under fly. Last week we had about 3,000 cancellations relating to precise compliance with this airworthiness directive. Because we believe this week that no safety of flight issue was involved we applied for an alternative means of compliance with the FAA that would have avoided the grounding but we were not successful. And, as I mentioned last week in two press conferences we continue to work in good faith with the FAA to demonstrate our ongoing commitment to ensure full technical compliance to their directive. I'''d like to once again thank our customers for their patience and their employees for their perseverance and their dedication to our customers during some very difficult times.[21] Wow-I can't wait to see if the mgmt. team at AA takes their bonuses. How can any mgmt. team, in their right mind, take a bonus knowing full well their whole workforce is going to break out in a riot over it? Does this mgmt. team really deserve any bonus based on last weeks performance alone? What a show to the public on how to run a company! Just cancel all those flights, put all those people in a bad situation with no warning, apologize and take your millions. If anyone deserves a bonus, it's those agents and ticket counter staff that had to face the many faces of unhappy travelers and have nothing to offer except "I'm sorry." Those poor employees, what a shame. Welcome to the real world people, did you notice the CASM rose over 15%? WOW Is now the time for a big raise or pay restoration? I think not, regardless of what you believe you are worth the market DICTATES otherwise, EVERYONE chooses what they will accept, if you do not care for the wages/benefits you recieve take your so called skills elsewhere.[35]

I'''m not sure that'''s in the interest of our shareholders but that'''s something we would certainly have as an option as does every company. That market is vibrant. As you probably know, we have the ability under our current convert to satisfy those either with cash or with stock or to do a replacement financing so those are all alternatives we'''ll be considering this year. Do you have a number for unencumbered assets? That'''s my last question.[21] We stack up pretty well versus virtually all of our legacy competitors whether you'''re looking at absolute cash balances or cash as a percent of revenues and we'''ve been working very hard to strengthen the balance sheet considerably over the last couple of years.[21] What we'''re seeing in the UK in particular is year revenue performance that'''s been driven by load factor declines in the premium cabins and I think that'''s to be expected given more capacity.[21] I think we have to acknowledge that yes, it'''s very volatile and makes it difficult to do long range planning and we have to plan in a disruptive environment and do the best that we can. That'''s what we'''re trying to do is continue to look at our capacity real time, look at everything we'''re doing on the revenue side and try to do everything we can to mitigate this.[21]

During the quarter, mainline revenue per available seat mile rose by 6.5%, as capacity fell by 1.5%, largely as a result of cancellations and early retirements by pilots.[40] Pacific revenue performance was strong with significant yield improvements and load factors that were flat versus last year on a 2.5% capacity decline.[21] We saw significant unit revenue improvements in the Pacific and Latin entities with the Atlantic entity about flat versus last year.[21]

In particular we experienced very strong unit revenue growth on our Central and South American routes as well as routes in to Mexico.[21]

American receives hundreds of millions of dollars a year from selling AAdvantage miles to credit card companies, hotels and rental car firms, with more than 1,000 outside participants. [26] Looking ahead, for the April quarter, American had a loss "in the high tens of millions" associated with the cancellation of more than 3,000 flights for maintenance checks, Horton said.[40] American, American Eagle and the AmericanConnection airlines serve more than 250 cities in more than 40 countries and territories with more than 4,000 daily flights.[36] American Airline pilots are NOT asking for a "big pay raise"! We are simply asking for RESTORATION of our 9/11 pay cuts.[35] Despite our many challenges, we remain firmly in control of our destiny - and I'm confident we will continue to build toward the bright future we want for ourselves and for American Airlines.[23]

Hundreds of American pilots demonstrated at airports and the headquarters of major corporate customers, complaining that the airline's service standards have fallen.[6] American's plight is complicated by the possibility it could be left out as other U.S. airlines get bigger through combinations.[4]

Carriers are being squeezed by high fuel prices, a slowing U.S. economy that could cut into travel, and unhappy customers who are tired of late-arriving flights and lost luggage.[3] While it makes sense in light of our current fuel prices to accelerate our fleet replacement strategy we have put in place additional restrictions around our non-aircraft capital expenditures. Many of the projects associated with our January guidance are either continuing due to operational necessity or have already progressed to a point where it will be costly to discontinue them. For this reason, these hurdles will only minimally affect our current 2008 outlays but we expect reductions in capital expenditures for projects commencing in 2009 and beyond.[21] We'''ve announced our intent to accelerate 14 more 737 800 aircraft. We now expect to have 34 deliveries of these aircraft in 2009 and 36 deliveries in 2010. In light of what our fuel prices are and the fuel efficiency of the MD80 versus the 737 it makes good sense to accelerate this process.[21]

The earnings release contains reconciliation of any non-GAAP financial measurements that we may discuss. This release along with the webcast of today'''s call is available on the investor relations section of www.AA.com. These matters are subject to a number of factors that could cause actual results to differ from our expectations. These factors include changes in economic, business and financial conditions, high fuel prices and other factors referred to in our SEC filing including our 2007 annual report on Form 10K.[21] Well, maybe I come at it this way and say based on where we sit today we are nowhere near recovering our extraordinary increase in fuel price.[21] To summarize our outlook, high fuel prices are a very serious concern for the foreseeable future and uncertainties around the broader economy are top of mind.[21]

After the MD80 debacle and the crazy price of fuel, we employees also have a responsibility to help management keep this airline up and running.[33]

Founded in 1992, TPG has been involved in deals a number of deals -- involving Burger King, Continental Airlines and SunGard, among others -- and most recently it announced a deal to buy $2 billion in equity securities from the beleaguered Washington Mutual.[37] Delta Air Lines Inc. yesterday said it would acquire Northwest Airlines Corp. in a stock swap valued at $3.63 billion.[8]

New York City, NY (AHN) - United Airlines raised on Wednesday its air fare by $10 to $20 for a roundtrip ticket.[28] I think we'''re very competitive in Chicago, LA and New York. All those locations have international service around the world to Asia and elsewhere and I think our One World Partnership represents a collection of the best global airlines and brands in the world.[21] You have shown your support and unity by sporting tags imprinted with the word, DECLINE on one side and RESIGN on the other side. Today, we have learned that these five corporate officers - Gerard Arpey, Tom Horton, Dan Garton, Robert Reding and Gary Kennedy - will not decline their bonuses. By taking these bonuses they have broken their promise, destroyed their credibility and lost their ability to effectively lead this airline. Today, I ask all our 19,000 Flight Attendants to turn their tags over to the side that says RESIGN.[33]

During the call Gerard Arpey will provide an overview of our performance and outlook and then Tom Horton will provide the details regarding our earnings for the first quarter along with some perspective on the remainder of 2008.[21] Before I move to the numbers, let me first point out that we'''ve reclassified the marketing component of the sales of Advantage Miles from passenger revenue in to other revenue. We'''ve outlined this change in our earnings release for the current quarter as well as the aggregate impact for the second, third and fourth quarters of 2007.[21]

Our earnings release earlier today contained highlights of our financial results for the quarter. This release continued to provide additional information regarding any performance and costs guidance which should assist you in having accurate information about our performance and outlook.[21] "While our first-quarter financial results were disappointing, through our hard work in recent years to contain costs and strengthen our balance sheet and liquidity we are better positioned to withstand today's uncertainty," he said.[7]

Previously, the airline had forecast a slight increase in overall passenger capacity for the year. [6] We now expect full year main line capacity to be down 1.4% driven by a 3.6% decrease in domestic and a 2.5% increase in international.[21] On a consolidated basis we expect full year capacity to decrease by 1.5%. These decreases are driven primarily by a four quarter pull down of almost 5% of domestic mainline capacity.[21] For the full year, we now expect regional affiliate capacity to decline by 2.1% year-over-year with the majority of the decrease coming in the fourth quarter.[21]

In the second quarter we expect mainline capacity to decrease 1.4% year-over-year with domestic down 3% and international up 1.4%.[21]

On a consolidated basis, AMR expects full-year capacity to decrease by 1.5 percent in 2008 compared to 2007.[30] AMR now expects to take delivery on 27 Boeing 737's next year, up from 23 planned earlier, and it has an agreement with Boeing that it can add seven more deliveries if it wishes.[11] Our customers are without pillows or food, a dependable flight schedule, and on-time departures. AMR shareholders have lost 75% of their stock value in just one year.[33]

Non-core assets (AMR Eagle and the Beacon Investment Advisors unit) could be monetized to shore up cash before liquidity reaches distressed levels.[16] Significantly, however, AMR's large cash balances and unencumbered asset holdings provide considerable room to maneuver in response to a prolonged industry downturn.[16]

Ray Neidl, an analyst with Calyon Securities, said AMR could still make a bid for Northwest — seeking to upend the Delta-Northwest deal. Otherwise, he said, AMR might pick up gates and other assets cast off by the combining airlines.[3] AMR shares jumped following the release, as the bottom line came in slightly better than analysts had expected and investors digested the new measures.[11]

For now, American parent AMR AMR operates the world's biggest carrier. That might not remain the case if the proposed merger of Delta DAL and Northwest NWA, announced Monday, goes through.[40] The earnings come during a turbulent period for American. Last week, the carrier was forced to cancel more than 3,300 flights when the Federal Aviation Administration grounded its fleet of 300 MD-80s for inspections.[6] The Association of Professional Flight Attendants, the union that represents American's attendants, also called for the resignation of the carrier's top five executives Wednesday afternoon.[6]

The stock bonuses, worth about $38 million, will be shared among about 900 top executives and managers, according to a union estimate.[6] Operating loss was $187 million, reversed from a $248 million profit in the year-ago period.[14]

The Forth Worth, Texas-based firm now claims over $30 billion under management.[37]

The biggest decrease will take place in the fourth quarter, when we will operate a domestic schedule about 4.5 percent smaller than last year's. [23] With that said, second quarter booked load factor is seven tenths of a point lower than last year with international holding flat and domestic off by a little over a point.[21]

There are 258 days left in the year. JC. Penney Co., the third largest U.S. department store chain, said it will open fewer new stores this year than originally planned and it will increase. [15] By comparison, American had planned a 2008 mainline capacity increase of 0.2% after a 1.1% domestic decline. It had expected consolidated capacity to be flat and for regional capacity to fall by 0.6%.[40] Regional capacity is now slated to decline by 2.1%. American will also accelerate the replacement of its aging MD-80 fleet with Boeing 737-800s, taking delivery of 34 in 2009 and 36 in 2010.[40] The chief executive officer, Gerard Arpey, said winning travelers' confidence again "will not be easy" after the cancellations linked to the MD-80s, which account for 46% of American's fleet.[44] Arpey also said American will expedite the process of replacing the MD-80 fleet ' the planes that were pulled in the last two weeks for maintenance required by the Federal Aviation Administration.[5]

American will take delivery of 30 new Boeings in 2009 and 2010 instead of the previously planned 23. Arpey said there was no link, but the MD-80s were the planes grounded twice to make sure they complied with federal safety regulations on electrical wiring.[3] American is working with Boeing to boost the number to 34 deliveries in 2009 and 36 in 2010, Arpey said.[8]

Arpey also reiterated AMR's commitment to continue to work with the FAA to demonstrate the Company's ongoing commitment to safety and compliance with FAA's directives. [41] AMR expects to take delivery of 34 Boeing 737-800 aircraft in 2009 and 36 Boeing 737s in 2010. Of these, the company has firm commitments in place for 27 Boeing 737s to be delivered in 2009 and three 737s to be delivered in 2010.[17]

The accelerated plans contrast with AMR's fleet renewal update in January, when it said that it had firm commitments to take delivery of 23 737s in 2009.[32]

JetBlue issued a "Customer Bill of Rights," gave out free tickets, and was so abjectly apologetic that most passengers ended up mollified. AMR's leadership seems convinced that passengers will blame its recent cancellation of thousands of flights on the FAA. That government agency apparently refused to give AMR extra time to fix some improperly wrapped wiring bundles; normally, it seems, failures to comply with such requirements are treated more leniently.[42]

As you know, the slowing of our financial momentum has been aggravated by a series of operational challenges, including some significant weather events and, most dramatically, the widespread flight cancellations stemming from the temporary grounding of our MD-80 fleet. The chaos of last week has taken a toll on our company, our customers, and our coworkers - especially those of you on the front lines of customer service.[23]

A press release outlining the American Beacon announcement is available in the Press Releases section at http://www.aa.com. [18] If that happens, American "will be left in the weakest position of the network carriers," said Philip Baggaley, an analyst with Standard & Poor's. "They're No. 3 then — a significant No. 3, but not as strong a route network as either one" of the new combinations.[4]

If additional cuts in domestic capacity are made, however, pressure on unit operating costs will increase. [16] Full-year mainline unit costs excluding special items are expected to increase 15.0 percent in 2008 compared to 2007, while full-year consolidated unit costs excluding special items are expected to increase 14.7 percent in 2008 compared to 2007.[30]

We'''ve got a long way to go and I don'''t know capacity is entirely the answer but we'''ve got a long way to go to get our prices to the point where we'''re recovering our costs and of course every business has got to do that. [21]

We have been very conservative in managing our capacity for the past several years and I believe our growth has been very disciplined relative to some in the industry.[21] What it means is the revenue and expense equation is broken and we need to go about trying to fix that and that'''s going to be everything we talked about today but it may very well mean for the industry a smaller industry, less capacity flying around.[21]

Given that the 737 800 is about 25% more fuel efficient than the MD 80 and in light of high fuel prices, it makes sense to accelerate the replacement of our MD 80s. [21]

SOURCES

1. American Airlines' parent company posts $328 million loss in first quarter -- South Florida Sun-Sentinel.com
2. American Airlines parent cites fuel costs in $328 million loss -- South Florida Sun-Sentinel.com
3. The Associated Press: American Airlines parent AMR posts 1Q loss on fuel costs
4. The Associated Press: American Airlines parent AMR posts 1Q loss on fuel costs
5. AMR announces 1Q earnings - Fort Worth Business Press
6. Star-Telegram.com: | 04/16/2008 | American Airlines parent AMR loses $328 million
7. American Airlines parent AMR loses $328 million, blames rising fuel prices | Dallas Morning News | News for Dallas, Texas | Latest News
8. Bloomberg.com: U.S.
9. AMR Corp. swings to first-quarter loss of $1.32 a share - MarketWatch
10. AMR Corp Swings To 1Q Loss Of $328 Million On High Fuel Costs
11. 3rd UPDATE:AMR Posts Loss; To Sell Invest Unit, Trim Capacity
12. AMR takes a hit from plane safety checks - Los Angeles Times
13. Earnings Preview: AMR Corp. 4Q Loss Seen | Chron.com - Houston Chronicle
14. ATW: American posts $328 million first-quarter loss, offers dim full-year outlook
15. AMR Corp Posts 1Q Loss on High Fuel Costs - International Business Times -
16. Fitch Affirms AMR and American Airlines at 'B-'; Outlook to Stable
17. UPDATE: AMR Swings To Loss, With Fuel Prices Up 48% Over Last Year
18. SunHerald.com : AMR Corporation Reports a First Quarter 2008 Net Loss of $328 Million as Record Fuel Prices Drove $665 Million in Added Cost Compared to a Year Ago
19. AMR swings to 1Q loss on 5% rise in revenue; to cut 2008 capacity
20. The Associated Press: American Airlines parent AMR posts 1Q loss on fuel costs
21. AMR Corporation Q1 2008 Earnings Call Transcript - Seeking Alpha
22. 24/7 Wall St.: AMR (AMR) Posts $325 Million Loss, Can It Stay Independent?
23. AIRLINE BIZ Blog | The Dallas Morning News
24. AMR agrees to sell American Beacon Advisors to Lighthouse for $480M
25. American Airlines' parent AMR to sell investment arm | Chron.com - Houston Chronicle
26. AMR to sell 90% of American Beacon unit for $480M | Dallas Morning News | News for Dallas, Texas | Dallas Business News
27. The Canadian Press: American Airlines parent AMR posts Q1 loss on high fuel costs
28. United Airlines Hikes Air Fare, American Airlines Logs $328 Million Quarterly Loss | April 17, 2008 | AHN
29. AMR can compete whether it merges or not, CEO says | Reuters
30. AMR Corporation Reports a First Quarter 2008 Net Loss of $328 Million as Record Fuel Prices Drove $665 Million in Added Cost Compared to a Year Ago
31. Rising fuel costs cause financial woes for AMR | Latest News | WFAA.com
32. American Airlines to speed up 737 purchases - Puget Sound Business Journal (Seattle):
33. AIRLINE BIZ Blog | The Dallas Morning News
34. CEO Arpey says American Airlines will do just fine even on its own | Dallas Morning News | News for Dallas, Texas | Dallas Business News
35. Deal Journal - WSJ.com : American Airlines: Preparing for a Sale?
36. AMR Corporation Announces Agreement to Sell American Beacon Advisors, Inc. to Lighthouse Holdings, Inc., an Affiliate of Pharos Capital Group, LLC and TPG Capital
37. The MFWire.com - Your Insiders' Edge
38. Lighthouse to buy American Beacon - InvestmentNews
39. Free Preview - WSJ.com
40. AMR Has Loss, Plans Unit Sale | Transportation | AMR DAL NWA - TheStreet.com
41. AviationNews.net
42. American's Unfriendly Skies - April 15, 2008 - The New York Sun
43. American parent loses $328 million in 1st quarter
44. American Returns To Regular Air Schedule - April 14, 2008 - The New York Sun

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