American Airlines Considers Bankruptcy
Thursday March 27, 5:00 pm ET
By Kathy Fieweger
CHICAGO (Reuters) - American Airlines has stepped up talks to secure about $1.5 billion of financing for possible bankruptcy, and may file under Chapter 11 as early as next week, sources familiar with the matter said on Thursday.
The AMR Corp. (NYSE:AMR - News) unit is considering an early filing to preserve cash, which is dwindling due to lower bookings since the start of the Iraq war, the sources said.
"Bookings are terrible," a banking industry source said. "It's a liquidity imperative to file as soon as possible."
Another banking industry source said the airline had given itself until March 31 to reach deals with unions, lessors and other groups. "Timing-wise, that's not going to happen," said the source, who declined to be named.
The latest public figure on AMR's cash was $2.7 billion at the end of 2002, of which $775 million was restricted. Since then, bookings have softened.
Shares of AMR, which have lost 93 percent of their value since the Sept. 11, 2001, attacks, closed 18 percent lower on the news of the potential filing, dropping 40 cents on the New York Stock Exchange (News - Websites) to $1.79.
American spokesman Todd Burke said speculation on a bankruptcy filing has been rampant for weeks, adding the airline was doing everything possible to avoid such a move including face-to-face negotiations with unions.
A Chapter 11 filing would be the largest ever in global aviation history, topping that of rival United in December.
COSTS COMING DOWN
American, the world's biggest airline, also has been watching developments at No. 2 carrier UAL Corp.'s (NYSE:UAL - News) United Airlines closely as its court-mediated restructuring pressures competitors to match airfares and cost cuts.
If United were close to liquidating, American could possibly have held off, but that does not appear to be happening. "It's not like United's going to run out of cash next week," the second banking industry source said.
In fact, United and its pilots on Thursday announced a tentative agreement on a long-term concession package to be voted on by rank-and-file by April 11.
At the same time, the U.S. government is considering more aid to the airline industry, but details are unknown.
The sources said banks likely to be part of the AMR debtor-in-possession financing include Citibank (NYSE:C - News) as the lead, J.P. Morgan Chase (NYSE:JPM - News) and perhaps including CIT Group (NYSE:CIT - News) and General Electric (NYSE:GE - News) Capital.
WATCHING RIVALS
AMR, based in Fort Worth, Texas, is in around-the-clock discussions with unions to try to cut annual structural costs by $4 billion. That includes $1.8 billion savings from pay, benefit and work rule savings.
Its Allied Pilots Association said on Wednesday the board was likely to vote on a deal by the end of the month. But a potential snag came when the union said American asked to furlough an additional 1,000 pilots.
"It appears to us to be bad-faith negotiations," the union said in a statement on Wednesday. The APA represents about 13,500 pilots at American and has been asked to come up with $660 million in annual cost savings.
American on Thursday reiterated its position the furloughs were not new numbers and that the airline has not changed its stated goal of getting $1.8 billion in concessions.
APA spokesman Gregg Overman said a move to plan for an early bankruptcy filing was "a precautionary, contingency plan on the part of AMR based on the talks with the unions ... If the process ends there, apparently, there are alternatives in place." Another union, the Transport Workers Union, said labor groups and American were not close to agreements.
HOW MUCH IS ENOUGH?
Faced with that, the airline is questioning whether concession packages will be enough to position AMR for the long term, several sources familiar with the matter told Reuters.
American lost a record $3.5 billion in 2002. In its early probes for debtor-in-possession financing, the airline started out with requests for about $2 billion, just as United had, bankers said.
But with less attractive collateral than United Airlines offered, American's package is likely to be closer to $1.5 billion, they said, which is what United ended up securing.
Citibank, which has American's frequent flyer credit card business, was initially asked to put up $1 billion in debtor-in-possession financing, backed by the credit card assets, sources said. The card is the largest such "affinity" card in the business.
Link: biz.yahoo.com
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