American Airlines Funding Boosted
DALLAS (
) -- American Airlines parent
AMR
(AMR)
said Thursday it has moved to strengthen both its balance sheet and its hubs.
Wall Street applauded the moves, pushing up shares of the second largest carrier about 18%. At midday, shares were trading at $8.70, up $1.35.
American said it boosted financing by $2.9 billion, calling on two long-time partners,
Citigroup
(C) - Get Report
and
General Electric
(GE) - Get Report
. The effort "underscores that capital is available to companies with a strong franchise and a track record of credibility," said CFO Tom Horton, on a conference call.
New financing includes $1.3 billion in new cash, with $1 billion from the advance sale of frequent flier miles to Citi and $280 million under a loan facility from GE Capital Aviation Services. Another $1.6 billion results from sale-leaseback commitments from GECAS for Boeing 737s. American has selected GE engines for its future 787 deliveries; It has also financed all of its aircraft deliveries through 2011.
CEO Gerard Arpey reiterated a point he makes repeatedly, saying "It should matter that when you borrow money you pay it back, and we have a track record of doing that." Alone among the five major network carriers, American has never sought bankruptcy protection. At the same time, Arpey noted, "You can never borrow your way to success" and mapped out a route realignment that cuts back unprofitable routes.
Yet as American seeks to buttress its hubs, two questions overhang its international strategy, currently predicated on strong relationships with principal Oneworld alliance partners,
Japan Air Lines
and
British Airways
.
Financially troubled JAL is in talks with both American and
Delta
(DAL) - Get Report
, which would assuredly pull the carrier and its Tokyo Narita hub into its partner's alliance. Currently, JAL carries American passengers to Asian destinations beyond Tokyo.
"We have a deep, longstanding partnership with JAL today, producing hundreds of millions of dollars in value, and we are confident that continuing and expanding that relationship along with other Oneworld members will by a very wide margin represent the best path forward for JAL," Arpey said Thursday.
Referring to a potential link-up with Delta, which already operates a Narita hub as a result of its 2008 acquisition of Northwest, Arpey said: "We assume, of course, and we have every indication that JAL wants to remain a global airline and not be relegated to becoming a feeder carrier."
Arpey said he assumes U.S. regulators will approve the same level of antitrust immunity for American and British Airways that Delta and
United
(UAUA)
share with their major European partners.
In network changes that will take place early next year, American and American Eagle will reallocate resources to hubs in Dallas, Chicago, New York and Miami. As it happens, in the first three cities American and JAL both operate flights to Tokyo on which they code share, writing tickets on one another's flights.
American will add 57 daily flights in Chicago, increasing daily departures to 487. A Chicago-Beijing flight, scheduled to begin in 2009, but postponed due to the global slowdown, will start in the spring, 2010.
American will add six destinations at New York Kennedy, including Madrid; Manchester, England, and San Jose, Costa Rica. Daily departures will grow by seven to 96. American will add 19 Dallas departures, bringing the total to 780. It will add 23 Miami departures, bringing the total to 294.
Cuts are coming in St. Louis, where departures will fall from 46 to 36: in Raleigh Durham, where departures fall from 53 to 44, and in Boston, which will lose Columbus, Ohio, and San Diego service.
Also, American Eagle will enhance its fleet, adding first class service to 25 Bombardier CRJ700 regional jets and purchasing 22 additional CRJ700 aircraft, with deliveries starting in mid-2010.
-- Written by Ted Reed in Charlotte, N.C.
.
