AMR reports $900 million fourth-quarter debt reduction, ends year with total debt of $15.6 billion

By Jennifer Lanning Drey

Portland, Ore., Jan. 16 - AMR Corp., the parent company of American Airlines, paid off $900 million of debt in the fourth quarter, bringing the company's total debt reduction for 2007 to $2.3 billion, Thomas Horton, AMR's chief financial officer, said Wednesday during the company's fourth-quarter earnings conference call.

Approximately $1 billion of the $2.3 billion debt reduction was prepayments.

AMR's total debt stood at $15.6 billion at the end of the 2007, while net debt was $11.0 billion, which represented a 19% reduction versus the same time in 2006. The company had $5.0 billion in cash and short-term investments at Dec. 31, which included a restricted balance of $428 million.

The 2007 debt reduction led to a $174 million drop in net interest for the year, Horton reported.

"I think over the past four or five years we've built a company that is much more capable of facing the difficult challenges our industry seems to perpetually face," Gerard Arpey, AMR's chief executive officer, said during the call.

AMR reported a net loss of $69 million for the fourth quarter, which company executives said was driven by record-high fuel costs experienced during the period. The company had posted a profit for each of the previous six quarters.

"We've made a lot of progress on many fronts but as is always the case in this industry, there are many challenges facing our airline. Our results for the fourth quarter are clearly a reminder of those challenges, notably fuel," Arpey said.

When later asked whether the high fuel prices and other negative economic conditions may cause AMR to be less aggressive toward prepaying debt in 2008, Horton said, "All I would say is we're glad we went out and did a lot of balance sheet repair when we did when the markets were strong, and I think the company's pretty well positioned to weather whatever '08 throws at us including strategic activity in the industry."

The company's scheduled principal payments from debt and capital leases are expected to total $750 million for full-year 2008.

Other challenges expected in 2008, in addition to continued high fuel costs, include intense competition and increased capacity in the industry, Horton said.

The CFO was unwilling to discuss AMR's possible role in any potential industry consolidation transactions but responded to a question on the topic with, "I think as to consolidation in general, our view is that given the industry's history of losses and the fragmented structure of the industry, we do think that consolidation has the potential to create efficiencies and expand product offerings and benefit the industry and consumers.

"We do think there's something to this but there are challenges to consolidation in the industry. That's why there are fewer actual deals than predicted deals."

AMR is a Fort Worth, Texas, airline operator.

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