AMR tightly managing liquidity as first-quarter revenue declines 15%

By Jennifer Lanning Drey

Portland, Ore., April 15 - AMR Corp. continued to closely manage its liquidity during the first quarter as benefits from declining fuel prices were outpaced by falling revenues, Gerard Arpey, chief executive officer of AMR, said Wednesday during the company's quarterly earnings conference call.

AMR, the parent of American Airlines, Inc., posted first-quarter revenue of $4.8 billion, representing a 15% year-over-year decrease, largely driven by reduced capacity, less passenger traffic and lower fares as well as lower cargo demand.

The company has begun to replace its narrowbody fleet with more fuel-efficient aircraft, and the company announced Wednesday that its has obtained financing commitments covering its new 737 deliveries into the fourth quarter of 2010.

Additionally, AMR said during the first quarter it continued efforts to improve its cash position through an aircraft-secured debt transaction that raised nearly $100 million.

At the end of the first quarter, AMR estimated it had at least $3.6 billion in unencumbered assets and other sources of liquidity, including aircraft, slots at Heathrow Airport in London, its regional affiliate American Eagle and the AAdvanage miles program, chief financial officer Tom Horton said during the call.

"With the damage done in 2008 by high fuel prices and given the uncertainties facing us in 2009, we are continuing to find opportunities to build our financial flexibility," Horton said.

$3.3 billion of cash

Including the new $100 million financing, AMR ended the first quarter with $3.3 billion of cash and short-term investments, including a restricted balance of $462 million. The figure compares with a balance of $4.9 billion in cash and short-term investments at the end of the first quarter of 2008.

The current-year cash balance included the impact of $343 million in collateral AMR had posted with fuel-hedging counterparties as well as approximately $750 million in principal payments on long-term debt and capital lease payments made during the first quarter.

In an effort to conserve cash, AMR has undergone a thorough review of its planned capital expenditures for 2009 and is reducing expected non-aircraft capital expenditures for the year by about $100 million. Full-year capital expenditures are now expected to be approximately $1.5 billion, Horton said.

AMR's cash forecast for 2009 also includes $1.8 billion of scheduled principal payments on long-term debt, of which the company has already repaid a significant portion in the first quarter, he said.

AMR's total debt was $14.4 billion at March 31, compared with $15.2 billion on the same date in 2008. Net debt was $11.5 billion at the end of the first quarter, compared with $10.7 billion at the end of the same period in 2007.

Tough climate continues

AMR continues to see a challenging revenue environment as it moves through the second quarter, Horton said.

"There's a lot of uncertainty around where 2009 will take us. The near-term revenue environment and tightness in the capital markets present significant hurdles, but we continue to take steps to better position American to weather these challenges," he said.

AMR reported a net loss of $375 million for the first quarter, compared with a net loss of $341 million for the same period in 2008.

"I think our results remind us that while we can be optimistic or hopeful about the future, we've got to continue to anticipate a tough environment," Arpey said.

AMR is a passenger airline based in Fort Worth.

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