AMR posts aviation's largest loss

  • Business
  • Friday, 24 Jan 2003

DALLAS: AMR Corp, the corporate parent of American Airlines, has posted the biggest yearly loss in aviation history. The world’s largest airline, battling a perception that it would have to follow some major rivals into bankruptcy, reported on Wednesday a loss of US$3.5bil for 2002, and warned that it must cut costs drastically to keep flying. 

Analysts and AMR executives said although AMR’s quarterly numbers actually showed improvement, the underlying trend indicated the company was operating at an unsustainable level – losing about US$5mil a day. 

“The company must stem that burn shortly; leveraging further to fund operating losses of this magnitude is not a long-term strategy,” Lehman Brothers airline analyst Gary Chase said in research notes.  

“American’s 4th quarter results were a touch better than our expectations; however, losses continue to accumulate at unsustainable levels,” he added. 

For the 4th quarter, AMR reported a loss of US$529mil, or $3.39 a share, compared with a loss of US$5.17 a share a year earlier, although revenue rose 10% to US$4.2bil. 

In a conference call, AMR chief financial officer Jeff Campbell said he resisted the idea that a bankruptcy at American was inevitable.  

“I very strongly resist the chain of thought that says it is inevitable now that US Air and United have gone into bankruptcy, that American must,” he said. 

Several major US airlines, including AMR, have hired bankruptcy lawyers in the face of an unprecedented industry downturn, according to sources familiar with the matter.  

These moves did not necessarily mean the airlines were preparing imminent bankruptcy filings, the sources said, but signalled that they were keeping their options open. 

Its chief executive Don Carty said a sluggish economy, high fuel costs and such uncertainties as the possibility of war in Iraq could continue to hurt AMR’s bottom line. 

Adding insult to injury, cross-town rival Southwest Airlines reported its 30th straight year of profit as AMR was posting its record loss. At a time when its bigger rivals are losing their shirts, Southwest recorded a 4th quarter profit of US$42.4mil and a full-year profit of US$241mil. 

Analysts said they were concerned about whether American could change its business model in order to be competitive with more efficient carriers such as Southwest.  

“AMR’s results once again demonstrate the incompatibility of its business plan with the proliferation of low fares,” said Jamie Baker, an airline analyst at JP Morgan. 

AMR said it lost about US$5mil a day in the fourth quarter and expected to have a similar rate of cash burn in the first quarter of this year. For the full year 2002, AMR reported a loss of US$2bil before special items. Including extraordinary items, the net loss was US$3.5bil, surpassing the previous record loss of US$2.1bil posted by United’s parent UAL Corp in 2001. – Reuters  

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