Business Context and Reporting Period
Company: AMR Corporation (Parent of American Airlines, Inc.)
Filing Type: Form 8-K (Current Report)
Reporting Period: Fourth Quarter and Full Year ended December 31, 2009
Date of Filing: January 20, 2010
AMR Corporation reported its fourth quarter and full-year 2009 results. The company operated in a challenging environment characterized by the global economic downturn, reduced travel demand, and tight capital markets. Management highlighted efforts to bolster liquidity, maintain capacity discipline, and strengthen the global network.
Key Financial Metrics
Fourth Quarter 2009 Results
- Net Loss: $344 million ($1.03 per share), compared to a loss of $347 million ($1.24 per share) in Q4 2008.
- Adjusted Loss (Excluding Special Items/Tax): $415 million ($1.25 per share).
- Total Operating Revenues: $5.06 billion, a 7.4% decrease year-over-year.
- Operating Expenses: $5.45 billion, a 3.7% decrease year-over-year.
- Operating Loss: $390 million.
- Fuel Cost: $1.47 billion (19.3% decrease vs. prior year); effective price of $2.17 per gallon.
Full Year 2009 Results
- Net Loss: $1.47 billion ($4.99 per share), compared to a loss of $2.12 billion ($8.16 per share) in 2008.
- Adjusted Loss (Excluding Special Items/Tax): $1.36 billion ($4.63 per share).
- Total Operating Revenues: $19.92 billion, a 16.2% decrease year-over-year.
- Operating Expenses: $20.92 billion, an 18.5% decrease year-over-year.
- Operating Loss: $1.00 billion.
Liquidity and Debt
- Cash and Short-Term Investments: $4.9 billion (including $460 million restricted) as of Q4 2009, up from $3.6 billion in Q4 2008.
- Total Debt: $16.1 billion (up from $15.1 billion in Q4 2008).
- Net Debt: $11.7 billion (down from $12.0 billion in Q4 2008).
- Financing Activity: Closed approximately $5 billion in financing transactions in Q3 and Q4 2009 to bolster liquidity and refinance debt.
Material Changes vs. Prior Period
- Revenue Decline: Consolidated revenues fell 7.4% in Q4 and 16.2% for the full year, driven by reduced capacity and demand. However, "Other revenues" (baggage fees, upgrades, etc.) grew 6.8% in Q4 and 5.4% for the full year.
- Cost Management: Mainline unit costs (CASM) were essentially flat year-over-year in Q4, aided by lower fuel prices. Excluding fuel, unit costs increased 8.3% due to reduced capacity and higher pension expenses.
- Operational Efficiency: Mainline load factor reached a record 81.1% in Q4 2009, up from 78.3% in Q4 2008. Mainline capacity decreased 4.9% in Q4.
- Special Items: Q4 2009 included $177 million in non-cash special items (impairments of route/slot authorities, aircraft write-downs, and fleet retirement costs). Q4 2008 included a $103 million pension settlement charge.
Guidance, Outlook, and Risks
2010 Guidance
- Capacity: Full-year mainline capacity expected to increase 0.9% (Domestic -0.5%, International +3.2%). Q1 2010 mainline capacity expected to decrease 2.8%.
- Fuel Price: Planning for an average system price of $2.36/gallon in Q1 2010 and $2.42/gallon for full-year 2010.
- Fuel Hedging: 30% of Q1 2010 consumption hedged (avg cap $2.55); 24% of full-year 2010 consumption hedged (avg cap $2.48).
- Costs (CASM): Full-year 2010 mainline CASM (excluding fuel) expected to increase 1.4% vs. 2009. Consolidated CASM (excluding fuel) expected to increase 1.1%.
Management Commentary and Strategic Initiatives
- Antitrust Immunity: Expects U.S. regulatory approval for antitrust immunity with British Airways, Iberia, Finnair, and Royal Jordanian to launch a joint business relationship on North America-Europe flights.
- Network Expansion: Mexicana joined the one world Alliance in November 2009. New routes launched by American Eagle in the U.S. and Bahamas.
- Fleet Modernization: Continued delivery of Boeing 737-800s, which are 35% more fuel-efficient than the MD-80s they replace.
Risks and Contingencies
- Financial Condition: Materially weakened financial condition due to significant recent losses.
- Capital Markets: Need to raise substantial additional funds; ability to do so on acceptable terms is uncertain.
- Operational Risks: Volatile fuel prices, potential industry consolidation, labor costs, and regulatory changes.
- External Factors: Global economic downturn, disease outbreaks (e.g., H1N1), and geopolitical conflicts.
Investor Verification Checklist
- Verify the impact of the $177 million in non-cash special items on Q4 2009 net loss.
- Confirm the status of the $5 billion in financing transactions closed in late 2009 and their terms.
- Monitor the progress of the antitrust immunity application with one world alliance partners.
- Track actual fuel prices against the $2.42/gallon full-year 2010 guidance and the effectiveness of the hedging program.
- Assess the sustainability of the record 81.1% load factor in a recovering economy.
- Review the company's ability to meet debt covenants given the $16.1 billion total debt load.