moman
Posts: 708
Joined: Tue Aug 10, 2004 7:17 am

AMR Raises $503 Million With Share Issue; Stock Pl

Wed Jan 24, 2007 1:37 pm

AMR Corp., parent of No. 1 U.S. carrier American Airlines, said it will raise about $503.1 million from a new share issue, shoring up its balance sheet while diluting earnings.

The resulting dilution to earnings sent AMR shares, which hit their highest level in six years last week, tumbling.

AMR will issue 13 million new shares -- about 5% of its diluted share count at the end of 2006 -- at a price of $38.70 a share. The issue could grow by 1.95 million new shares, if underwriters need to cover overallotments.

"The main reason we have had a hold rating on these shares has been our concern that American would issue equity when it had the chance to do so to help repair its balance sheet," said Helane Becker, an analyst with Benchmark Co.

....

But the world's largest airline, which last week said it plans to reduce capacity by 1% in 2007, also faces pressure to replace its inefficient MD-80s.

"It's a competitive disadvantage, but oil has dropped and that's taken a little bit of the pressure off," said Jim Corridore, an equities analyst with Standard & Poor's. "But they do need to address that sooner rather than later."

American has 300 MD-80s, or close to half of its fleet of 672 aircraft.

The airline has a special relationship with Boeing, as its largest customer historically, and could quickly gain access to new planes.

Remainder of story here: http://www.cnbc.com/id/16770642

COMMENTS:

Does anyone get tired of hearing how inefficient the MD-80s are compared to newer aircraft?

How much does AA owe on the MD-80s. I cannot imagine that the savings reaped by increased efficiency with new 737-800s will outweigh the additional payments and aircraft costs. For my masters thesis, I am going to do a paper on AA replacing their MD80s with 737s.
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DfwRevolution
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RE: AMR Raises $503 Million With Share Issue; Stock Pl

Wed Jan 24, 2007 1:49 pm

Quoting MoMan (Thread starter):
How much does AA owe on the MD-80s. I cannot imagine that the savings reaped by increased efficiency with new 737-800s will outweigh the additional payments and aircraft costs

If that were true, it would never make sense to exercise fleet replacement. Save for a handful of examples, newer generation aircraft will always justify their acquisition cost.

This is true with the MD-80 and 737NG, the -800 offers significantly better performance and economics than the MD-80. Fleets around the world are replacing previous generation MD-80 with 737NG and A320.

Prior to the 9/11 industry down-turn, AA planed to replace the vast majority of the MD-80 fleet with 737NG types. Ask yourself this: if AA had the money these past years, do you really think they wouldn't have continued with MD-80 replacement?

At this point however, AA should be considering how long the 737NG itself will remain the most efficient product on the market. Aircraft are very long-term investments, and it would suck to take delivery of 100 737-800 between 2010-2012 only for Boeing to replace the 737NG with an even more economical aircraft in 2015-2016. Therefore, I doubt AA will ever replace the entire MD-80 fleet with 737NG.
 
commavia
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Joined: Mon Apr 25, 2005 2:30 am

RE: AMR Raises $503 Million With Share Issue; Stock Pl

Wed Jan 24, 2007 1:52 pm

Quoting MoMan (Thread starter):
How much does AA owe on the MD-80s.

Basically nothing. The planes are pretty much all owned outright, except for some of the ex-TWA aircraft that are leased and some of the MD80 fleet that was mortgaged following 9/11.

Quoting MoMan (Thread starter):
I cannot imagine that the savings reaped by increased efficiency with new 737-800s will outweigh the additional payments and aircraft costs. For my masters thesis, I am going to do a paper on AA replacing their MD80s with 737s.

In the short-run, the economic trade-offs may be debatable. However, in the long-run, the costs of replacing the MD80s with 737s will ultimately definitely outway continuing to operate the older, less efficient and more maintenance-intensive MD80s.

The MD80s not only require more fuel per pound carried, but also weigh more, use older and more training-intensive technology, require more hours of maintenance and more spare parts because of their age, and use much, much older engine technology in the JT8D (an albeit modified, but still nearly 40-year-old technology).

It's not a question of if that "tipping point" of keep vs. replace will be reached, but a matter of when.

As the analyst said, the recent drop in fuel prices and AMR's recent ability to get back into the hedging market and stablize its fuel planning have perhaps prolonged that "tipping point" beyond which continuing to operate the MD80s is economically most efficient, but it still hasn't eliminated the point somewhere off in the not-too-distant future.

In my personal opinion, AMR's most viable option (and the one I expect them to take) is to order about 75-125 737-800s to begin replacing the oldest, most maintenance-intensive, least efficient or least standard MD80 aircraft immediately. This would give AMR some breathing room to sit back and then wait 5-10 years to see what will happen with Boeing's new Y1 (787 technology at 737 size) concept. If that design is successful, AA could then proceed with replacing the remainder of their MD80 (and potentially entire narrowbody) fleet.
 
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fxramper
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RE: AMR Raises $503 Million With Share Issue; Stock Pl

Wed Jan 24, 2007 1:55 pm

Quoting Commavia (Reply 2):
order about 75-125 737-800s

It'll be about 75 with 772 and 787 this year.  airplane   yes 
 
moman
Posts: 708
Joined: Tue Aug 10, 2004 7:17 am

RE: AMR Raises $503 Million With Share Issue; Stock Pl

Wed Jan 24, 2007 2:01 pm

Quoting DfwRevolution (Reply 1):
At this point however, AA should be considering how long the 737NG itself will remain the most efficient product on the market. Aircraft are very long-term investments, and it would suck to take delivery of 100 737-800 between 2010-2012 only for Boeing to replace the 737NG with an even more economical aircraft in 2015-2016. Therefore, I doubt AA will ever replace the entire MD-80 fleet with 737NG.

My point exactly. The 737 is due to be replaced in the next 5-10 years so is it worth AA retiring the MD-80s at this time?

Quoting Commavia (Reply 2):
In my personal opinion, AMR's most viable option (and the one I expect them to take) is to order about 75-125 737-800s to begin replacing the oldest, most maintenance-intensive, least efficient or least standard MD80 aircraft immediately. This would give AMR some breathing room to sit back and then wait 5-10 years to see what will happen with Boeing's new Y1 (787 technology at 737 size) concept. If that design is successful, AA could then proceed with replacing the remainder of their MD80 (and potentially entire narrowbody) fleet.

Possibly AA could do a lease with Boeing allowing for return of the 738s when the Y1 is introduced.....but I believe what you've stated is quite likely to happen.
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HPAEAA
Posts: 882
Joined: Mon May 08, 2006 7:24 am

RE: AMR Raises $503 Million With Share Issue; Stock Pl

Wed Jan 24, 2007 2:09 pm

Quoting MoMan (Thread starter):
How much does AA owe on the MD-80s. I cannot imagine that the savings reaped by increased efficiency with new 737-800s will outweigh the additional payments and aircraft costs. For my masters thesis, I am going to do a paper on AA replacing their MD80s with 737s.

Could it be that they need some 739's in the short term to help cover some 752 routes? they are loosing some of the 752's this year and they also may want to send some more over the pond which would further increase the pressure for an a/c of that size... or as previously mentioned maybe they want a stop gap to cover the interum until the next 73 is developed... I'd love to see the 787 order however I fear that they are going to wait for their labor negotiations to finalize before that order...
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