AMR Posts $162 Million Loss on Fuel as Cost Squeeze Persists

American Airlines parent AMR Corp. (AMR), stung by bankruptcy speculation and the U.S. industry’s longest profit drought, reported a third-quarter loss of $162 million as jet-fuel prices soared.

Costs to fly each seat a mile, the company’s “immediate top priority,” will rise as much as 6.6 percent this quarter excluding spending on fuel and any new labor accords, Fort Worth, Texas-based AMR said today. It didn’t outline any fresh steps to trim spending.

A $4.8 billion cash balance “calms any immediate bankruptcy concerns,” Michael Derchin, a CRT Capital Group LLC analyst in Stamford, Connecticut, said in an interview. “But it certainly doesn’t alleviate the longer-term issues of the company needing to get its act together on both the cost and revenue side.”

The shares plunged 33 percent on Oct. 3 on concern that the owner of the third-largest U.S. airline could be forced into bankruptcy unless it can cut costs with new union contracts. AMR’s labor expenses as a percentage of sales are the highest among U.S. carriers, according to data compiled by Bloomberg.

The company’s cash and short-term investment total as of Sept. 30 slipped from $5 billion a year earlier. The total at the end of June was about $5.6 billion.

Quarterly Results

Last quarter’s loss of 48 cents a share compared with net income a year earlier of $143 million, or 39 cents, AMR said. That was wider than an average estimate of 43 cents among 12 analysts surveyed by Bloomberg.

AMR fell 7.4 percent, the most in two weeks, to $2.61 at 4:01 p.m. in New York trading, as other airlines also declined. The shares have tumbled 66 percent this year, the most among the 10 carriers in the Bloomberg U.S. Airlines Index. Derchin recommends holding the stock.

Today’s loss was the 14th in the past 16 quarters for AMR, which has registered annual losses since 2008. AMR is the first major U.S. airline company to report results for the quarter and the only one expected by analysts to have a loss.

“Achieving a competitive cost structure is the one area where, despite a lot of hard work, we have not completed the job,” Chief Executive Officer Gerard Arpey said in a message to employees today. “Whether we like it or not, there is simply no path to long-term success without competitive costs in every aspect of our business, including our labor costs.”

Sales, Fuel

Sales rose 9.1 percent to $6.38 billion. The results included costs of about $50 million, or 15 cents a share, from foreign exchange rates as the dollar strengthened and contracts relating to fuel purchases, AMR said.

Spending on fuel rose 40 percent to $2.26 billion, AMR’s biggest expense, as the average price paid per gallon climbed 41 percent from a year earlier, according to the company. Those costs damped gains from higher ticket prices that boosted the yield, or the average fare per mile flown, by 7 percent for American’s main jet operations.

Long-term debt, including capital leases, airport bonds and aircraft operating leases as of Sept. 30, was $16.9 billion, AMR said. That compared with $16.2 billion a year earlier.

Bargaining is set to resume today between American and the Allied Pilots Association, which represents pilots who fly the carrier’s mainline jets. The two sides took a break yesterday after making what American said was “significant progress” in discussions from Oct. 11 through Oct. 17. Jeff Brundage, American’s senior vice president for human resources, declined today to set a time frame for reaching an accord.

Analyst’s View

“We increasingly believe that a tentative agreement between AMR and its pilots may be reached in coming days, and we remain steadfast in our view that near-term Chapter 11 rhetoric is significantly overstated,” Jamie Baker, a JPMorgan Chase & Co. analyst in New York, said in a report today. He rates AMR as neutral.

Negotiations were stepped up last week after American sought waivers to help cover crew shortages caused by pilot retirements.

Staffing was “critically short” as retirements ran at 10 times the normal average in September and this month, American said last week. The airline is paring seating capacity 3 percent this quarter and shutting a San Francisco crew base in response to the shortage, high fuel prices and a weak economy. It also plans to retire as many as 11 jets in 2012.

Eagle Divestiture

American’s cost-saving steps also include the planned spinoff of the American Eagle regional unit. AMR said today Eagle had reached an agreement in principle with the Air Line Pilots Association in preparation for the divestiture.

AMR hasn’t set a date or an exchange ratio for the spinoff of Eagle, which provides more than 90 percent of passenger feed from smaller cities to American’s hubs.

The tentative agreement on an eight-year pilot contract at Eagle would help trim costs so the regional unit can compete to fly for American and other carriers, AMR said today. The accord also would set new terms for the flying that Eagle initially will provide to American.

Negotiators are still completing language in the contract proposal before it goes to union leaders and then rank-and-file pilots for ratification, said Dave Ryter, vice chairman of ALPA’s master executive council at Eagle.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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