As the Wall Street Journal notes, the company avoided bankruptcy in 2003 by getting $1.8 billion in payroll cuts, which is smaller than the concessions won by rivals including US Airways Group Inc. (NYSE:LCC), Delta Air lines  Inc. (NYSE: DAL) and UAL Corp.’s (NYSE:UAUA) United Airlines who filed for Chapter 11 protection.

The chickens are now coming home to roost for the  Fort Worth, Texas-based airline.

“American’s labor cost, at 3.69 cents per available seat mile as of last September, was the highest in a list of 13 biggest airlines compiled by the federal Bureau of Transportation Statistics,” the paper said. “Also, employee benefits, which were cut sharply at other airlines, have remained largely intact at American. Nevertheless, American’s pilots are demanding a 50% pay increase.”

The Allied Pilots Association has rented billboards denouncing the $300 million in bonuses paid to the company’s top 1,000 executives over the past three years and pointing out a government safety investigation.  The pilot’s union spokesman even called the 2003 concessions a “loan” which should be paid back.

Obviously, he does not read the papers or the company’s balance sheet.  Analysts expect AMR to report about a $400 million loss tomorrow. Revenue is expected to be about $4.72 billion. The airline said last month expected to end the quarter with a cash and short-term investment balance of approximately $3.1 billion, down from $3.6 billion at the end of December.  Last month,  Fitch Ratings slashed the company’s debt ratings further into junk status.

Other unions are waging similar battles with the company.  AMR’s management is taking a tough line saying “If we don’t exist, they don’t exist.” Good point.

If the rhetoric does not cool down soon, things will get ugly fast.

Jonathan Berr

There should be no argument the US airline industry is facing unprecedented challenges as they restructure their business models to survive with record high fuel costs and a questionable forward looking Global economy.

In reviewing recent 2nd quarter financial reports, it is obvious cash liquidity has become a very high priority for airline management going into the future.

Using various types of financing initiatives and asset sales, five of the eight largest US Airlines increased their unrestricted cash positions by significant amounts.

   (billions)                                    AA      UAL     DAL    CAL     NWA   SWA   USAir   JBLU
Cash 3/31/2008                            $4.41   $2.92   $2.60   $2.52   $3.23   $3.12   $2.07   $.753
Projected cash available 6/30         $5.93  $4.40    $3.34   $4.31   $3.26   $5.84   $2.29   $1.35

In consideration that DAL and NWA will acquire approval for their merger by year end, only USAir appears to have a potential cash liquidity problem in the near-term. (See table)

In my opinion, the increased cash liquidity and upcoming capacity cuts combined with recent fare increases make -predictions- of airline failures very pre-mature.

Robert Herbst has been a commercial pilot since 1969. His aviation experience and financial background provides a unique analytical perspective into the airline industry. His website: Airlinefinancials.com provides airline industry analysis and commentary for major US carriers.

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