AMR (NYSE: AMR), parent of American Airlines, will return to 100% service tomorrow after FAA-mandated inspections of it MD-80 fleet forced the cancellations of over 3,000 flights.
AMR management has said that the incident will cost the carrier tens of millions of dollars. An analyst with Standard & Poor’s estimated it could easily top $30 million," according to the AP.
The figure begs the question of how much the debacle will cost AMR. Customers may demand expense reimbursement for hotel stays and other costs which were incurred due to scrubbed flights. There may even be some class action suits for damages fliers will claim were caused by their lack of ability to travel.
Last year, AMR made only $945 million in operating income on $22.9 billion in revenue. The company had debt service of $894 million. It is likely that the rising cost of fuel and falling domestic traffic could take American to a loss in each of the next few quarters, and the expenses of the cancellations will make that worse.
At some point the carrier will have trouble meeting interest payments.
Douglas A. McIntyre
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