FORT WORTH, Texas - Consistent with financial community expectations, AMR Corporation, the parent company of American Airlines, Inc., today reported a third quarter net loss of $475 million before special items, or $3.05 per share. This compares with a net loss of $525 million before special items, or $3.40 per share, in the third quarter of 2001, the first period affected by the attacks of Sept. 11.
“Any way you look at them, these are terrible financial results that reflect a sluggish economy, continued weakness in the revenue environment, high fuel prices, the cost of enhanced security and the uncertainty of events in the Middle East,” said Don Carty, AMR’s chairman and chief executive officer. “Although we operated an excellent airline in the third quarter, we could not overcome the cumulative weight of the economic challenges, and the environment shows little sign of improving.”
In the face of these challenges, Carty said, AMR during the third quarter intensified its efforts at examining every aspect of its business for added ways to reduce costs and capital spending, increase efficiency and put the company in a position to succeed long term and eventually return to profitability. “At every level of this organization, people are working extremely hard to make sure that AMR is a vital competitor in this industry for many years to come,” he said, “and we will not rest until this is achieved.”
Adding further impetus to its efforts to reduce capital spending, American announced today that it has reached an agreement with Boeing for the deferral of a total of 34 airplanes during 2003, 2004 and 2005. Under the agreement, American will take delivery of only 11 airplanes in 2003 - nine 767-300s and two 777s - compared to the original plan of 19. No airplanes will now be delivered to American in 2004 and 2005. The airline had planned on taking 13 aircraft each year in 2004 and 2005.
With these and other adjustments to AMR’s capital spending plans, the company has further reduced its capital spending plan by more than $1.5 billion from 2003 - 2005.
American also announced today that it would supplement its near-term cost-saving efforts by temporarily storing approximately 42 aircraft starting in early 2003. By putting 28 MD-80s and 14 767-200s into short-term storage, American will save in excess of $100 million in expenses over the next two years, largely due to reduced maintenance expenditures. Based on current projections, American anticipates that these aircraft would remain in storage until at least 2005.
“We are managing this business for the short- and long-term and are sharply focused on its success,” Carty said. “The scope, variety and magnitude of our various actions and initiatives are an insight into the seriousness with which we approach our task and the determination with which we are seeking solutions.”
The company’s wide-ranging, long-term cost-reduction program was given a major boost on Aug. 13 when American unveiled an additional series of cost-saving and efficiency producing initiatives. Among the key steps announced on Aug. 13 were the de-peaking of the Dallas/Fort Worth hub and many spoke cities, the retirement of the 74-plane Fokker 100 fleet by 2005, a reduction of an estimated 7,000 jobs by March 2003, and steps to enhance the efficiency of several fleet types, including 777s and 767-300s.
Since the Aug. 13 announcement, American has refined and increased its estimated savings from these initiatives. In addition, even more cost-saving and revenue-enhancing initiatives have been identified. These include the EveryFare program announced last month, a consolidation of AMR’s headquarters operation, and a series of other operational changes. When taken in combination with previously announced initiatives, these efforts should contribute more than $2 billion in steady state, structural cost savings over the coming years, independent of capacity-related changes. In addition, efficiencies in the use of airplanes from de-peaking and fleet actions will allow American to forgo the equivalent of 17 “new” aircraft in the future, ultimately saving more than $1.3 billion in capital spending.
As previously disclosed, the Aug. 13 initiatives drove several special charges, notably aircraft impairments and lease accruals and employee severance. These special charges, mostly non-cash in nature, totaled $449 million after tax. Including these items, AMR`s third quarter net loss was $924 million ($5.93 per share), compared to last year`s third quarter net loss of $414 million after special items ($2.68 per share).
Looking forward, if the revenue environment remains depressed, the company expects to post a sizeable operating loss in the fourth quarter, most likely exceeding the third quarter loss before special items.