AMR Posts Gain On Items, But Fuel Issues Remain (AMR)

AMR Corporation (NYSE: AMR) has posted a net profit of $45 million for the third quarter, which generated earnings at $0.17 EPS.  Be advised that this gain does include sale gains and other items.  Non-GAAP losses were -$1.39 EPS and First Call had estimates at -$1.40 EPS.  Revenues rose 8% from last year’s quarter to $6.4 billion, and First Call had estimates at $6.34 billion.  Other revenues from fees and on-board sales rose 14.3% to $577 million.  Some of of its metrics actually look pretty good, while others "not so much."

The items included are $432 million gain from the sale of AmericanBeacon Advisors, $27 million in one-time severance and aircraft chargesrelated to its fall 2008 capacity reduction (expects remaining specialcharges of approximately $121 million for this event).

AMR ended the quarter with roughly $5.1 billion in cash and short-terminvestments, including a restricted balance of $456 million.  Thatfigure is after the inclusion of $1.235 billion from sales and capitalraised.  Its debt total came to $15.4 billion at the end of thequarter, down from $16.6 billion in the 2007 comparable period.

The company’s fuel assumptions are $2.76 per gallon in the Q4-2008 and$3.07 per gallon on average for Fiscal 2008.  AMR has 38% of Q4 fuelhedged at $3.33 per gallon and and 37% of full year fuel needs at $2.78per gallon.

AMR paid 64% higher in gas costs at $3.57 per gallon for jet fuel inthe third quarter compared to $2.17 a gallon in the third quarter of2007.

Its cost reductions and plan for 2009 include consolidated systemcapacity declines of more than 9% compared to 2007 and 6% compared to2008, and even wider drops seen in domestic capacity.  Its regionalcapacity cuts are going to be the largest in 2009 with cuts of 14.5% to2007 levels and 9.5% compared to 2008.

AMR has secured sale-leaseback financing for 20 previously ordered737-800 plans which are scheduled for delivery beginning in 2009.  Hereis an interesting fact: AMR is acquiring an additional 42 Boeing 787-9aircraft from 2012 to 2018 (subject to conditions) and is taking theright to secure and additional 58 of the 787 aircraft from 2015 to2020. 

Shares are currently up 5% at $9.24.  Over the last 90-day period ithas seen a trading range of roughly $5.00 to $12.00 after smoothing outthe intraday highs and lows.

Jon C. Ogg
October 15, 2008