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Record Fuel Prices Drove $838 Million In Higher Costs Compared To A Year Ago

AMR Corp. parent company of American Airlines reports 2008 second quarter net loss of $284 million

eTN  Jul 16, 2008

FORT WORTH, Texas - AMR Corporation, the parent company of American Airlines, Inc., today reported a net loss of $1.4 billion for the second quarter of 2008 or $5.77 per share.

The second quarter results include special charges as previously disclosed in AMR's Form 8-K filing with the Securities and Exchange Commission on July 2. These include a $1.1 billion non-cash accounting charge to write down the value of certain aircraft and related long-lived assets to their estimated fair value and a charge of approximately $55 million of a total $70 million expected for severance-related costs resulting from the Company's system-wide capacity reductions in the fourth quarter of this year. The remainder of the severance-related charge is expected to be taken in the third quarter. Excluding these special charges, AMR reported a second quarter net loss of $284 million, or $1.13 per share.

The current quarter results compare to a net profit of $317 million for the second quarter of 2007, or $1.08 per diluted share.

Record jet fuel prices contributed significantly to the company's loss in the second quarter of 2008. AMR paid $3.19 per gallon for jet fuel in the second quarter compared to $2.09 a gallon in the second quarter of 2007, a 53 percent increase. As a result, the company paid $838 million more for fuel in the second quarter of 2008 than it would have paid at prevailing prices from the prior-year period.

"Our company continues to be severely challenged by the fuel crisis that has afflicted our entire industry, and we expect these difficulties to continue for the foreseeable future," said AMR chairman and CEO Gerard Arpey. "Clearly, our second quarter results were disappointing, but I am also pleased with our efforts as a company to take difficult yet necessary steps to manage through this uncertainty. While we believe the airline industry cannot continue in its current form, at today's record fuel prices, we also believe our decisions and hard work by employees in recent years have better prepared us to face these challenges. We remain committed to taking action - whether that relates to capacity reductions, revenue enhancements, fleet changes or other efforts to improve our financial foundation - as we work to secure our long-term future."

AMR highlighted additional actions it has taken in response to the ongoing challenges of record fuel prices and a softer economy. The company has obtained $720 million in new financing through a number of transactions, including the sale of certain aircraft that will remain in the company's fleet through a lease agreement, and through newly-issued mortgage debt that is secured by aircraft. Of the new financing, approximately $500 million was received in July and will be recorded in the company's cash balance in the third quarter of 2008.

In addition, AMR has decided to retire all 34 of its A300 aircraft by the end of 2009, compared to the previous retirement schedule that extended through 2012. In 2008, AMR will retire 30 MD-80s, 10 A300s and 26 Saab turbo-prop aircraft and will retire or remove from service 37 regional jets. The remaining A300s will be retired in 2009, which is expected to result in capacity reductions next year. As it begins to replace its MD-80 fleet, the company continues to expect to take delivery of 70 more-fuel-efficient Boeing 737-800 aircraft in 2009 and 2010.

Given the current industry environment, AMR has decided to place on hold its planned divestiture of American Eagle, its regional affiliate, until industry conditions are more stable and favorable. AMR continues to believe that a divestiture makes sense in the long term for AMR, American, American Eagle, and their stakeholders, but AMR also believes that a divestiture is not sensible amid current conditions.

AMR Corp. parent company of American Airlines reports 2008 second quarter net loss of $284 million

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