Things may have changed at the top of American Airlines, with Gerard Arpey taking over as chief executive from Don Carty, but the carrier still faces acute problems.
For Arpey, who stepped up after Carty was ousted by the unions, the forecast is a highly changeable one. "The clouds have parted a little bit," Arpey said in his first communications to the same workers who forced Carty into exile, but, as Arpey quickly added, the airline's survival is not assured.
Not only does Arpey face the lingering problems of redesigning the network and fending off low-cost carriers, he must fight to gain employee confidence. This is a feat that has been made all the more difficult to achieve following Carty's failure to disclose details of boardroom perks that sealed his own fate and threatened that of the airline.
Arpey has made a strong effort at openness with American's employees in an attempt to show that he is more than a company man, despite the fact that he has spent his entire working life at the airline, starting at American in 1982 at age 24 and spending the last decade in senior management.
Even with all employee and supplier concessions in place, the company said in a mid-May filing that it may still have to seek Chapter 11 bankruptcy protection "because its financial condition will remain weak and its prospects uncertain".
The airline will issue up to three million shares of stock to more than 100 suppliers and other creditors in exchange for agreement to save it $175 million a year, the final piece of its campaign to reach $4 billion in annual cost reductions.
It noted, however, that it might not be able "to satisfy the liquidity requirements or other covenants in certain of its credit arrangements" or to "access the capital markets for additional financing". Under recently renegotiated terms for an $834 million credit line, American must keep $1 billion in unrestricted cash on hand at all times. It had $1.25 billion in unrestricted cash as of the end of March, including a $550 million federal tax refund it received during the quarter.
But American spent roughly $1.2 billion in cash in the first quarter, more than $13 million a day. Some $3 million a day of that went to suppliers because it had to pay in advance for some goods and services. That suggests it is spending cash at a much faster rate than thought.
Meanwhile, the SARS crisis has combined with the delayed recovery to postpone a traffic rebound. This makes timing all the more central for American - just as it has been since Carty's requests for union concessions coincided with the shareholder-meeting season in which US corporations are required to post proxy statements disclosing every last detail of management compensation.
DAVID FIELD WASHINGTON
Source: Airline Business
