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Sun, Feb 25, 2007

American Airlines Says It Needs Cash To Replace Older Planes

Airline Mulls Over Options To Raise Funding

It is certainly a mark of pride inside the halls of American Airlines' headquarters in Fort Worth, TX the airline has never filed for bankruptcy. At a time when nearly all its domestic rivals succumbed to Chapter 11, American held its head high... but that may prove to hurt the airline down the road.

In a statement Friday before the Securities and Exchange Commission, American said it should have sufficient resources available to maintain operations at the airline for the next several years. That's the good news.

What AA may not have, according to Reuters, is spare funding to spend renewing its fleet of aging planes.

That's a concern, as American increasingly hints it wants to retire its fleet of MD-82 and MD-83 medium range airliners. The planes are old, but that by itself isn't the problem; it's that their engines are also old, and inefficient.

"Our ability to obtain future financing has been reduced because we have fewer unencumbered assets available than in years past," the company said in its SEC filing.

Despite the recent announcement of its first operating profit since 9/11, American parent company AMR says its traditional funding sources are more restricted today that in the past. Not helping matters is the $16.3 billion in net debt the airline amassed by the end of 2006. A combination of weak revenues, high fuel prices and low credit ratings have conspired to lower American's attractiveness to investors and creditors.

"Additional reductions in AMR's or American's credit ratings could further increase its borrowing or other costs and further restrict the availability of future financing," the company said.

American says it has options, however. AMR could issue new shares, and sell or leaseback some of its planes to carriers still operating the type. AMR could also issue bonds, or debt backed by the new aircraft deliveries.

The timing of American's hat-in-hand announcement is interesting. The airline is due to begin what are expected to be very strenuous negotiations later this year with several of its workers, including pilots. That group expressed its displeasure last month, when word got out AMR management and executives pocketed some $218 million in bonuses for 2006.

That kind of money could buy a few planes...

FMI: www.aa.com

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