Carrier Attempting To Raise Funds To Remain Solvent In Hard Times

Although last summer’s high fuel prices have subsided and capacity cuts have eased air carriers’ financial burdens, decreased ridership and increasingly hard-to-find financing have fueled concerns that some airlines may nonetheless be headed toward bankruptcy protection.

Inside sources told the Financial Times that American Airlines has begun negotiations with credit card partner Citigroup, attempting to raise funds through the sale of a block of miles in advance. The move comes on the heels of a $100 million loan received by AAL from Germany’s DVB Bank, which used the airline’s 757s and 777s as collateral.

The talks hinge on frequent-flyer air miles, earned by Citigroup credit card holders with each purchase made. AAL’s frequent-flyer plan was the first of its kind in the industry, and has about 60 million members. Insiders said that since the negotiations are just beginning, they could end just as quickly if other means of financing are found or if economic pressures ease.

The FT reports that AAL is sitting on about $3.1 billion in cash and has another $3.5 billion in unencumbered assets and possible sources of funds such as airport slots and frequent-flyer miles, but also has $1.1 billion in long-term debt yet to be paid this year.

Although competitors Delta Air Lines, United Airlines and Continental Airlines have already raised millions of dollars through similar agreements reached with their credit card partners, the FT points out the possible irony of AAL turning to Citigroup in light of substantial losses suffered by the bank as a result of the global economic downturn.

FMI: www.aa.com, www.citibank.com