Weekly Digest - December 5th, 2011
American Airlines Files for Bankruptcy
AMR, parent of the third largest US network carrier American Airlines, filed for bankruptcy last week. This marks the end of an era for the airline, which has been running losses and avoiding Chapter 11 for the past decade.
Both United (of United Continental Holdings) and Delta have already used bankruptcy protection to restructure and improve competitiveness. American has shied away from this measure causing it to lose around $10 bn over the last 10 years. American runs the highest operating costs among its peers, and rising fuel bills and failed union negotiations over the past 3 quarters have persuaded the otherwise resolute CEO Gerard Arpey to open up to the possibility.
Mr. Arpey, however, preferred not to be at the helm during the restructuring process and stepped down as a CEO. The company board appointed AMR President Thomas Horton to succeed him.
Currently American sits on approximately $25 bn in assets and $30 bn in debt. Preparing for a potential bankruptcy scenario, however, AA management put aside $4 bn in cash hoping to be able to weather the storm on those reserves.
Industry pundits forecast tough restructuring and negotiation decisions for American in the near future and doubt whether the planned 15 months would be enough. The airline reiterated that the record-breaking 460 aircraft order from Boeing and Airbus is not to be changed.
Boeing Begins a "World Tour" of Its Dreamliner
The US plane maker launched in Beijing a global tour of its Boeing 787 Dreamliner aircraft. The Dreamliner program suffered a number of substantial delays and although positively accepted by the industry in general, is seeing a small number of orders.
China Eastern recently dealt a blow to the company order book by canceling its order of 24 Dreamliners. Back in 2005 the plane maker struck a deal with China to deliver 60 of its 787s to a number of Chinese carriers, but due to lack in production capacity and other unexpected delays, that number has fallen down to 41 today.
Boeing reports it is still aiming to achieve a production capacity of 10 planes per month by 2013 - significantly higher than the current 2.5 per month.
Emissions Trading Scheme Under Fire
The EU emissions trading scheme, expected to launch at the beginning of 2012, continues to draw significant international opposition. The scheme has been universally condemned by non-EU countries as a violation of international civil aviation rules. In the latest developments around the scheme, China and Japan have also expressed their strong opposition and continue to hope for more flexibility from the 27-country block.
The International Civil Aviation Organization (the UN aviation regulatory body) has announced its intentions to develop a more reasonable emissions trading scheme as an answer to the somewhat Draconian EU proposition. The organization aims to reach an agreement among its 190 member countries by the end of 2012 and a ratification as early as 2013. ICAO indicated that it might ask for help from the World Bank in its efforts to create a truly global market for greenhouse gas quotas.
Bombardier published its Q3 results last week. The Canadian company reported consolidated revenues of $4.6 bn (up 16% compared to last year) and net income of $192 mn (compared to $147 mn last year). Bombardier indicated that a slowing demand for its regional jets contributed to the lower cash proceeds compared to revenues.
AirBaltic becomes fully government-owned after Latvia acquired the remaining 47.2% of the Riga-based carrier. The country bought the outstanding shares from BAS after the collapse of the Lithuanian bank Snoras and subsidiary Krajbanka, which held the BAS shares in airBaltic as collateral.