AMR CorporationAMR

Morningstar Rating

Stock Research and Analysis

by Basili Alukos, CPA

Although the firm has enough cash to weather future turbulence, we think legacy carrier American Airlines will continue to face enormous pressure from rivals in a maturing industry.

Due to its poor characteristics, the airline industry is arguably Read more

Bulls Say

The Fair Treatment for Experienced Pilots Act of 2007 increased the mandatory pilot retirement age to 65 from 60, which removed $543 million in pension liabilities for American. As a result, future pension contributions should be significantly less.

AMR has accelerated the replacement of its aging (and less fuel-efficient) MD-80s with new Boeing 737-800 aircraft. The benefits of this replacement cycle should have a notable impact on the carrier's cost profile, particularly as the renewal process matures.

Bears Say

Employee-related expenses represented almost 30% of AMR's operating costs in 2007. Labor agreements, which become amendable in 2008, could further heighten the airline's labor cost disadvantage relative to its network peers.

As the liberalization of international air travel (referred to as open skies agreements) continues, low-cost carriers will eventual infiltrate the more profitable international transportation market, which will likely create downward pressure on yields.

Unlike most of its peers, AMR is saddled by an enormous pension liability that saw its funded status fall to 61% in 2008 from almost 90% in 2007. This pension plan will require massive future cash contributions and likely hamper the firm's ability to remain solvent, in our opinion. Read more

Strategy

By offering luxuries like lie-flat beds and video-on-demand, American remains committed to capturing business travelers to boost revenue growth. In addition, the firm is replacing older, inefficient Read more

Management

Chairman, president, and CEO Gerard Arpey began working with AMR in 1982 and has devoted his entire professional career to the firm. Arpey worked up through the ranks as CFO and most recently COO before he earned the CEO title in April 2003. During Read more

Profile

AMR is the parent company of American Airlines and its regional carrier subsidiaries American Eagle and Executive Airlines. Combined, the firm flies more than 3,400 daily Read more

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