AMR: Is there really something special in the air?

February 21, 2008

images4.jpegYesterday, I booked some tickets on American Airlines because I need to be in Dallas and Kansas City next month for speaking gigs. And it’s a good thing for parent-company AMR (AMR) that the tickets are non-refundable because the 10-K they filed yesterday raised some interesting concerns, like this one:

As part of that oversight, the FAA has implemented a number of requirements that the Company has incorporated and is incorporating into its maintenance programs. The Company is progressing toward the completion of over 180 airworthiness directives including enhanced ground proximity warning systems, McDonnell Douglas MD-80 main landing gear piston improvements, Boeing fuel tank safety directives, Boeing 757 and Boeing 767 pylon improvements, McDonnell Douglas MD-80 horizontal stabilizer, cargo door and aft pressure bulkhead improvements, Boeing 737 elevator and rudder horizontal stabilizer actuator and digital flight recorder improvements and Airbus A300 structural improvements.

What’s interesting here is that in last year’s 10-K, there were only 100 airworthiness directives that AMR was dealing with, something I was only able to find via 10KWizard’s Compare Wizard feature. It’s not clear to me why the number of airworthiness directives increased so dramatically over the past year. On the bright side, some of the directives mentioned in last year’s filing — McDonnell Douglas MD-80 main landing gear piston improvements, for example — seem to have been resolved.

There was also this new warning about the air-traffic control system:

In addition, the air traffic control (ATC) system, which is operated by the FAA, is not successfully managing the growing demand for U.S. air travel. U.S. airlines carry about 740 million passengers a year and are forecasted to accommodate a billion passengers annually by 2015. Air-traffic controllers rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes Company supports a common-sense approach to ATC modernization that would allocate costs to all ATC system users in proportion to the services they consume. The Company expects the U.S. Congress to address the reauthorization of legislation that funds the Federal Aviation Administration in 2008, which includes proposals regarding upgrades to the ATC system.

On the non-safety front, AMR warned about increased competition at Heathrow due to the Open Skies Agreement that goes into effect at the end of next month.

Finally, while the filing didn’t directly address the potential merger between Delta (DAL) and Northwest (NWA), the filing did offer some new perspective about additional merger activity in the airline industry: “We cannot reliably predict the impact regularly assess and explore the potential for consolidation in our industry, our strategic position and ways to enhance our competitiveness, including the possibilities for our participation in merger activity. Consolidation involving other participants in our industry could result in the formation of one or more airlines with greater financial resources, more extensive networks, and/or lower cost structures than exist presently, which could have a material adverse effect on us.”

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