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American buys Boeing jets, but airline can't afford them=20
By David <mailto:dbowermaster@seattletimes.com> Bowermaster
Seattle Times aerospace reporter
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American Airlines will take delivery of 11 Boeing jets this year that it
doesn't need and can't afford, even as it searches for $4 billion of
cost cuts to stave off bankruptcy.=20
In unusually frank terms, American Chief Financial Officer Jeff Campbell
said yesterday the airline had done all it could to persuade Boeing to
allow it to put off taking the planes, without success. American lost
$3.5 billion in 2002 and expects another torrent of red ink this year.=20
"I'll make no bones about it ... we don't really want or need these 11
planes," Campbell said on a conference call with analysts and reporters
to discuss the carrier's fourth-quarter results. "But we have a contract
(with Boeing) so we are going to take the airplanes."=20
Boeing has worked hard with large airline customers to shuffle their
delivery schedules in the wake of the Sept. 11, 2001, terrorist attacks
and the subsequent economic downturn that have ravaged air travel and
airline balance sheets.=20
Boeing Commercial Airplanes chief Alan Mulally said last month the
company had re-scheduled 500 deliveries since Sept. 11.=20
Indeed, late last year Boeing agreed with American to postpone
deliveries of 34 planes due in 2003, 2004 and 2005, including eight that
had been slated for this year.=20
"Even to this day, we're having ongoing negotiations with customers
about fleet decisions," said Patricia York, a Boeing spokeswoman.=20
But Boeing's refusal to let American slide its 11 remaining 2003
deliveries, despite the carrier's highly unstable financial condition,
shows how critical every sale is to the aerospace giant.=20
The nine 767s and two 777s destined for American will help Boeing hit
its closely watched target of 275 to 285 deliveries this year;
contribute roughly $1 billion to the company's 2003 revenues; and
account for approximately a year's worth of production on the struggling
767 line in Everett, which produced just eight jets in 2002.=20
Yet Boeing itself will provide a large chunk of the money American needs
to buy the planes.=20
Campbell said American will "not write any checks" for the aircraft, as
Boeing Capital, the aerospace giant's financing arm, will provide most
of the funding.=20
"We do have financing commitments in place for American for 2003,"
confirmed Russell Young, a Boeing Capital spokesman. "However, because
of nondisclosure agreements attached to those commitments, we can't
provide any more details."=20
The planes would be worth roughly $1.4 billion at list prices, but
substantial discounts are common for large customers like American.=20
A source familiar with the negotiations said Boeing will provide
American nearly $600 million in financing, but said that is probably
well below the total purchase price of the planes because American has
likely made down payments and progress payments as the planes have moved
through production.=20
Airline-industry analysts are closely monitoring American's health.
United Airlines, the country's second-largest airline, and US Airways
filed for Chapter 11 bankruptcy protection last year.=20
Some fear American could be the next major airline to fall, particularly
if there is a prolonged military conflict with Iraq that pushes jet-fuel
prices higher and further depresses air travel.=20
David Bowermaster: 206-464-2724 or dbowermaster@seattletimes.com.=20
Copyright =A9 2003 The Seattle Times Company=20
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