Clear Skies For American Airlines? Tom Van Riper, 04.18.07, 5:14 PM ET Have the skies truly cleared for American Airlines, or is the company = merely passing through the eye of the storm? Investors who have spent the past year bidding up shares of = American's parent, AMR, basically got what they wanted when the = company reported an $81 million profit for the first quarter of 2007, = reversing a $92 million loss from the same quarter a year ago. The = company's announcement kicks off an important week of profit news for = the industry, with Continental and Southwest due to follow on = Thursday. AMR shares surged $1.15, or almost 4%, on Wednesday, continuing the = push that's seen it jump 30% over the past year. = But revenue for the quarter inched up just 1.6% from last year to = $5.4 billion, below Wall Street forecasts. And industry experts see = big expenses on the horizon, mainly a long overdue fleet update that = the company put off while it was bleeding cash in the early 2000s. The company has turned a small profit in each of the past four = quarters, thanks to some $5 billion in cost cuts dating back to 2003. = But figure them to disappear quickly amid a pressing need for new = airplanes, says independent airline consultant Robert Mann. "The real problem is they're making numerical profits but not = economic profits. What they're making isn't enough to cover their = cost of capital," he says. In a letter to employees, AMR Chief Executive Gerard Arpey said the = company indeed plans to upgrade its fleet, by taking delivery of 47 = new Boeing 737-800 planes to replace some of the old MD-80s and also = by upgrading the existing fleets of 737-300s and 777's with more = business-class interiors, particularly for its New York-to-Europe = runs. The company plans to continue reducing capacity for its = domestic routes to the tune of 1.8% in 2007. "Though conditions can change, at this point we feel confident in our = ability to improve our balance sheer though internal measures," AMR = Chief Financial Officer Thomas Horton said in a conference call. But the balancing act between long-term needs and short-term health = will be a tricky one. While the company bolstered its cash and short- term securities account by 23% from a year ago to $5.9 billion, that = still leaves $12.2 billion in net debt. Meanwhile, the company's = contract with its pilots is due to reopen in early 2008, a year = earlier than those of many competitors. Because American never filed = for bankruptcy, its pilots' deal doesn't extend as long as agreements = for other legacy carriers that negotiated concessions into 2009 as = part of their plans to emerge from Chapter 11. Most Wall Street analysts think industry labor costs will rise = substantially over the next couple of years, as pilots and other = employees look to the upturn in business as a catalyst for grabbing = back a chunk of what they gave up during the industry's rough period. = With fuel prices volatile and the economy chugging along at a steady = but unspectacular pace, investments in new aircraft and updated = facilities will be difficult without taking on new debt. = American has had some success in a joint maintenance venture with = Rolls-Royce, which Mann believes has proved an effective way to keep = ownership of the maintenance operations. That can be an effective = means of making quick changes, even if it's not as cheap as sending = planes overseas to be fixed, as JetBlue and others do. "That's one labor relationship they've been able to cultivate," he = said. The best slide auction on the net: http://www.auctiontransportation.com/sites/psa188/ <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> If you wish to unsubscribe from the AIRLINE List, please send an E-mail to: "listserv@xxxxxxxxxxxxxxxxx". Within the body of the text, only write the following:"SIGNOFF AIRLINE".