AAL American Airlines Group Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 9, 2015

AMERICAN AIRLINES GROUP INC.

AMERICAN AIRLINES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		1-8400		75-1825172
Delaware		1-2691		13-1502798
(State or other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

4333 Amon Carter Blvd., Fort Worth, Texas		76155
4333 Amon Carter Blvd., Fort Worth, Texas		76155
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(817) 963-1234

(817) 963-1234

N/A

 

(Former name or former address if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

---

ITEM 7.01.

REGULATION FD DISCLOSURE.

On October 9, 2015, American Airlines Group Inc. (the “Company”) provided an update for investors presenting information relating to its financial and operational outlook for 2015. This investor presentation is located on the Company’s website at www.aa.com under “Investor Relations.” The update is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information in this Item 7.01, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section and shall not be deemed incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 

ITEM 9.01.

FINANCIAL STATEMENTS AND EXHIBITS.

 

(d)

Exhibits.

 

Exhibit No.		Description
99.1		Investor Update

---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, American Airlines Group Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				AMERICAN AIRLINES GROUP INC.
Date: October 9, 2015				By:		/s/ Derek J. Kerr
						Derek J. Kerr
						Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, American Airlines, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				AMERICAN AIRLINES, INC.
Date: October 9, 2015				By:		/s/ Derek J. Kerr
						Derek J. Kerr
						Executive Vice President and Chief Financial Officer

---

EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Investor Update

Exhibit 99.1

 

Investor Relations Update

October 9, 2015

General Overview

 

•

Pre-tax Margin—The Company expects its third quarter pre-tax margin excluding special charges to be approximately 17 to 18 percent.

 

•

Capacity—2015 total system capacity is expected to be up approximately 1 percent vs. 2014. Full year domestic capacity is expected to be up approximately 1 percent to 2 percent year-over-year, while international capacity is expected to be up approximately 0 percent to1 percent vs. 2014.

 

•

Cash—As of September 30, 2015, the Company had approximately $9.6 billion in total cash and short-term investments, of which $710 million was restricted. The Company also had an undrawn revolving credit facility of $1.8 billion. Approximately $609 million of unrestricted cash and short-term investments is held in Venezuelan bolivars. This balance is valued at 6.3 bolivars to the U.S. dollar, which is the rate that was in effect on the date the Company submitted each of its repatriation requests to the Venezuelan government. This rate is materially more favorable than the exchange rates currently prevailing for other transactions conducted outside of the Venezuelan government’s currency exchange system.

During 2014, the Company significantly reduced capacity in the Venezuelan market and is no longer accepting bolivars as payment for airline tickets. The Company is monitoring this situation closely and continues to evaluate its holdings of Venezuelan bolivars for additional foreign currency losses or other accounting adjustments, which could be material, particularly in light of the additional uncertainty posed by the recent changes to the foreign exchange regulations and the continued deterioration of economic conditions in Venezuela. More generally, fluctuations in foreign currencies, including devaluations, cannot be predicted by the Company and can significantly affect the value of the Company’s assets located outside the United States. These conditions, as well as any further delays, devaluations or imposition of more stringent repatriation restrictions, may materially adversely affect the Company’s business, results of operations and financial condition.

 

•

Fuel—For the third quarter 2015, the Company expects to pay an average of between $1.65 and $1.70 per gallon of mainline jet fuel (including taxes). Forecasted volume and fuel prices are provided in the tables below.

 

•

Cargo / Other Revenue—Includes cargo revenue, frequent flyer revenue, ticket change fees, excess/overweight baggage fees, first and second bag fees, contract services, airport clubs and inflight service revenues.

 

•

Taxes / NOL—As of December 31, 2014, AAG had approximately $10.1 billion of net operating losses (NOLs) available to reduce future federal taxable income, substantially all of which are expected to be available for use in 2015. The Company also had approximately $4.6 billion of NOLs available to reduce future state taxable income, substantially all of which are expected to be available for use in 2015. The Company’s net deferred tax asset, which includes the NOLs, is subject to a full valuation allowance. As of December 31, 2014, the tax affected valuation allowances associated with federal and state NOLs approximate $4.5 billion and $0.3 billion, respectively. In accordance with generally accepted accounting principles, utilization of NOLs to offset book taxable income reduces the net deferred tax asset and results in the release of corresponding valuation allowances, which offsets the tax provision on our income statement dollar for dollar. The Company continues to evaluate the need to maintain a valuation allowance. The Company may be obligated to record and pay income tax related to certain states and foreign jurisdictions where NOLs may be limited or not available to be used. The Company currently expects this cash tax expense to be $10 million, or less, for each of the third and fourth quarters of 2015.

Please refer to the footnotes and the forward looking statements page of this document for additional information

---

Mainline Update

October 9, 2015

Mainline Comments

 

•

Combined mainline data includes American Airlines and US Airways operated flights, and all operating expenses are for mainline operated flights only. Please refer to the following page for information pertaining to regional data.

 

•

Mainline capacity increase of approximately 1 percent for the year is comprised of stage length related increase of approximately 1 percent, gauge related increase of approximately 2 percent and a departure related reduction of approximately 3 percent.

 

•

Cargo revenue is down from previous guidance due to lower international yields. Other revenue is down from previous guidance due primarily to lower change fees and frequent flyer revenue.

 

•

Third quarter other non-operating expense increased from previous guidance due mainly to foreign exchange losses (primarily Brazil) resulting from a strengthening dollar.

 

		1Q15A				2Q15A				3Q15E				4Q15E				FY15E
Mainline Guidance
Available Seat Miles (ASMs) (bil)			55.9				61.9				~63.5				~58.4				~239.6
CASM ex fuel and special items (YOY % change)1			9.49				8.77				+2% to +4%				+6% to +8%				+4% to +6%
Cargo Revenues ($ mil)			194				194				~180				~185				~753
Other Revenues ($ mil)			1,192				1,219				~1,170				~1,160				~4,741
Average Fuel Price (incl. taxes) ($/gal) (as of 10/07/2015)			1.83				1.90				1.65 to 1.70				1.57 to 1.62				1.73 to 1.78
Fuel Gallons Consumed (mil)			846				936				~954				~879				~3,615
Interest Income ($ mil)			(10	)			(10	)			~(10	)			~(11	)			~(40	)
Interest Expense ($ mil)			210				223				~219				~225				~877
Other Non-Operating (Income)/Expense ($ mil)2,3			81				—				~60				~3				~144
CAPEX Guidance ($ mil) Inflow/(Outflow)
Non-Aircraft CAPEX			(241	)			(206	)			~(225	)			~(228	)			~(900	)
Gross Aircraft CAPEX & net PDPs			(1,400	)			(1,445	)			~(1,113	)			~(1,375	)			~(5,333	)
Assumed Aircraft Financing			745				225				~1,720				~266				~2,957
Net Aircraft CAPEX & PDPs4			(655	)			(1,220	)			~607				~(1,109	)			~(2,376	)

Notes:

 

1.	CASM ex fuel and special items is a non-GAAP financial measure. Please see the GAAP to non-GAAP reconciliation at the end of this document.

2.	Excludes special items; please see the GAAP to non-GAAP reconciliation at the end of this document.

3.	Other Non-Operating (Income)/Expense primarily includes gains and losses from foreign currency.

4.	Numbers may not recalculate due to rounding.

Please refer to the footnotes and the forward looking statements page of this document for additional information

---

Regional Update

October 9, 2015

Regional Comments

 

•

AAG receives feed from 10 regional airlines, including wholly owned subsidiaries Envoy, PSA Airlines and Piedmont Airlines.

 

•

All operating expenses (including capacity purchase agreements) associated with regional operations are included within the regional non-fuel operating expense line item on the income statement.

 

•

Regional capacity increase of approximately 5 percent for the year is comprised of gauge related increase of approximately 4 percent and a stage length related increase of approximately 1 percent.

 

1Q15A

2Q15A

3Q15E

4Q15E

FY15E

Regional Guidance

Available Seat Miles (ASMs) (bil)

6.94

7.48

~7.63

~7.40

~29.45

CASM ex fuel and special items (YOY % change)1

16.47

16.02

+1% to +3%

+1% to +3%

+0% to +2%

Average Fuel Price (incl. taxes) ($/gal) (as of 10/07/2015)

1.86

1.91

1.65 to 1.70

1.58 to 1.63

1.74 to 1.79

Fuel Gallons Consumed (mil)

167

182

~186

~177

~712

 

Regional Airlines
Envoy2		Mesa Airlines, Inc.
SkyWest Airlines, Inc.		Piedmont Airlines, Inc.2
ExpressJet Airlines, Inc.		PSA Airlines, Inc.2
Republic Airline Inc.		Trans States Airlines, Inc.3
Air Wisconsin Airlines Corporation		Compass Airlines, LLC

Notes:

 

1.	CASM ex fuel and special items is a non-GAAP financial measure. Please see the GAAP to non-GAAP reconciliation at the end of this document.

2.	Wholly owned subsidiary of American Airlines Group Inc.

3.	Pro-rate agreement and capacity purchase agreement.

Please refer to the footnotes and the forward looking statements page of this document for additional information

---

Fleet Update

October 9, 2015

Fleet Comments

 

•

In 2015, the Company expects to take delivery of 75 mainline aircraft including 7 A319 aircraft, 35 A321 aircraft, 18 738 aircraft, 2 773 aircraft, and 13 788 aircraft. Including the aircraft reclassified as permanently retired in the last update, the Company expects to retire 115 aircraft, including 10 A320 aircraft, 44 757 aircraft, 6 762 aircraft, 13 763 aircraft and 42 MD80s by the end of 2015.

 

•

In 2015, the Company expects to increase its regional fleet size by 21 CRJ900 aircraft and 29 E175 aircraft. The Company expects to remove and place in temporary storage 21 ERJ140 aircraft, reduce the number of CRJ-200 aircraft by 9, and retire 1 Dash 8-100 aircraft.

 

 

Notes:

 

1.	At the end of the third quarter, the Company had 39 E140 regional aircraft in temporary storage not included in the active regional ending fleet count.

Please refer to the footnotes and the forward looking statements page of this document for additional information

---

Shares Outstanding

October 9, 2015

Shares Outstanding Comments

 

•

The estimated weighted average shares outstanding for 2015 are listed below.

 

•

On January 27, 2015 the Company announced that its Board had authorized a $2 billion share repurchase program which was completed in the third quarter of 2015. On July 23, 2015 the Company’s Board authorized an additional $2 billion share repurchase program to be completed by the end of 2016. This brings the total amount authorized for share repurchase programs in 2015 to $4 billion.

 

•

In the third quarter 2015, the Company repurchased 38.4 million shares at a cost of $1.56 billion. This brings the total number of shares purchased in 2015 to 59.5 million at a cost of $2.5 billion.

 

2015 Shares Outstanding (shares mil)1
		Shares
For Q3		Basic				Diluted
Earnings			662				681
Net loss			662				662
		Shares
For Q4		Basic				Diluted
Earnings			642				663
Net loss			642				642
		Shares
For FY 2015 Average		Basic				Diluted
Earnings			672				692
Net loss			672				672

Notes:

 

1.

Shares outstanding are based upon several estimates and assumptions, including average per share stock price and stock award activity and do not take into consideration any future share repurchases. The number of shares in actual calculations of earnings per share will likely be different from those set forth above. The numbers reflected in the table above are as of September 30, 2015.

Please refer to the footnotes and the forward looking statements page of this document for additional information

---

GAAP to Non-GAAP Reconciliation

October 9, 2015

The Company is providing disclosure of the reconciliation of reported non-GAAP financial measures to their comparable financial measures on a GAAP basis. The Company believes that the non-GAAP financial measures provide investors the ability to measure financial performance excluding special items, which is more indicative of the Company’s ongoing performance and is more comparable to measures reported by other major airlines. The Company believes that the presentation of mainline CASM excluding fuel and special items and regional CASM excluding fuel and special items is useful to investors because both the cost and availability of fuel are subject to many economic and political factors beyond the Company’s control.

 

		American Airlines Group Inc GAAP to Non-GAAP Reconciliation ($ mil except ASM and CASM data)
		1Q15				2Q15				3Q15 Range								4Q15 Range								FY15 Range
		Actual				Actual				Low				High				Low				High				Low				High
Mainline
Mainline operating expenses1		$	7,149			$	7,349			$	6,982			$	7,136			$	6,747			$	6,892			$	28,224			$	28,729
Less mainline fuel			1,544				1,774				1,574				1,622				1,380				1,424				6,272				6,364
Less special items			303				144				—				—				—				—				447				447
Mainline operating expense excluding fuel and special items			5,302				5,431				5,408				5,514				5,367				5,468				21,505				21,918
Mainline CASM (cts)1			12.80				11.87				11.00				11.24				11.55				11.80				11.78				11.99
Mainline CASM excluding fuel and special items (Non-GAAP) (cts)			9.49				8.77				8.52				8.68				9.19				9.36				8.98				9.15
Mainline ASMs (bil)			55.9				61.9				63.5				63.5				58.4				58.4				239.6				239.6
Regional
Regional operating expenses1		$	1,462			$	1,557			$	1,503			$	1,536			$	1,466			$	1,498			$	5,958			$	6,070
Less regional fuel expense			311				349				307				316				280				289				1,246				1,264
Less special items			7				10				—				—				—				—				17				17
Regional operating expenses excluding fuel and special items			1,144				1,198				1,196				1,220				1,186				1,210				4,694				4,788
Regional CASM (cts)1			21.07				20.82				19.70				20.13				19.81				20.24				20.23				20.61
Regional CASM excluding fuel and special items (Non-GAAP) (cts)			16.47				16.02				15.68				15.99				16.03				16.35				15.94				16.26
Regional ASMs (bil)			6.94				7.48				7.63				7.63				7.40				7.40				29.45				29.45
Other Non-Operating (Income)/Expense
Other non-operating (income)/expense1		$	73			$	(11	)		$	60			$	60			$	3			$	3			$	125			$	125
Less special items			(8	)			(11	)			—				—				—				—				(19	)			(19	)
Other non-operating (income)/expense excluding special items			81				—				60				60				3				3				144				144

 

Notes:

Amounts may not recalculate due to rounding.

 

(1)	Forecasted expenses exclude special items.

Please refer to the footnotes and the forward looking statements page of this document for additional information

---

Forward Looking Statements

October 9, 2015

Cautionary Statement Regarding Forward-Looking Statements

This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be identified by words such as “may,” “will,” “expect,” “intend,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “could,” “should,” “would,” “continue,” “seek,” “target,” “guidance,” “outlook,” “if current trends continue,” “optimistic,” “forecast” and other similar words. Such statements include, but are not limited to, statements about future financial and operating results, our plans, objectives, estimates, expectations and intentions, and other statements that are not historical facts, such as, without limitation, statements that discuss the possible future effects of current known trends or uncertainties, or which indicate that the future effects of known trends or uncertainties cannot be predicted, guaranteed or assured. These forward-looking statements are based on the current objectives, beliefs and expectations of the Company, and they are subject to significant risks and uncertainties that may cause actual results and financial position and timing of certain events to differ materially from the information in the forward-looking statements. These risks and uncertainties include, but are not limited to, the following: significant operating losses in the future; downturns in economic conditions that adversely affect the Company’s business; the impact of continued periods of high volatility in fuel costs, increased fuel prices and significant disruptions in the supply of aircraft fuel; competitive practices in the industry, including the impact of low cost carriers, airline alliances and industry consolidation; the challenges and costs of integrating operations and realizing anticipated synergies and other benefits of the merger transaction with US Airways Group, Inc.; the Company’s substantial indebtedness and other obligations and the effect they could have on the Company’s business and liquidity; an inability to obtain sufficient financing or other capital to operate successfully and in accordance with the Company’s current business plan; increased costs of financing, a reduction in the availability of financing and fluctuations in interest rates; the effect the Company’s high level of fixed obligations may have on its ability to fund general corporate requirements, obtain additional financing and respond to competitive developments and adverse economic and industry conditions; the Company’s significant pension and other post-employment benefit funding obligations; the impact of any failure to comply with the covenants contained in financing arrangements; provisions in credit card processing and other commercial agreements that may materially reduce the Company’s liquidity; the impact of union disputes, employee strikes and other labor-related disruptions; any inability to maintain labor costs at competitive levels; interruptions or disruptions in service at one or more of the Company’s hub airports; costs of ongoing data security compliance requirements and the impact of any significant data security breach; any inability to obtain and maintain adequate facilities, infrastructure and slots to operate the Company’s flight schedule and expand or change its route network; the Company’s reliance on third-party regional operators or third-party service providers that have the ability to affect the Company’s revenue and the public’s perception about its services; any inability to effectively manage the costs, rights and functionality of third-party distribution channels on which the Company relies; extensive government regulation, which may result in increases in the Company’s costs, disruptions to the Company’s operations, limits on the Company’s operating flexibility, reductions in the demand for air travel, and competitive disadvantages; the impact of the heavy taxation on the airline industry; changes to the Company’s business model that may not successfully increase revenues and may cause operational difficulties or decreased demand; the loss of key personnel or inability to attract and retain additional qualified personnel; the impact of conflicts overseas, terrorist attacks and ongoing security concerns; the global scope of the Company’s business and any associated economic and political instability or adverse effects of events, circumstances or government actions beyond its control, including the impact of foreign currency exchange rate fluctuations and limitations on the repatriation of cash held in foreign countries; the impact of environmental regulation; the Company’s reliance on technology and automated systems and the impact of any failure of these technologies or systems; challenges in integrating the Company’s computer, communications and other technology systems; losses and adverse publicity stemming from any accident involving any of the Company’s aircraft or the aircraft of its regional or codeshare operators; delays in scheduled aircraft deliveries, or other loss of anticipated fleet capacity, and failure of new aircraft to perform as expected; the Company’s dependence on a limited number of suppliers for aircraft, aircraft engines and parts; the impact of changing economic and other conditions beyond the Company’s control, including global events that affect travel behavior such as an outbreak of a contagious disease, and volatility and fluctuations in the Company’s results of operations due to seasonality; the effect of a higher than normal number of pilot retirements and a potential shortage of pilots; the impact of possible future increases in insurance costs or reductions in available insurance coverage; the effect of a lawsuit that was filed in connection with the merger transaction with US Airways Group, Inc. and remains pending; an inability to use net operating losses carried forward from prior taxable years (NOL Carryforwards); any impairment in the amount of goodwill the Company recorded as a result of the application of the acquisition method of accounting and an inability to realize the full value of the Company’s and American Airlines’ respective intangible or long-lived assets and any material impairment charges that would be recorded as a result; price volatility of the Company’s common stock; the effects of the Company’s capital deployment program and the limitation, suspension or discontinuation of the Company’s share repurchase program or dividend payments thereunder; delay or prevention of stockholders’ ability to change the composition of the Company’s board of directors and the effect this may have on takeover attempts that some of the Company’s stockholders might consider beneficial; the effect of provisions of the Company’s Restated Certificate of Incorporation and Amended and Restated Bylaws that limit ownership and voting of its equity interests, including its common stock; the effect of limitations in the Company’s Restated Certificate of Incorporation on acquisitions and dispositions of its common stock designed to protect its NOL Carryforwards and certain other tax attributes, which may limit the liquidity of its common stock; and other economic, business, competitive, and/or regulatory factors affecting the Company’s business, including those set forth in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2015 (especially in Part II, Item 1A, Risk Factors and Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations sections) and other risks and uncertainties listed from time to time in the Company’s other filings with the SEC. There may be other factors of which the Company is not currently aware that may affect matters discussed in the forward-looking statements and may also cause actual results to differ materially from those discussed. Any forward-looking statements speak only as of the date hereof or as of the dates indicated in the statements. The Company does not assume any obligation to publicly update or supplement any forward-looking statement to reflect actual results, changes in assumptions or changes in other factors affecting these forward-looking statements other than as required by law.

Please refer to the footnotes and the forward looking statements page of this document for additional information