AMR Raises $2.9 Billion, Shifts Flights to Boost Hubs (Update2)

By Mary Schlangenstein
Sept. 17 (Bloomberg) -- AMR Corp.’s American Airlines, the world’s second-largest carrier, said it raised $2.9 billion in cash and financing and will add flying at four U.S. hubs to focus on the most-profitable parts of its network.

AMR rose as much as 26 percent in early trading. Credit- card partner Citigroup Inc. paid $1 billion for an advance purchase of frequent-flier miles, and GE Capital Aviation Services provided $1.6 billion in aircraft financing commitments, American said today in a statement.

The cash will bolster liquidity for Fort Worth, Texas-based AMR before winter in the U.S., when travel typically slows and carriers tap their reserves to fund operations. The recession has sapped demand for higher-fare business travel, dragging the biggest U.S. carriers to losses.

“There are signs of improvement in the revenue environment and in consumer sentiment, but the winter season is still potentially a challenging one,” said Douglas Runte, managing director at Piper Jaffray & Co. in New York. “This is an impressive move by American.” He doesn’t rate AMR.

The shares jumped $1.66, or 23 percent, to $9.01 at 8:27 a.m. before regular New York Stock Exchange composite trading. AMR tumbled 31 percent this year through yesterday.

AMR had $3.3 billion in cash and short-term investments as of June 30, including $460 million dedicated to specific uses.

Hub Flights

American said flights will increase from the hubs at Chicago, New York, Dallas-Fort Worth and Miami, and some regional jets will get first-class cabins. The carrier also will purchase 22 70-seat Bombardier Inc. planes.

Operations will shrink at St. Louis and Raleigh/Durham, North Carolina, American said. The airline and regional unit American Eagle will drop 46 daily departures from St. Louis and 9 at Raleigh/Durham.

American said it’s still working to determine how many employees will be affected by the flight reductions in those two cities.

The GE Aviation Capital Services agreement will provide funding for Boeing Co. 737-800s American will add through 2011 by letting the airline sell the jets to the General Electric Co. unit and lease them back. The planes are 25 percent more fuel efficient than the MD-80s they will replace.

The new financing also includes $280 million in cash under a loan accord. American has received $225 million of that funding.

‘Vote of Confidence’

“The fact that we have been able to raise the money we need, both to sustain us through this economic contraction and to invest in our future, is an important vote of confidence by the capital markets and our business partners,” Chief Executive Gerard Arpey said today in a message to employees.

American is at least the fifth major U.S. carrier since 2008 to raise funds by selling frequent-flier points to credit- card issuers. The miles are distributed as awards for purchases.

Citigroup can use the miles in equal monthly installments from 2012 through 2016. The agreement also extends its co- branded credit-card program with American.