American Airlines parent gets $2.9 billion, shifts routes

American Airlines’ parent company said Thursday that it is taking on significant new debt at a time when revenues are being hammered, but the $2.9 billion in cash and fresh financing it raised should quiet concerns -- for now -- that it is in danger of a cash crunch and a bankruptcy filing.

Passengers will see big changes from the nation’s second-largest airline, including increased flying in Chicago, New York, Los Angeles, Dallas-Fort Worth and Miami, but fewer flights in St. Louis and North Carolina’s Raleigh/Durham, where American is giving up major ground to Southwest Airlines Co.

At Los Angeles International Airport, American plans two new daily American and Eagle flights.

AMR Corp. said the extra funding it has received includes $1 billion in cash from an advance sale of frequent flier miles to Citigroup Inc. The company is treating that money as a loan.

Other major carriers, including Delta Air Lines Inc. and UAL Corp.’s United Airlines, also have done advance sales of frequent flier miles to raise cash. Such transactions do not directly affect consumers: The airline gets cash up front for miles its credit card partner would provide to cardholders as they make purchases. Because this is a forward sale of the miles, the airline would pay interest.

The Fort Worth, Texas, company said it also has received $1.6 billion in sale-lease-back financing commitments from GE Capital Aviation Services, a unit of General Electric Co., and $280 million in cash in a loan from GE Capital Aviation Services secured by aircraft.

Of the $1.3 billion in new liquidity, all but $55 million will be included in the third-quarter 2009 cash and short-term investment balance.

The transactions will increase the company’s cash balance to roughly $3.7 billion by the end of the third quarter, which is Sept. 30. AMR had $14 billion in total debt at the end of the second quarter. It’s unclear how much that figure will increase by the end of the third quarter. And AMR has $1.3 billion in debt maturities in 2010.

“The announcement today from our perspective takes the liquidity question off the table,” Virasb Vahidi, American Airlines’ senior vice president of planning, said in an interview.

Analysts generally agreed.

“Whatever added risks they are taking on by increasing debt and increasing interest expense are more than offset by the near-term advantage of raising more cash to carry them through the weak winter season,” Standard & Poor’s analyst Philip Baggaley said.

The larger question is what will happen in the future. Overall demand for air travel has shown some improvement in recent months, but yields are down because passengers are paying less for their tickets and are not flying as much in premium seats.

Raising additional financing, should AMR need it, will be difficult.

AMR has about $2 billion remaining in unencumbered assets, including slots, routes, spare parts and its Eagle operations.

But accessing cash from those assets “will be more challenging,” Chief Financial Officer Tom Horton said during a conference call with analysts and reporters.

AMR said it would strengthen its flight network by increasing capacity in four hub cities. Those cities, and Los Angeles, are key parts of the company’s plan to benefit from closer cooperation with British Airways, Iberia and other partners.

AMR will add 57 daily flights at O’Hare International Airport in Chicago, six new destinations from JFK International Airport in New York and 19 daily departures to the airline’s largest hub at Dallas/Forth Worth.

American and Eagle also will add 23 flights at Miami.

In St. Louis, American and its regional affiliates will reduce daily departures by 46 and discontinue service to 20 destinations. After the reductions, American and Eagle will provide 36 departures per day to nine destinations. In Raleigh/Durham, service to three destinations will be discontinued and a total of nine departures will be eliminated. Raleigh/Durham will continue to provide service to eight destinations, with 44 departures per day.

AMR shares rose $1.45, or 20%, to close at $8.80 on Thursday.