Grading AMR's Bankruptcy: Unit Revenue - A; Merger - Incomplete

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DALLAS ( TheStreet) -- It was one year ago Thursday that AMR (AAMRQ.PK) filed for bankruptcy protection, a bankruptcy that has gone pretty much as expected.

A September safety slowdown by pilots was clearly a bump in the road, and some of the conflicts with other unions has also been ugly. But in general, AMR has done what it was expected to do in bankruptcy: reduce costs and boost financial performance. It's hard to say that AMR's strategies have been altered during its year in court -- the carrier long ago announced plans to replace its aging fleet and to reap benefits from international partnerships, despite an implementation delay on the trans-Atlantic. Looking ahead, elimination of pilot scope restrictions should enhance the benefits available from both efforts.

Of course, the question of whether AMR will merge with US Airways (LCC) hangs over the American bankruptcy. Most experts expect a merger will occur and will represent the final step in the consolidation of the U.S. airline industry that began with deregulation in 1978. Afterwards, much of the sector's drama will end, said Maxim Group analyst Ray Neidl.

"It's going to become a boring industry, where they make money and have moderate growth," he said.

Neidl and CRT Capital Group analyst Mike Derchin said American has so far done well in bankruptcy.

"If you look at other airline bankruptcies and how the company has fared in holding onto customers after filing, American has done a better job than anybody," Derchin said, citing American's strong performance, relative to other carriers, in growing its revenue per available seat miles.

"I know I am in the minority in this, but I think the strategy of focusing on five core cities with strong business markets was the right strategy," Derchin said. AMR's cornerstone strategy focuses on Chicago, Dallas, Los Angeles, Miami and New York. Some analysts said the strong RASM growth is due primarily to cutting unprofitable routes and to comparisons with prior weakness. Nevertheless, both Derchin and Neidl give American an A for RASM performance and customer retention.

On the cost side, American has not gotten everything it wanted from its unions, but Neidl said that is common in bankruptcy. Derchin said US Airways' tentative contract agreements with American unions "made things a lot more difficult." Initially, American sought $1.25 billion in cost savings including $990 million from labor. So far, it has more than $500 million from the Transport Workers Union and the Association of Professional Flight Attendants. Pilots are considering a tentative agreement, with votes scheduled to be counted on Dec. 7. The carrier "hasn't been able to implement much of the cost-cutting yet," said Derchin, who gave American a grade of B on cost-cutting and a C on labor cost-cutting.