Financial News

It has been 31 years since the last trains left Union Station. And 24 years since its $140 million renovation as a hotel, shopping and entertainment spot on Market Street. But today the station is a shell of what it once was.

Banana Republic? Gone. Talbot’s? Gone. Body Shop, Brookstone, Nature Co.? Gone, gone, gone.

The space formerly occupied by Nature Co. is a gift shop called Fat Sassy’s. Nearby, a shop that calls itself a newsstand has one magazine rack near the front door and several shelves of liquor behind the counter.

But don’t write of this downtown landmark just yet.

A large expansion by Marriott, which in December took over the station’s hotel from Hyatt, is about to get under way. Marriott will move the front desk to the atrium near the station’s western end, allowing greater use of the barrel-vaulted Great Hall for

private events. Marriott also will extend its meeting and restaurant space into much of the retail area along the midway.

As a result, Union Station’s shops will be concentrated along the eastern concourse, where the food court is situated beneath the arched train shed, which dates to 1894. Whether this transformation — the station’s most extensive since the 1980s — will revive the place is yet to be seen.

Barbara Geisman, deputy mayor for development, said city officials hope better times are ahead.

"We would certainly like to see as much retail as possible in Union Station," she said. "As the downtown residential and business population grow, we think there’s a market for more mainstream retail there."

Resuscitating shopping at Union Station will require "some big-time marketing," Geisman said.

"A lot of this is that you get a name draw and then that kind of sets the tone for the rest of it," she said. "We think the station presents opportunities for larger retail."

Bass Pro Shops, based in Springfield, Mo., took a look a few years ago but passed on Union Station, Geisman said. She added that shopping habits have changed since the 1980s, when "festival markets" such as Quincy Market in Boston, South Street Seaport in New York and Union Station drew big crowds. All have faded.

"Things have changed a lot since then," Geisman said. "Instead of people going there on a whim because they want to see a neat old building, you now have a lot of people with disposable income who like to shop."

Frances Percich, Union Station’s marketing manager, said "serious" discussions are under way with two retailers, including one that would be new to St. Louis. She declined to name them. Percich said the station will continue to market itself as a tourist attraction with numerous spring and summer events.

"When people walk in here expecting a mall, they will be disappointed," she said. "We’re not a mall. We have no anchor store."

Among the few Union Station visitors one afternoon last week were Russ and Donna Clark of Yuba City, Calif. They were staying at the Marriott for a meeting. The Clarks said they had been unsure whether Union Station’s emptiness resulted from a renovation still under way or from a lack of business.

Told that the renovation was completed in 1985 and that the station had been in decline for years, Donna Clark said: "Wow, that’s a shame. This looks like a great idea. It’s disappointing not to see a lot of people."

Union Station’s current retail occupancy is 79 percent, Percich said. Ownership has changed in recent years. In 2003, the inability of St. Louis Station Associates, the investment group behind the 1980s renovation, to pay the mortgage led to foreclosure by Regency Savings Bank of Oak Park, Ill. Park National Bank of Chicago bought the property from Regency and owns it through Union Station Holdings LLC.

Doug Dean, the Marriott’s general manager, said the hotel renovation will restore some of the inn’s original 1890s configuration. He noted that the original front desk was off the atrium, remarkable for its glass-block floor. All 539 rooms, including the 67 in the station’s original "headhouse," will be redone. Dean declined to specify the overall cost, saying it remained "a moving target."

Four meeting rooms and a restaurant will be built near the new lobby. One floor above, the existing restaurant will be used mainly for private events. Beginning with a ballroom freshening done by November, the renovation project will be completed in late 2011, he said.

Hotel and shopping areas will remain open during the renovation.

Across Market from Union Station is the western end of the Gateway Mall, the milelong park that extends east to the Old Courthouse. Tricia Roland-Hamilton, head of the project to redo the mall, said that to thrive, the Union Station area must have more offices, residents and stores.

"The key to livening up that space, not just Union Station but that part of the mall, is density," she said. "And we don’t have that right now."

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Whether or not you’re personally convinced that the recession is just about over, those in the big buck mergers-and-acquisitions game are believers.

Biotechnology stocks, for example, have made dramatic gains because investors consider them ripe for picking. Big drug companies want innovative products in place for an economic revival.

Bristol-Myers Squibb recently bought biotech group Medarex Inc. for $15 a share, or $2.4 billion, about a 100 percent premium for Medarex shareholders.

"There are all these biotechnology companies out there that have been dying throughout the recession and unable to get capital or funding," observed Richard Bove, banking analyst with Rochdale Securities of Stamford, Conn.

Other deals include Walt Disney Co. buying Marvel Entertainment Inc., PepsiCo Inc.’s purchase of Pepsi Bottling Group Inc. and, in energy, Baker Hughes Inc. acquiring BJ Services Co.

In pharmaceuticals, there’s been the Pfizer Inc. deal for Wyeth and Merck & Co. acquisition of Schering-Plough. In technology, there’s the Adobe Systems Inc. deal for Omniture Inc. and Oracle Corp. purchase of Sun Microsystems Inc. In candy, Cadbury Plc has been in play since Kraft Inc.’s hostile bid.

"It’s all a sign you can’t keep a good capitalist down, and eventually greed will overcome fear," said James Paulsen, chief investment officer for Wells Capital Management, Minneapolis. "People are saying, ‘Gee, not only are we not going to have a depression, but it looks like we’re actually going to have a recovery.’"

Stock is still available at a "30-percent-off sale price," and there is excess cash lying around, said Paulsen. "That boatload of cash is on hand at so many companies because nine months ago everyone was saying cash was king — even though they were earning nothing on it," he said.

While he doesn’t expect a red-hot M&A market the rest of this year, he thinks it will continue to noticeably improve.

"It seems like a lot is happening because finally, after the whole economic crisis, some deals are actually getting done," said Jonathan Marino of the M&A Journal in New York. "It’s not driven by availability of money because credit markets are just as frozen as they were in May, but many acquirers have cash on their balance sheets."

Cash lets firms avoid issuing stock or paying high loan costs, he said.

"Some of these deals are tacit indication that the companies can’t grow their businesses much beyond what they are now, so they’re looking to fill some holes with key partnerships," said Paul Nolte, director of investments for Hinsdale Associates in Hinsdale, Ill. "Certain companies reach a ceiling where they are limited in how fast they can grow their revenue organically."

Firms aren’t using their traditional sources of financing, said Nolte. In the case of Kraft, financing for the deal was lined up well in advance of an offer being made.

"It’s really a broad spectrum this year," he said. "We’ve seen deals in the food industry, entertainment, technology and oil industry."

There will be windfalls for some investors. Greatest gains typically fall to those holding shares of the company being bought, especially if there are several competitors due to a hostile bid. Meanwhile, the acquiring firm’s stock often suffers on worries over whether the merger is logical or could stretch finances too thin.

Investors are buying a variety of shares in the likely target industries. Much of the acquisition activity will take place in digestible smaller firms, along with some larger companies if they have strong product lines.

The fact that mining company BHP Billiton has built up $18 billion in cash, for example, has investors looking at its possible acquisition of Freeport-McMoRan Copper & Gold Inc., Potash Corp. or Anglo American Plc.

Nonetheless, everyone is still into low risk these days. Lenders aren’t over-lending, individuals aren’t overpaying for houses, most firms aren’t expanding their business, and assets are still priced for "the depression that wasn’t," Paulsen said.

The 2009 merger environment is "high risk and high reward," according to a recent report by the Transaction Services unit of PriceWaterhouseCoopers. It believes a number of deal makers, including private equity firms, are eager to get back to business. While some companies will merge for survival, others will simply decide it is a good time to combine with a partner to prepare for an uptick in the economy.

Here are the sectors best-positioned for mergers and worthy of monitoring by investors, according to the PriceWaterhouseCoopers partners:

— Technology is "poised for another wave" of consolidation because many of its companies have mature business models and healthy balance sheets.

— Energy is experiencing greater stabilization in crude oil prices. This industry features excellent cash flow and growth prospects that make it a "consolidation hot spot."

— Pharmaceuticals and health care are now in the merger "spotlight," no matter what type of reform may be passed in Washington. Drug companies are seeking to fill their product pipelines through acquisitions, while some health care companies will be realigning their business models to take advantage of a new industry environment.

— Financial services consolidation will be "rampant," driven by mergers of necessity based on the distressed circumstances of some competitors. There will a flight to quality banks in the top one-fourth of the banking industry because they aren’t so hamstrung by government oversight.

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Several big airlines this week have added $10 surcharges for most of their tickets for travel on three busy days around Thanksgiving and New Year’s holidays.

American and United airlines added the charge for travel on Nov. 29, the Sunday after Thanksgiving, as well as Jan. 2 and 3. On Friday, US Airways Group Inc. matched the surcharge, and FareCompare.com said Delta Air Lines Inc. added it, too.

Spokespersons for Southwest Airlines Co. and Continental Airlines Inc. said they had not added the surcharge.

Rick Seaney of FareCompare.com noted that the Sunday after Thanksgiving is one of the busiest travel days of the year, and that the two dates in January are heavily traveled as well.

He said the airlines probably added the charge rather than raise base fares because it was a quick, targeted way to charge more on busy travel days no fax cash advance.

"The bottom line this year for consumers is that it’s pretty clear that if you procrastinate on your holiday travel, you’re going to get stung," he said.

He said holiday fares are still running 15 percent to 20 percent lower than last year, with prices to bigger cities carrying the bigger discount from a year ago.

American added the charge on Wednesday, and United matched on Thursday.

Shares of American parent AMR Corp. rose 28 cents, or 3.6 percent, to $8.02. United parent UAL Corp. added 47 cents, or 5.3 percent, to $9.30, and US Airways Group Inc. was up 5 cents to $4.96. Delta Air Lines Inc. rose 13 cents, or 1.5 percent, to $9.05.

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World leaders at the G20 meeting on Thursday closed in on a statement calling for new restraints on banker pay, an issue that became inflammatory during the global financial crisis, but would not endorse specific monetary caps — a deal-breaker for the United States.

Leaders will be urged to approve a number of measures such as clawing back salary for poor performance and paying some bonuses in stock, an official said.

High levels of compensation, which in some cases resulted in top executives of money-losing financial companies reaping tens of millions of dollars in bonuses, have outraged political leaders and are a top target of regulatory reform efforts.

Officials were focused on finding ways to link a bank’s bonus pool and executive compensation more closely to the health of its balance sheet and overall profitability.

Critics say the financial crisis was exacerbated by pay structures that rewarded short-term performance, which encouraged excessive risk-taking.

Key to the formulation of the Group of 20 statement will be input from the Financial Stability Board, a policy-coordinating arm of the G20 nations with the world’s largest economies.

The FSB’s focus is on “deferring bonuses, building in clawbacks if performance deteriorates, focusing bonuses in things like stock”, said a senior Canadian official.

Canada co-chaired an FSB panel on limiting pay. Asked whether the proposals were those of Canada or the FSB itself, the official replied: “This is more what I think you’re going to see coming out of the Financial Stability Board.”

Before the global financial crisis that erupted last year, and in some cases right through it, a glaring disconnect between pay and performance was on display at many banks, including some rescued by massive taxpayer bailouts.

The Canadian official said the G20 would not impose universal regulations on curbing excessive pay.

“This evening and tomorrow …. we’ll see standards setting out the principles and (suggesting) practical things that can be done to back up these principles. It will be up to each country to implement them,” he said.

The FSB said this month that it would advise G20 nations to prevent banks with low levels of capital from offering large bonuses. An FSB official said the board would issue guidelines at the summit on how firms should structure pay packets.

The guidelines were also expected to cover disclosure of pay levels, deferral and vesting periods on share-related pay, as well as independent oversight.

“Europeans are horrified by banks, some reliant on taxpayers’ money, once again paying exorbitant bonuses,” said European Commission President Jose Manuel Durao Barroso.

“In Pittsburgh, the EU will call for coordinated action to stop this, building on measures already taken in Europe and elsewhere,” he said in a statement before the summit opened. 

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WINNIPEG–CanWest Global Communications Corp. is selling its majority stake in Australian broadcaster Ten Network Holdings Ltd. in a deal worth $634 million.

Proceeds will be used in large part to repay debt as the company works to recapitalize its business.

"The sale of the shares of Ten Holdings is expected to facilitate continuing discussions with the ad hoc committee (of lenders) regarding a recapitalization transaction," the company said in a statement last night. CanWest is grappling with a $4 billion debt load and negotiating with creditors to recapitalize the company.

The company said it has agreed with a group of its lenders to use $102 million to repay its 12 per cent senior secured notes issued by CanWest Media and CanWest Television Ltd. Partnership.

Another $85 million will be used for general corporate and working-capital purposes, including the repayment to a senior secured revolving asset-based loan facility with CIT Business Credit Canada Inc.

CanWest also agreed to deposit $426 million with a trustee for the holders of its 8 per cent senior subordinated notes.

CanWest said members of the ad hoc committee have also extended a forbearance agreement to Oct. 6, while CIT Business Credit Canada has agreed to extend to Oct. 15 a deadline for certain milestones that were to have been achieved by tomorrow.

The company said it has signed a deal with Sydney-based Macquarie Capital Advisers Ltd. for the sale of 50.1 per cent stake in Ten Holdings in a block trade. The sale is expected to be completed by Oct. 1.

"No new Ten Holdings shares will be issued as part of this sale process," the Australian company said in a statement last night.

Ten Holdings stock was halted on the Australian stock exchange to help with the sale.

CanWest, owner of the Global television network in Canada, the National Post and an array of big-city Canadian daily newspapers, has been struggling to repay debts and loans in recent months.

Ten Holdings completed an equity offering earlier this year that cut CanWest’s ownership stake in the broadcaster from 57 per cent to just over half. Ten Holdings used the cash raised to pay down debt and strengthen its balance sheet.

CanWest has previously tried to sell its stake in the Ten to help it cope with its own debt.

The company first put the commercial television channel up for sale in October 2006, when Australian foreign ownership rules were relaxed.

Rupert Murdoch’s News Corp. considered buying the assets, but decided the asking price was too high.

After a failed search for an offer that it deemed attractive, CanWest yanked the broadcaster off the market and completed a share exchange plan that gave it majority ownership of the network.

Since then, CanWest has sold numerous other assets including some of its local E! channel branded stations in Canada, indirect interests in four Turkish radio stations, and American political magazine the New Republic.

The Canadian Press

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A tepid economic recovery and doubts about the Federal Reserve’s ability to smoothly withdraw aid from financial markets are reasons to favor more defensive stocks, according to Matthew Berler, a portfolio manager at Osterweis Capital Management.

Many investors have bought into cyclical areas of the market such as materials and industrials, putting stocks in those sectors among the leaders of a near 60 percent rally in U.S. equities.

Berler’s bottom up stock picking technique, where he focuses on the fundamentals of individual companies, is leading him to areas like healthcare and utilities.

The San Francisco-based Berler, a former managing director at Morgan Stanley, says the $699.4 million Osterweis Fund OSTFX.O currently has an above average cash position with 70 percent in equities compared to what would normally be 80 to 85 percent.

Below is a question and answer session with Matthew Berler.

Q. What do you think the economic recovery in the United States will look like?

A. Tighter credit together with what we expect will be stubbornly higher unemployment levels, along with a greater propensity to save on the part of the consumer probably means that we are going to see a sub par economic recovery.

What we’ve done is create a portfolio that should perform even if the economy doesn’t pick up significantly.

With the massive stimulus that has come from Washington into financial markets and into the real economy the risk is that if they do start to remove that liquidity from the system that could effectively take the punch bowl away from the stock market.

Q. Given those conditions what are some of the stocks you like?

A. Unilver NV is one of our largest holdings at this point in time, it’s a relatively new position we picked up in Q1 when a new CEO was brought in with a clear mandate to turnaround what had been a chronically underperforming global consumer product company.

We picked up Bayer AG. That is another great example of a company that’s trading at the same very depressed valuation as the U.S. pharmaceutical companies.

Q. Health care should fit that defensive profile but there are added risks from pending regulation connected to President Barack Obama’s reforms plans. What is your view of that sector?

A. Broadly speaking we have a big overweight in health care.

Our sense is that whatever comes out of Washington probably ends up stimulating demand more than what health care in general loses in terms of pricing. 

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When Paul McKee isn’t talking about WingHaven, he’s usually touting NorthPark.

The 550-acre business park just east of Lambert-St. Louis International Airport sits on land cleared through an airport noise buyout in the 1980s. In 2005, McKee’s McEagle Properties partnered with two other developers to win a bruising five-way competition for the redevelopment rights and promised to create 6,290 jobs over a decade.

Within a few months, the project landed its first big tenant: Express Scripts, which decided to have McEagle and Claycorp build it a new, $50 million headquarters at the University-Missouri St. Louis — just south of NorthPark — and move 1,100 people there from Maryland Heights.

Since then, the pharmacy benefits manager has added a second building, and 1,400 employees, to the site. And it will decide soon whether to locate a third building there or put it in Pennsylvania.

Much of NorthPark’s acreage, though, remains empty for now. There’s a Hilton Garden Inn, the headquarters of Vatterott College, a half-occupied office building and a lot of grass.

The project’s fate, McKee acknowledges, is tied closely to that of Lambert free insurance quotes. And thus by extension, to talks with China about putting an air cargo hub at Lambert. If that hub happens, NorthPark will be a prime spot for warehouses and light factories.

"NorthPark lives and dies a lot on the airport," he said. "And on growth. I think China is so significant to that."

McKee’s company last year spent $110,000 lobbying Congress on the project, according to federal disclosure records.

In February, the Department of Commerce added 825 acres to Lambert’s Foreign Trade Zone — an area where customs taxes are reduced to encourage imports and exports — and the new boundaries include NorthPark.

If that helps the China project happen, McKee said, it will prove to be a boon for NorthPark, for NorthSide — his proposal for a large swath of north St. Louis — and for the whole St. Louis area.

"It would be real jobs, from outside," he said.

Source

Since unveiling his NorthSide plan in May, Paul McKee has done a lot of pitching.

He’s pitched to the neighborhoods he wants to rebuild. He’s pitched to city officials who must approve the plan. He’s pitched to the media, to business groups, to anyone who will listen.

But the people he really needs to pitch to are the guys with the money: Bankers. Investors. The people with the cash to get his vision off the ground. That may be his toughest pitch of all.

The plan to rebuild 1,500 acres of north St. Louis is projected to cost $8.1 billion. In filings with the city, McKee’s McEagle Properties has said it hopes to borrow $6 billion of that and raise most of the rest in the form of equity from investors and partners. And he’ll need to do it in the toughest credit market in decades.
It is worth noting that McEagle won’t need to borrow $6 billion all at once. It plans to "recycle" capital over the course of the 20-year project, and use profits from the early stages to help fund the later ones. But the first four years alone call for nearly $1 billion in expenses, and that money will have to come from somewhere.

Meanwhile, the market for financing big commercial real estate projects keeps getting worse.

The $3.5 trillion industry of office buildings and shopping centers in this country has lost 39 percent of its value in the past two years, according to the MIT Center for Real Estate. Couple that with a wave of commercial mortgages coming due — nearly half will expire in the next five years — and experts worry about a flood of foreclosures and costly refinance deals. That could suck up a lot of cash which might otherwise fuel projects such as NorthSide.

When you figure in the long time frame and complexity of McKee’s project, local finance experts say, raising the money to get it off the ground becomes a very tough sell indeed.

"It’s almost unimaginable," said Edward Lawrence, a finance professor at the University of Missouri-St. Louis. "There are some really knotty issues."

For one, NorthSide will take two decades, starting with a few office buildings and rolling out to include 10,000 homes. That means the project can build on early successes, which is good, Lawrence notes, but it also leaves a lot of time for things to go wrong. "This thing can fall apart at any point," he said.

Then there’s uncertainty about all the different pieces that must come together, from thorny political approvals to an unfunded highway interchange at 22nd Street, to a new $640 million bridge across the Mississippi. And questions about who will fill 4.5 million square feet of new office space in a city where downtown vacancy remains stubbornly high.

The project carries a lot of risk in an environment where many banks don’t want any, said Joe Monteleone, executive vice president of Q10 Triad Capital Advisors, a commercial real estate firm in Creve Coeur.

The way to ease that risk, Monteleone said, is for McEagle to attract a lot of equity — to bring cash to the table and keep its borrowing to a minimum. But that’s no easy task.

"Right now, attracting equity is just very difficult on all projects," he said. "In a very large deal like this, it just becomes that much more difficult."

In documents filed with the city, McEagle says that it and its partners expect to kick in 20 percent, or about $1.7 billion. Then there’s the 75 percent funded through borrowing. The rest would come from tax credits and other government incentives, especially in the first few years as NorthSide gets off the ground.

Most large urban redevelopment projects — such as Atlantic Yards in Brooklyn — have dialed back in this recession, said Stephen Blank, a senior fellow who studies real estate capital markets for the Urban Land Institute. The money just isn’t there right now.

Debt markets are basically frozen. There’s no appetite for commercial mortgage-backed securities. And no one really knows where prices are going, so it’s hard to find buyers for buildings. Simply having a great vision isn’t enough to make a deal happen instant payday loan.

"I don’t know how you could possibly do this," Blank said. "This could be a game changer (for St. Louis), but I don’t see it in today’s environment."

Still, some local banking experts were more optimistic.

Generally speaking, St. Louis banks haven’t been burned like some of their counterparts elsewhere, said Joe Stieven, a longtime bank analyst who heads Stieven Capital Advisors. Some banks have capital, and are willing to lend it, but on their own terms for a change.

"The boring old banking industry — not ’shadow’ banking or investment banking — is willing and able to finance projects," Stieven said. "If you have a good project, you can get it financed."

But so far, just two banks have committed publicly to McEagle’s NorthSide project. And one is defunct.

That’s Corn Belt Bank, which was based in Pittsfield, Ill., and had a branch in Clayton. In 2007, it gave McEagle $3 million in financing, according to deeds filed with the city. But in February, it was shut down by federal banking regulators, and now that note is held by the FDIC, which plans to sell it. McKee said he hoped to extend or refinance that loan with whoever buys it.

The other lender is Bank of Washington, in Washington, Mo., which lent McEagle $27.6 million in December and submitted a letter to city officials pledging to help finance the first two phases of NorthSide if they approve $398 million in tax increment financing.

The bank’s chairman, L.B. Eckelkamp, acknowledged that tough credit markets meant the project might not start as fast as it would have two or three years ago, but he was confident it would succeed. "It’s a wonderful plan," he said. "It does a lot for the city."

McKee says that his capital efforts have been "much more extensive" than just those loans, that he’s talking with banks, private capital groups and institutional investors. He was bullish on his chances.

"We think this project will attract attention from all over the U.S. and foreign investors as well," he wrote in an e-mail interview.

But that money won’t come off the sidelines, he said, until "public commitment to this is evident." In other words, until the city signs that TIF, and grants McEagle the redevelopment rights that will let it start tapping tax credits.

It would certainly help, he said, if the city agrees to back half the cost of that TIF — just under $200 million. In this climate, McKee said, his company can’t afford to carry the full cost of the massive road and sewer upgrades it’s planning for NorthSide. And because the city will benefit from the improvements, he said, it ought to share in the risk.

But city officials are skeptical.

They’ve only backed three other TIFs in recent years, and wound up on the hook each time. And with a tight budget and pension obligations looming, there isn’t much room to pay down bonds if new tax revenue from NorthSide can’t.

Even if Mayor Francis Slay’s office agrees, it’s not clear that there are enough votes on the Board of Aldermen.

"I’m not more of a financial expert than the banks that are looking at this," said Alderman Antonio French. "If they’re still passing on it, who are we to say it’s a good deal?"

Still, in this economic climate, the way to sell the money people on NorthSide may be through the political process, Monteleone said. Lining up public support, and putting down a lot of equity, is the only way to instill enough confidence in a project this big.

"It’s just a difficult project to conventionally finance," Monteleone said. "It’s going to take a lot of public finance. It’s going to take a lot of political clout. I think if anybody is going to be able to pull it off, it’s Paul."

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OTTAWA–Statistics Canada says wholesale sales increased in July for the second consecutive month, mainly as a result of higher sales in the auto sector.

Sales in current dollars rose 2.8 per cent to $41.7 billion.

The data shows stronger sales in five of the seven wholesale trade sectors, although there were drops in the food, beverage and tobacco products and farm products sectors.

Automotive products jumped 14.2 per cent to $6.8 billion, reaping the benefits of higher exports and imports as the sector continued to rev up again as Chrysler and General Motors factories resumed production following spring closures.

It was the sixth consecutive monthly increase for the sector, although sales are still 13.5 per cent below the level of July 2008.

Wholesale sales rose in eight provinces in July.

Source

UPDATED: 10:32 a.m. Thursday

ST. LOUIS — American Airlines said Thursday it will dramatically slash its remaining St. Louis flight schedule next year as part of a dramatic restructuring.

American’s parent company, AMR Corp. announced it will raise or borrow $2.9 billion and will focus service on its primary hub airports, including Chicago’s O’Hare International Airport and Dallas/Fort Worth International. The moves will leave St. Louis with 36 daily departures to nine cities on American and American Eagle next April.

"Today’s announcement positions our company well to face today’s industry challenges and allows us to remain focused on the future and on returning to profitability," said AMR chairman and chief executive Gerard Arpey.

American St. Louis officials were briefed on this latest round of flight reductions late Wednesday. Since 2003, American has made a series of deep service cuts at Lambert-St. Louis International Airport — once a thriving midcontinental hub for Trans World Airlines.

By the end of November, St. Louis already was being scaled back to 82 daily flights to 20 destinations. St. Louis leaders expressed disappointment with Thursday’s news that American was making even deeper cuts.

St. Louis Mayor Francis Slay called it a "bad business decision."

"By eliminating what was left of the St. Louis hub it took over from TWA, American will be walking away from more than 620,000 passengers a year," Slay said in his blog. "And they will walk away from approximately $108 million in system revenue."

Lambert Director Richard Hrabko said a major concern is that the move will eliminate nonstop service to a dozen U.S. cities from Lambert. St. Louis travelers looking for nonstop service already had seen their choices plummet from more than 100 cities reachable by nonstop flights to about 70.

There will no longer be nonstop air service between St. Louis and the following cities: Austin, Texas; Nashville; Indianapolis; Wichita, Kan.; Jacksonville, Fla.; Madison, Wis.; Norfolk, Va.; Raleigh-Durham, N.C.; Richmond, Va.; San Antonio, Texas; San Francisco; and Des Moines, Iowa.

"If you look at this history since 2003, it has been a steady downturn," Hrabko said. "They have continued to cut consistently down to this ultimate cut, which I consider to be the ultimate cut."

American spokeswoman Mary Frances Fagan said the new daily St. Louis flight schedule will include two American Eagle flights to Boston and two to JFK International Airport in New York, and American Airline flights to New York’s LaGuardia (4), Washington, D.C.(4), Miami (2), Dallas-Fort Worth (9), Chicago O’Hare (9), Los Angeles (3), and Seattle (1).

Earlier story:

American Airlines has announced that St. Louis will lose 46 American and regional flights and end service to 20 cities.

American said this morning that it will be cutting all but 36 flights to nine destinations from St. Louis.

St. Louis will lose lose 46 American and regional flights and end service to 20 cities. While the airline is getting a $2.9 billion boost, it is using it to add flights to other cities like at hubs in Dallas/Fort Worth, Chicago, Miami and New York. 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.

The company said it will reduce operations at St. Louis and Raleigh/Durham, N.C.

St. Louisans were already finding it tougher to get where they’re going on a nonstop flight.

When Lambert-St. Louis International Airport served as the midcontinental hub for Trans World Airlines Inc., air travelers could book a flight from St. Louis to more than 100 cities. But no more.

Nonstop air service has shrunk to about 70 cities — and St. Louis to San Diego will fall out of the mix in November when cuts to American Airlines’ domestic flight schedules take effect. The airline eliminated flights from Lambert to Cedar Rapids, Iowa, and Springfield, Mo., last month.

Blame the ongoing metamorphosis of Lambert to a midsize hub airport, last year’s fuel price increases and — most recently — the sputtering economy, which has taken a big bite out of business travel budgets.

"It’s unfortunate that they would reduce their direct flights to a city that’s well visited from the St. Louis area," business traveler Linda Jacobs said before boarding an American flight for San Diego last week. "It’s understandable that American is doing what they have to do … to continue to be profitable guaranteed fast personal loans. But it’s inconvenient to the traveler."

The biggest wave of flight reductions occurred in the fall of 2003, when American slashed half of its St. Louis schedule — including nonstops from St. Louis to 27 cities. Most of the remaining flights were on smaller planes flown by American’s regional airline partners.

The loss of nonstop flights has included a mix of big city destinations and smaller regional markets in Missouri and central Illinois.

"That is really indicative of what happened to Lambert after TWA went away," said Kent Boyd, spokesman for the Springfield-Branson National Airport. "When TWA was in existence, I would hazard to guess half our passengers went to Lambert to make connections."

By the time American eliminated the single daily American Eagle flight between St. Louis and Springfield, Mo., last month, Boyd said, the planes were flying less than one-third full.

Boyd said American added a seventh flight to Dallas-Fort Worth International Airport at that time.

"We certainly understand that given the choice, people would prefer a nonstop," said American Airlines spokesman Tim Smith. "But if we can make connections reasonable, convenient and timely, it is the next best thing."

Smith said the majority of travel itineraries these days involve connecting flights. American serves 250 cities worldwide.

Lambert Director Richard Hrabko said St. Louis flight losses actually have stabilized somewhat in the past couple of years and the airport is served by a healthy mix of airlines. The presence of low-cost carriers Southwest Airlines, AirTran Airways and Frontier Airlines have helped keep fares in check, he added.

There still are 270 departing passenger flights each day, and other hub airports also have lost some air service.

"We’re not in this deal alone," Hrabko said.

American’s latest round of Lambert cuts may already have touched off some competitive maneuvering.

After American officials decided to reduce nonstop service to Boston in November, Southwest said it will add two daily nonstops from Lambert to Boston’s Logan International Airport beginning Jan. 10.

Southwest also added two new nonstop flights to Minneapolis/St. Paul but reduced its daily flights between St. Louis and Baltimore, Cleveland, Detroit and Las Vegas.

"This growing airline has seen this as a growth market," Southwest spokesman Brad Hawkins said of St. Louis.

Southwest now offers nonstop flights to two dozen cities from Lambert.

Despite its loss of flights in recent years, Lambert appears "ripe" for Southwest to increase its presence because its location in the middle of the country and its excess capacity make it a good candidate for connecting traffic, said George Hobica, founder of Airfarewatchdog.com.

"I think it is an underutilized airport (since) TWA pulled out and after American … basically implied they would maintain the service and didn’t," Hobica said.

Direct air service to a multitude of cities can brighten a region’s prospects for growth, economists say, and is one factor a company would consider when locating a new facility. Lambert officials say St. Louis remains a strong travel market compared to similar-sized metropolitan areas.

Brian Hall, chief marketing officer for the St. Louis Convention and Visitors Commission, agreed that St. Louis is well served by air service based on its population, and the loss of some direct flights hasn’t been a barrier to meeting planners or leisure travelers.

"I think our expectation is that of when TWA was hubbed out of Lambert," Hall said. "We had extraordinary service, including a lot of international nonstop travel to Europe. We never had the population base to support that. But the fact that they chose St. Louis as a hub, we were very fortunate to have that robust service."

But Tina Garcia Arras, president of the Travel Desk Inc., said frequent business travelers are having to spend more time making flight connections than they once did.

"It’s become a real pain," she said.

Before the recession, passenger boardings had grown from a baseline of 6.3 million in 2004 — the first year after American’s significant schedule reduction — to 7.7 million in 2007.

"I don’t dwell on the past much," Hrabko said. "I look at the future. Seventy nonstop destinations. That’s pretty good."

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