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Airlines With Cash On Hand  
User currently offline413x3 From United States of America, joined Jul 2008, 1983 posts, RR: 0
Posted (5 years 7 months 5 days 14 hours ago) and read 5847 times:

I realize this economy is bad, but isn't now a great time to buy really good aircraft for cheaper? Don't many airlines still have a ton of cash they can use?

31 replies: All unread, showing first 25:
 
User currently offlineEA CO AS From United States of America, joined Nov 2001, 13749 posts, RR: 61
Reply 1, posted (5 years 7 months 5 days 13 hours ago) and read 5787 times:
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Quoting 413x3 (Thread starter):
I realize this economy is bad, but isn't now a great time to buy really good aircraft for cheaper?

 redflag 

With large drops in demand and yields falling, why buy a new airframe if you can't deploy it profitably?

Quoting 413x3 (Thread starter):
Don't many airlines still have a ton of cash they can use?

Yes, but it's supposed to be a cushion against bad economic times. Would you blow your life's savings on a sports car if times were tough? Probably not.



"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan
User currently offline413X3 From United States of America, joined Jul 2008, 1983 posts, RR: 0
Reply 2, posted (5 years 7 months 3 days 23 hours ago) and read 5472 times:

I realize it isn't the best time, but for a powerful airline, now is a good time to buy good airframes that will last 15+ yrs, and when the good times come back, you will have cheaper lease rates

User currently offlineEA CO AS From United States of America, joined Nov 2001, 13749 posts, RR: 61
Reply 3, posted (5 years 7 months 3 days 10 hours ago) and read 5222 times:
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Nope, cash is king right now. You want more of it in the bank and less of it spent on new airframes you can't profitably deploy.


"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan
User currently offlineKiwiandrew From New Zealand, joined Jun 2005, 8625 posts, RR: 13
Reply 4, posted (5 years 7 months 3 days 10 hours ago) and read 5214 times:
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Quoting EA CO AS (Reply 1):
With large drops in demand and yields falling, why buy a new airframe if you can't deploy it profitably?

because in most cases the new airframe will not be immediately available , thus you have the chance to negotiate a purchase at todays depressed prices of an asset which will not come onstream until ( hopefully ) the upswing has started - SQ as an example , has often in the past purchased during a downswing and benefited from deliveries during a recovery .

Of course if you screw the timing up on this and the downswing continues for longer than you expected this can be a very expensive mistake - but business has always been a gamble .



Moderation in all things ... including moderation ;-)
User currently offlineLAXintl From United States of America, joined May 2000, 26147 posts, RR: 50
Reply 5, posted (5 years 7 months 3 days 10 hours ago) and read 5214 times:

Very few airlines divest much cash to acquire airplanes.

Just like most people getting a house or buying car, airlines finance planes either via traditional loans or various instruments such as trust certificates. However with the credit markets at near lock down its not been an easy task to accomplish at the moment.

Its so bad currently that carriers like AA and US have had to resort to back-stop financing from the manufacturers for recent deliveries as normal commercial sources were unavailable while Southwest Airlines had to go overseas and for the first time tap Chinese financing of all things while also performing several sale-lease back transactions on new tail to relieve it of any financing needs on them.



From the desert to the sea, to all of Southern California
User currently offlineAirframeAS From United States of America, joined Feb 2004, 14150 posts, RR: 24
Reply 6, posted (5 years 7 months 3 days 9 hours ago) and read 5114 times:



Quoting EA CO AS (Reply 1):
With large drops in demand and yields falling, why buy a new airframe if you can't deploy it profitably?

That is what I was sort of asking you in one of the AS threads in regards to the entrances of the 738's, you gave me a totally different answer.

 confused 



A Safe Flight Begins With Quality Maintenance On The Ground.
User currently offline413x3 From United States of America, joined Jul 2008, 1983 posts, RR: 0
Reply 7, posted (5 years 7 months 3 days 9 hours ago) and read 5102 times:

Who's talking about "new" airframes? what about the few 777Fs flying to the desert to do nothing? why can't an airline pick up older 747s sitting in the desert for cheaper lease rates maybe? in investing, you want to buy when the market is weakest, so why sit around and wait for the economy to pick up again and now you have to pay over full price for planes you could have purchased new or used a yr or so ago?

User currently offlineEA CO AS From United States of America, joined Nov 2001, 13749 posts, RR: 61
Reply 8, posted (5 years 7 months 2 days 20 hours ago) and read 4896 times:
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Quoting AirframeAS (Reply 6):
Quoting EA CO AS (Reply 1):
With large drops in demand and yields falling, why buy a new airframe if you can't deploy it profitably?


That is what I was sort of asking you in one of the AS threads in regards to the entrances of the 738's, you gave me a totally different answer.

 confused 

What are you talking about?



"In this present crisis, government is not the solution to our problem - government IS the problem." - Ronald Reagan
User currently offlineGrain From United States of America, joined Sep 2008, 95 posts, RR: 0
Reply 9, posted (5 years 7 months 2 days 20 hours ago) and read 4856 times:

from southwest shareholders meeting notes:

5-20-09

As of today, we have $2.3 billion in cash and shortterm investments; a readily available
bank line-of-credit of $600 million; an investment-grade credit rating; debt to capital of
less than 50 percent; and fuel hedge protection for a portion of our fuel consumption for
the remainder of 2009 and 2010. Even this year, in the difficult first quarter, we
generated substantial free cash flow.
Today, we announced a $332 million, 10-year bank loan, funded earlier this week
with an interest rate below 6.5%. Additionally, we closed yesterday on $104 million in
aircraft sale/leasebacks, as previously announced. Since third quarter 2008, we have
raised almost $1.4 billion. Yesterday, we repaid, in full, the $400 million drawn from our
bank line-of-credit last October. So, our $600 million line of credit is undrawn and fully
available


User currently offline413x3 From United States of America, joined Jul 2008, 1983 posts, RR: 0
Reply 10, posted (5 years 7 months 2 days 20 hours ago) and read 4833 times:

that's what I mean! planning for the future, southwest knows what they are doing!

User currently offlineSancho99504 From United States of America, joined Dec 2005, 576 posts, RR: 0
Reply 11, posted (5 years 7 months 2 days 19 hours ago) and read 4766 times:

Just my 2 cents
I don't think any of these airlines know what they're doing. I would've thought that with the last recession, with debt loads dragging these once great companies down, they would've tried to get the debt behind them they had no more payments, just fuel-payroll-utilities to worry about and be able to cashflow new purchases. We wouldn't be in this deep recession if it weren't for the carelessness of people and companies. Look at the Forbes top 50 and see how many of them are debt free and prospering more so now than ever? We need to change this phylosophy or we're all going to be broke and in the stone age again.



kill 'em all and let God sort 'em out-USMC
User currently offline413X3 From United States of America, joined Jul 2008, 1983 posts, RR: 0
Reply 12, posted (5 years 7 months 2 days 14 hours ago) and read 4600 times:

but at the end of the day, which excites shareholders more, telling them they are paying down debt, or taking delivery of new aircraft and expanding coverage?

User currently offlineBravo1six From Canada, joined Dec 2007, 399 posts, RR: 2
Reply 13, posted (5 years 7 months 2 days 13 hours ago) and read 4573 times:



Quoting 413X3 (Reply 12):
but at the end of the day, which excites shareholders more, telling them they are paying down debt, or taking delivery of new aircraft and expanding coverage?

Paying down debt.


User currently offline413X3 From United States of America, joined Jul 2008, 1983 posts, RR: 0
Reply 14, posted (5 years 7 months 2 days 9 hours ago) and read 4445 times:

I think for some yes, but for a lot when they need to expand with more capital they announce all these new routes, new airplanes, new expanded "something" to attract new shareholders

User currently offlineMariner From New Zealand, joined Nov 2001, 25692 posts, RR: 85
Reply 15, posted (5 years 7 months 2 days 8 hours ago) and read 4424 times:
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Quoting 413X3 (Reply 14):
I think for some yes, but for a lot when they need to expand with more capital they announce all these new routes, new airplanes, new expanded "something" to attract new shareholders

That's for aviation enthusiasts. Investors are there to make money. Debt - borrowed money - is expensive, why carry more than you must?

mariner



aeternum nauta
User currently offline413X3 From United States of America, joined Jul 2008, 1983 posts, RR: 0
Reply 16, posted (5 years 7 months 2 days 7 hours ago) and read 4357 times:

because without debt there is no expansion. without advertising new routes and features there are not many new shareholders. Sure when debt is at ridiculous levels you need to pay it down, but a little debt is healthy for any company, or government for that matter

User currently offlineMariner From New Zealand, joined Nov 2001, 25692 posts, RR: 85
Reply 17, posted (5 years 7 months 2 days 6 hours ago) and read 4313 times:
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Quoting 413X3 (Reply 16):
Sure when debt is at ridiculous levels you need to pay it down, but a little debt is healthy for any company, or government for that matter

Some debt is fine. As in post #9, Southwest has a decent debt to capital ratio.

Some growth is usually important, but shareholders are only pleased by new routes in a successful company and at this time, cash is king.

Some airlines are expanding a little, but most airlines are static or contracting. Others are already locked into new contracts - the 787 customers, for example.

As an airline shareholder, I like modest expansion, but mostly I look for the company to be profitable.

mariner



aeternum nauta
User currently offlineBravo1six From Canada, joined Dec 2007, 399 posts, RR: 2
Reply 18, posted (5 years 7 months 2 days 2 hours ago) and read 4164 times:



Quoting 413X3 (Reply 16):
because without debt there is no expansion. without advertising new routes and features there are not many new shareholders. Sure when debt is at ridiculous levels you need to pay it down, but a little debt is healthy for any company, or government for that matter

Well, I'm not sure what you mean by "new" shareholders. If you were to buy a share of DAL today you wouldn't be a "new" shareholder, you'd be a "new" owner of an "old" share.

The point being that outside of a new public offering, no airline gets any cash from the buying and selling of its existing shares, so there's no real need to entice new shareholders unless you're raising equity. And in order to raise equity, you need your balance sheet to be in order.


User currently offlineNYC2theworld From United States of America, joined Mar 2007, 666 posts, RR: 0
Reply 19, posted (5 years 7 months 1 day 23 hours ago) and read 4079 times:

Plus having debt on the books can be a way to avoid a takeover by another company. For example, if company A has no debt on its books but creates a large positive cash flow, company B which needs company A's cash flow could purchase company A and use company A's assets for financing to purchase company A.

If company A has debt on the books, it becomes more expensive for company B to purcahse company A because they now have to take over that debt also.

Sometimes debt is a good thing.



Always wonderers if this "last and final boarding call" is in fact THE last and final boarding call.
User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 20, posted (5 years 7 months 1 day 23 hours ago) and read 4029 times:

And by saying "a ton of cash" seems to be a very subjective thing. You have to remember that in this business, especially when it comes to the finances, the uppers would "like" for things to be fluid. Airline X may have $2 billion is cash, but of that, wow much can they actually splurge. This isn't how a business, especially an airline operates. In some cases, for the sake of borrowing alone there has to be a certain amount of cash on the books. Also take into account credit card receipts which takes up a HUGE chunk of an airline's cash every single month.

And as stated by others, they don't buy the a/c outright. They borrow the money from somewhere, pay the a/c company and repay the loan. Or in some cases, borrow from the a/c company themselves. This is the whole issue now. No one really has the resources to make large capital investments.



What gets measured gets done.
User currently offline413X3 From United States of America, joined Jul 2008, 1983 posts, RR: 0
Reply 21, posted (5 years 7 months 1 day 21 hours ago) and read 3964 times:

I don't mean spend it all, I mean take on more debt by leasing an airplane or airplanes at a good rate and start what you think might be a profitable route knowing you have money in the bank to fall back on still

User currently offlineSancho99504 From United States of America, joined Dec 2005, 576 posts, RR: 0
Reply 22, posted (5 years 7 months 1 day 21 hours ago) and read 3961 times:

They would have their own capital resources if they weren't paying down debt. I am an owner operator truck driver. I payed cash for my truck, brand new. If I had to make payments on the truck, I'd be getting repoed right now. A lot of indepent contractors and small businesses are going out of business because they can't afford to pay off Amex or Chase or whomever. The same can be said for any business. How many times can a company restructure its debt before the creditor is going to demand payment in full? UA has assets of $20.9b? and liabilities of $18.4b?(Airport business info), AA has $24.67B in assets with $20.12B in liabilities, DL(no NW) has $17.92B in assets wth $16.49B in liabilities.....The margins for these companies are so thin it makes my headspin. I may not be the smartest and brightest person on here, but I know that if UA or AA or DL or WN owed me money, I would not let them restructure with me. If they can't pay me in full, I'm coming after their assets. I guess I'm the only one who doesn't buy into the whole debt thing. A company can grow and advertise, ad routes, add aircraft debt free. Look at Apple, Microsoft, Chik-Fil-A, Swift Transport, they're all debt free, yet they're all still growing and expanding, albeit much less during this economic slowdown.


kill 'em all and let God sort 'em out-USMC
User currently offline413X3 From United States of America, joined Jul 2008, 1983 posts, RR: 0
Reply 23, posted (5 years 7 months 1 day 21 hours ago) and read 3904 times:

That's why the aviation business is so tough, margins are very thin. aircraft are extremely expensive to buy and operate. So I would think at a time like this when you can get a good deal on aircraft you've always wanted, go for it.

User currently offlineFlyASAGuy2005 From United States of America, joined Sep 2007, 7004 posts, RR: 7
Reply 24, posted (5 years 7 months 1 day 19 hours ago) and read 3826 times:

I see what you're saying 413x3 (where is that by the way?) but with the current strategy of contracting to control supply, there really is no need for new (used/new) a/c at the moment. Take DL for example. After they fulfill their 73G, 738, and 77L orders currently on the books, I honestly don't see any a/c acquisitions in the future. Capacity has been constantly shrinking over the past two years, if not more while LF has been increasing which is what they want.

Now, we can also look at this from you're point of view which makes perfect sense. Not too long ago, DL worked a deal for the ex-TWA 757s albeit leased and I'm sure they got great rates on them. They put in new orders for the 77L not too long ago also along with the 10 73Gs. Couple that with the MD90s that are coming on board although that deal has been in the works for years supposedly. All of this with a pretty weak economy.



What gets measured gets done.
25 FrmrCAPCADET : The assumption is that WN wants enough cash/credit on hand should landing slots come available in markets they want to enter. I somehow expect that th
26 Nzrich : Air NZ is at the moment looking at getting new aircraft to replace their 733 fleet .. So we have money on hand .. This decision will be announced late
27 MillwallSean : Paying dividend. Money for nothing... But that was planned a long time ago and isnt about taking advantage of the economy.
28 Nzrich : This has been talked about for a while but Boeing and Airbus have only now been asked to bid for these contracts ...
29 Sancho99504 : Also, another major company thats debt free is Harley Davidson and Mercedes Benz.
30 413X3 : what about getting nice deals on used a/c parked in the desert
31 MasseyBrown : CO is taking up four more used 757-300's; but, if it's like their last 753 deal, these four will require almost zero up-front cash and will augment an
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