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Bankruptcy: Is Ch 11 Imminent For AA?  
User currently offlineadmluvs2fly From United States of America, joined Jan 2001, 168 posts, RR: 0
Posted (3 years 3 months 1 week 4 days 2 hours ago) and read 21201 times:

Over the last month , over 113 pilots have taken early retirement . Many pilots whom have some years left in the tank. However, if AA declares bankruptcy, then their Class B shares have, which can only be taken upon retirement, will be worthless.

There have been some chatter on other airline forums, as well as pilot forums and from APA official communications, that all might lead to bankruptcy.

56 replies: All unread, showing first 25:
 
User currently onlinelightsaber From United States of America, joined Jan 2005, 13551 posts, RR: 100
Reply 1, posted (3 years 3 months 1 week 4 days 1 hour ago) and read 21126 times:
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Imminent?   

Going to happen?   

AA needs to have all the cash they require for reorganization prior to entering bankruptcy. Borders books just proved what happens if you enter Ch. 11 without enough cash. You fold. They entered bankruptcy with the hope of "debtor in possession" financing which didn't happen. The whole point of AA building up their cash is to prepare for Ch. 11.

Now why not imminent?
1. They need to spin of AE first. That will speed up the bankruptcy (bankruptcy is expensive per month and should be 'pre-packaged).
2. AA needs to finish finalizing new aircraft orders. The point of bankruptcy is to help void leases. AA needs the new aircraft coming in first.
3. Further planning for efficiency improvements. I suspect much of this has been done, but I 'have a hunch' more planning has been delayed to try to hold off the speculation... that is happening anyway.

Lightsaber



Societies that achieve a critical mass of ideas achieve self sustaining growth; others stagnate.
User currently offlineAAR90 From United States of America, joined Jan 2000, 3498 posts, RR: 46
Reply 2, posted (3 years 3 months 1 week 4 days 1 hour ago) and read 20881 times:

Quoting admluvs2fly (Thread starter):
However, if AA declares bankruptcy, then their Class B shares have, which can only be taken upon retirement, will be worthless.

AA pilot retirement plans have no such thing as "Class B shares." There is an "A-Fund" and "B-Fund."

In an AA/AMR bankruptcy filing, the A-Fund is most at risk since it is a Defined Benefit Plan. AA/AMR would most likely "terminate" the A-Fund plan and turn it over to the PBGC. In that case a senior AA pilot with lots of years service would lose most (but not all) of his A-Fund benefits. However, the AA A-Fund is NOT where the majority of an AA pilot's retirement is placed.

The B-Fund is a Defined Contribution Plan and assets in this plan are in a separate trust not associated with AA/AMR so an AA/AMR bankruptcy will not affect the assets of this plan. The only potential loss to a pilot is the cash that he has earned but that has not yet been "deposited" into his B-Fund share account (done once/quarter). B-Fund assets are professionally managed and invested primarily in US stock markets. B-Fund per share pricing moves similarly to US stock market indexes.

During my career with AA, I have seen many of these retirement "surges." Each and every time (including this time) the reason given by those who retire "early" is the large and rapid drop in B-Fund share value (stock market indexes), the ability to retire with a share price that was "locked-in" up to 60 days earlier, and their belief that their total retirement compensation would be greater if they retire now rather than later (depending upon their individual set of circumstances).

AA pilot retirement plans are prohibited from investing in ANY airline. Just not a reasonable retirement investment strategy to put retirement funds in the same industry as where your active income is coming from.



*NO CARRIER* -- A Naval Aviator's worst nightmare!
User currently offlineCubsrule From United States of America, joined May 2004, 23308 posts, RR: 20
Reply 3, posted (3 years 3 months 1 week 4 days ago) and read 20657 times:

I think the whole premise of airline Chapter 11 may be sort of, well, 2005. I'm not sure an airline can successfully reorganize in 11 under the new Code, but I'd love to hear an argument that it's possible.


I can't decide whether I miss the tulip or the bowling shoe more
User currently offline0NEWAIR0 From United States of America, joined May 2007, 939 posts, RR: 0
Reply 4, posted (3 years 3 months 1 week 4 days ago) and read 20471 times:

Quoting Cubsrule (Reply 3):
I think the whole premise of airline Chapter 11 may be sort of, well, 2005. I'm not sure an airline can successfully reorganize in 11 under the new Code, but I'd love to hear an argument that it's possible.

This is way over simplified, but I believe the largest change basically did away with "debtor-in-possession" and created "creditor-in-possession" - Before they could try an find ways to cut out any expenses owed... now they have to find away to finance all expenses already owed + reorganization costs. So, any airline that can find creditors willing to back the full cost of Chapter 11 could successfully go through it and reorganize.



"The future belongs to those who believe in the beauty of their dreams."
User currently offlineCubsrule From United States of America, joined May 2004, 23308 posts, RR: 20
Reply 5, posted (3 years 3 months 1 week 4 days ago) and read 20358 times:

Quoting 0NEWAIR0 (Reply 4):
So, any airline that can find creditors willing to back the full cost of Chapter 11 could successfully go through it and reorganize.

Sure. Why would airline creditors do that? They must know how the industry burns through capital (and has done so for decades).



I can't decide whether I miss the tulip or the bowling shoe more
User currently offlinecrAAzy From United States of America, joined Jan 2008, 803 posts, RR: 0
Reply 6, posted (3 years 3 months 1 week 4 days ago) and read 20295 times:
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Quoting AAR90 (Reply 2):

During my career with AA, I have seen many of these retirement "surges." Each and every time (including this time) the reason given by those who retire "early" is the large and rapid drop in B-Fund share value (stock market indexes), the ability to retire with a share price that was "locked-in" up to 60 days earlier, and their belief that their total retirement compensation would be greater if they retire now rather than later (depending upon their individual set of circumstances).

  

Representing approximately a stock value about 50% more than it has been recently ... and then you have the upcoming Eagle spin off which will likely result in further dilution of share value.

Obviously they feel there's not much upside with the company in the next few years.


User currently offlineAAR90 From United States of America, joined Jan 2000, 3498 posts, RR: 46
Reply 7, posted (3 years 3 months 1 week 3 days 19 hours ago) and read 18154 times:

Quoting crAAzy (Reply 6):
Representing approximately a stock value about 50% more than it has been recently ... and then you have the upcoming Eagle spin off which will likely result in further dilution of share value.

Obviously they feel there's not much upside with the company in the next few years.

You missed the point that no AA pilot retirement plan may be invested in AMR - or any other airline. It doesn't matter what AMR share price does. AMR shares and share pricing has nothing to do with pilot retirements (or any form of AA pilot compensation).


The 2011 B-Fund investment targets are (were?): ~30% S&P500 index, ~20% large cap value/growth, ~15% small cap value/growth, ~25% international value/growth, and ~10% emerging markets. B-Fund share price as of Feb.28 = $97.95. Share price as of Jul.31 = $90.81. Use your imagination as to what it is now.... and you'll know why some folks decided it was time to retire.



*NO CARRIER* -- A Naval Aviator's worst nightmare!
User currently offlineflyabr From United States of America, joined Sep 2003, 691 posts, RR: 0
Reply 8, posted (3 years 3 months 1 week 3 days 19 hours ago) and read 17913 times:

AA is too big to fail...just like those bailed out banks! The Fed Govt would get hauled in courtesy of a number of Texas/Dallas politicians who speak about free markets until their favorite HUGE airline is on the ropes!  

User currently offlineOzarkD9S From United States of America, joined Oct 2001, 5236 posts, RR: 21
Reply 9, posted (3 years 3 months 1 week 3 days 18 hours ago) and read 17241 times:

Quoting flyabr (Reply 8):


AA is too big to fail...just like those bailed out banks!

So was Braniff. And Eastern. And Pan Am.



The best IFE: A window seat and a good book.
User currently offlineslcdeltarumd11 From United States of America, joined Jan 2004, 3640 posts, RR: 0
Reply 10, posted (3 years 3 months 1 week 3 days 18 hours ago) and read 17242 times:

The market clearly doesn't think they will yet. AMR has way too many shares out there for people to think that is anytime soon. I think it will be a while if ever for them. I think they need to retire the fuel guzzlers faster even if it means shrinking market share significantly. AA might be "too large to fail" and a government might help them.

Maybe AAcan get the employees to realize next negotiating rounds they need reduced costs or bad things might happen. I think more and more people at AA are slowly realizing they are not doing too great at the moment its finally soaking in. If Frontier is any guide when things really are bad in this economy sometimes employees will take lower pay to ensure they have jobs. Frontier had no problems at all as i think most employees realized it was life or death last negiations. I think the economy being so bad and everyone knowing someone unemployed and looking for a job is gonna make them more willing to negotiate to ensure they have one. Personally i think AA is getting killed in fuel costs but of course they do spend alot in labor. They need more mad-dogs retired ASAP even if it means shrinking they are clearly loosing money and oil isn't gonna crash. They really might need to become a smaller airline but they have alot of options, extremely valuable hubs, valuable routes and slots/assets all things that Frontier didn't and doesn't have to work with. AMR has many options and alot of good things i think they can and will avoid Ch 11

If you look at the market they seem more nervous that Frontier is really in trouble as Republic has seen people bailing to get rid of it. Republic seems to be the much more worried company at the moment. The stock has tumbled from 9 to 3 in the last year consistantly.


User currently offlineflyabr From United States of America, joined Sep 2003, 691 posts, RR: 0
Reply 11, posted (3 years 3 months 1 week 3 days 18 hours ago) and read 17115 times:

Quoting OzarkD9S (Reply 9):
So was Braniff. And Eastern. And Pan Am.

I could be wrong...but i don't think those airlines were anywhere close to the size of the current AA...

The same goes for Delta...UA-CO...WN: I seriously doubt they would ever be "allowed" to liquidate. They'd be saved by the tax payers...jmo!  


User currently offlinekl911 From Czech Republic, joined Jul 2003, 5305 posts, RR: 16
Reply 12, posted (3 years 3 months 1 week 3 days 17 hours ago) and read 16663 times:

Quoting slcdeltarumd11 (Reply 10):
AA might be "too large to fail" and a government might help them.

That would be illegal state aid and against all logic of competition. If a company produces losses forever, burning cash and clearly not well run it should go bankrupt. There will be others to take over the market. I still think this US Chapter 11 thing is really falsifying global competition. Sorry for the AA folks, but thats what a free market does.


User currently offlineslcdeltarumd11 From United States of America, joined Jan 2004, 3640 posts, RR: 0
Reply 13, posted (3 years 3 months 1 week 3 days 16 hours ago) and read 16271 times:

Quoting kl911 (Reply 12):
That would be illegal state aid and against all logic of competition.

How would the government loaning money to AA be illegal or against logical competition? Its better for all of us to have more choices and lower fares and the government can loan them money.


User currently offlinekl911 From Czech Republic, joined Jul 2003, 5305 posts, RR: 16
Reply 14, posted (3 years 3 months 1 week 3 days 16 hours ago) and read 16080 times:

Quoting slcdeltarumd11 (Reply 13):
Its better for all of us to have more choices and lower fares and the government can loan them money.

You are talking about tax money here. A government shouldnt be involved in private businesses. IMO. And like I said, another new airline will rise and give choices and lower airfares. And most likely more comfort and IFE etc like VX.


User currently offlineflyabr From United States of America, joined Sep 2003, 691 posts, RR: 0
Reply 15, posted (3 years 3 months 1 week 3 days 16 hours ago) and read 15956 times:

Hey kl911,

Here in America we socialize losses...and privatize profits!    


User currently offlinekl911 From Czech Republic, joined Jul 2003, 5305 posts, RR: 16
Reply 16, posted (3 years 3 months 1 week 3 days 16 hours ago) and read 15934 times:

Quoting flyabr (Reply 15):
Hey kl911,

Here in America we socialize losses...and privatize profits!

Yes, i figured that one out.  


User currently offlinecx828 From Hong Kong, joined May 2007, 168 posts, RR: 0
Reply 17, posted (3 years 3 months 1 week 3 days 14 hours ago) and read 15182 times:
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how come the states is one of the most successful countries in the world but the us airlines always apply ch.11 ???? management problem or else????

[Edited 2011-09-18 04:00:44]

User currently offlineusdcaguy From United States of America, joined Jan 2004, 1010 posts, RR: 2
Reply 18, posted (3 years 3 months 1 week 3 days 13 hours ago) and read 14234 times:

Quoting cx828 (Reply 17):
how come the states is one of the most successful countries in the world but the us airlines always apply ch.11 ???? management problem or else????

During regulation, we had multiple carriers serving multiple slices of the US market without competition. With deregulation, prices fell rapidly when carriers decided to fly in the same markets as everyone else and compete for passengers. Americans have rarely had many other viable options to travel long distances (most trains went away years ago, and driving has always been the province of truckers and families with multiple kids). As a result, there is a huge low-fare market out there for people who cannot afford to pay what it really costs to provide air service, so in the race for market share, the carriers offered low fares that they tried to subsidize with higher fares for those who have a need to travel at the last minute. That model generally did not work as legacy labor and capital costs overran the revenue coming in the door. As a result, the carriers had to go to the judge to reorganize their finances and renegotiate agreements. So, yes, there may have been some bad decisions made regarding costs, but the fact that this phenomenon happened to so many carriers makes me think that it had less to do with bad management and more to do with the fact that, for a variety of reasons, the carriers' creditors (labor, GDS vendors, aircraft lessors, etc.) had too much power at the negotiating table. Declaring bankruptcy was about the only way for the carriers to change the nature of those relationships, however cruel and desperate that may have been.


User currently offlineLAXdude1023 From India, joined Sep 2006, 7821 posts, RR: 25
Reply 19, posted (3 years 3 months 1 week 3 days 12 hours ago) and read 13944 times:

Quoting kl911 (Reply 12):

Yes, DL, UA, CO, and US have all learned what the free market would have done to them without Chapter 11. AA would have been the only legacy left. The others would be kaput without Chapter 11.

I have no doubt AA will face it at some point. The others did and came out much stronger. AA can too.



Stewed...Lewd...Crude...Irreverent...Belligerent
User currently offlinecx828 From Hong Kong, joined May 2007, 168 posts, RR: 0
Reply 20, posted (3 years 3 months 1 week 3 days 12 hours ago) and read 13911 times:
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then why about the other carriers in the world didn't face the same problem (labour, aircrafts lessors), eb. like BA, LX, CX, SQ, they also have the labour or pilot strike before?? How come they can resolve that??

User currently offlinepolot From United States of America, joined Jul 2011, 2372 posts, RR: 1
Reply 21, posted (3 years 3 months 1 week 3 days 12 hours ago) and read 13870 times:

Quoting LAXdude1023 (Reply 19):
Yes, DL, UA, CO, and US have all learned what the free market would have done to them without Chapter 11. AA would have been the only legacy left. The others would be kaput without Chapter 11.

Its wrong to say that without Chap 11 AA would be the only ones left. Yes, they are the only ones who haven't gone through the process, but the other airlines didn't necessary go through it all at the same time. If, say CO closed while bankrupt in the early 90s, and US and UA both shut down when they entered bankruptcy, it is entirely possible that that would have cleared up enough competition to allowed DL and NW to survive.


User currently offlineWNwatcher From United States of America, joined Mar 2010, 275 posts, RR: 0
Reply 22, posted (3 years 3 months 1 week 3 days 12 hours ago) and read 13759 times:

Quoting kl911 (Reply 14):
You are talking about tax money here. A government shouldnt be involved in private businesses.

Also, over here, the Airlines are protected almost as if they were a Civil Service. I wouldn't be surprised if AA filed, but I also wouldn't be surprised if the Govt. helped them out due to the number of aircraft AA can mobilize quickly if the Department of Defense places the call to activate the Civil Reserve Air Fleet.

Just my .02
-WNwatcher



meepmeep
User currently offlinepolot From United States of America, joined Jul 2011, 2372 posts, RR: 1
Reply 23, posted (3 years 3 months 1 week 3 days 12 hours ago) and read 13651 times:

Quoting WNwatcher (Reply 22):
I wouldn't be surprised if AA filed, but I also wouldn't be surprised if the Govt. helped them out due to the number of aircraft AA can mobilize quickly if the Department of Defense places the call to activate the Civil Reserve Air Fleet.

If the government helps out it would be to save jobs, not because of CRAF. AA is not the biggest airline in CRAF nor are they the only airline in CRAF. The others, including whoever expands to fill the void if AA shut down, would easily cover the governments needs.


User currently offlineLAXtoATL From United States of America, joined Oct 2009, 1658 posts, RR: 2
Reply 24, posted (3 years 3 months 1 week 3 days 12 hours ago) and read 13571 times:

Quoting flyabr (Reply 8):
AA is too big to fail...just like those bailed out banks!

Difference between AA and the banks is that if the banks had been allowed to fail it would have destroyed an entire industry and likely taken a few other industries down with it. Same thing with the auto companies. AA can fail and the airline industry will be just fine, better even. Remember when the industry was facing a crisis after 9/11 the government did provide a bailout package to the airlines, but when the weaker ones subsequently went into bankruptcy court there was no special government assistance. So, unless its a political thing and the Texas heavy weights are determined to save their home time airline don't expect any special government treatment (this is unlikely but the only way I see AA getting any form of government bailout). That being said, AA shouldn't need any special government bailout, while the bankruptcy rules have changed and it will be a tougher experience for AA there is no reason they shouldn't be able to reorganize in ch11 and come out a smaller, more efficient, more competitive airline.


25 par13del : Based on the borrowing money from other countries putting themselves in debt to offer aid to other countries? So how larger was NW, UA and DL when th
26 usdcaguy : The answer to this is complex, but suffice it to say it has mostly to do with the historical lack of competition within those carriers' countries as
27 SPREE34 : You have an APA source, and quote for that? I believe you are mis-quoting APA's statement concerning AA's financials. The blast I read didn't say any
28 OzarkD9S : It's not the size is was referring too, but rather the mindset that they were too big to fail. Many people at Braniff had that mindset, but their hea
29 frmrCapCadet : Res European airlines, I believe a number of them have had their own problems about as severe in in the US.
30 kl911 : Yes, and they went bankrupt, like Swissair, Sabena etc etc. Why would airlines require a different treatment then other companies? Can Ford or AT&
31 SyrAlex : Very good point, you beat me to it!
32 LAXtoATL : Of course they can. GM just went through Ch 11 a couple years ago and Ford just nearly avoided it at the same time.
33 polot : Not all of them. Alitalia and Olympic are perfect examples of examples of airlines that limped along far too long in Europe due to their respective g
34 hiflyer : and texas corp Continental Airlines twice!
35 frmrCapCadet : AT&T, or at least a number of its components have gone through very bad times. The current company has very little connection with the company of
36 ckfred : Didn't DL and NW file for Chapter 11 within a few days of each other, because of the changes in the bankruptcy code that were about to effect? If DL
37 jfk777 : The UAW gave Ford very similar concessions of employee health benefits that GM got when it went CH 11. So Ford essentially got the benefits if CH 11
38 jfk777 : Maybe its time AA freeze its defined benefit pension plans and go to defined contribution and profit sharing plans.
39 par13del : Hence the reason why the rules were changed, the politicians finally got that the rules were being abused, it was all because UA showed the way. Yep,
40 homsar : If my memory serves me, the two actually filed on the same day.
41 Cubsrule : Correction: Ford got some of the benefits. Ford didn't get to close and shed half of its plants as GM did. It's a moot point. "Too big to fail" is re
42 Jahmike : These words are so true...........
43 YULWinterSkies : So. Well. Said. Then, you missed what happened to other airlines.
44 CIDFlyer : [quote=ckfred,reply=36]Of course, Southwest and United/Continental would be pressuring those same politicians to let AA fail. If AA were to go under,
45 jfk777 : AA would be merged with some other airline before that happens. Miami has lot of value especially now with the new terminal opening. Chicago has lots
46 FoxTwo : Sorry forgive the amateur question. Why is an airline (which may go bankrupt) , be purchasing 600 new airplanes?
47 LAXtoATL : For starters they aren't purchasing any airplanes, they are leasing new airplanes and the number is well below 600. The reason an airline that may go
48 Max Q : AA can fail just like any other business, the government will not bail them out regardless of their size. However, what is more likely is a CH11 filin
49 Post contains images DALelite : i like that idea
50 Babybus : If I was Airbus I would put AA's contract on hold. Like Air India with 787s, if you haven't got the money then you can't have the aircraft. Fuel comp
51 BC77008 : If a scheme like this were to work it would require the airline "winning" the DFW hub to also acquire quite a few of AA's aircraft in order to servic
52 LAXdude1023 : DFW is a huge local market. Someone (whether DL or another carrier) would be interested in doing something with it. Its way, way too large to have no
53 par13del : If it were to happen how much would those folks who use DFW pay for travel, how much would DFW be willing to pay to get service, in my book airlines
54 BC77008 : You're right about that DFW is a huge and healthy market. I don't think DL would be extremely interested, but I could see a scenario where DL aquires
55 LAXtoATL : AA has the money. AA has financial problems, but they have been careful hold onto their cash. They will be able to make the payments unless AA experi
56 LAXdude1023 : Youre right that I dont think anyone would try and make DFW a mega hub should AA vanish, but DFW is a local market about the same size as ATL. Its wa
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