LAXintl
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AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 3:14 pm

AMR filed notice with the SEC on Tuesday its intention to borrow up to $958million via issuance of two sets of aircraft pass through certificates.

AMR intends to essentially issue bonds with collateral of 43 owned aircraft (16-738, 14-757, 13-777s) in a 10-year financial transaction running through October 2021, with interest pricing “above 8%”.

Assuming the deal closes, AMR liquidity should remain north of $3.5bil allowing for working capital and cash burn potentially approaching $1bil in the coming winter.

Story:
http://aviationblog.dallasnews.com/a...merican-airlines-wants-to-rai.html

This is AMR’s 3rd round of boosting liquidity in 2011. In January it up put 30 aircraft as collateral to raise $657 million in cash and in March it raised $1 billion in cash in a private debt offering backed by route authorities, landing slots and airport facilities.



Man, the debt keeps piling up, as the cash burns.
From the desert to the sea, to all of Southern California
 
sunrisevalley
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 3:19 pm

What is the rating on this sort of debt?
 
motif1
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 3:23 pm

Quoting SunriseValley (Reply 1):
What is the rating on this sort of debt?

AA

   Just kidding
Not only is this incomprehensible but the ink is ugly and the paper is from the wrong kind of tree
 
Flighty
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 3:39 pm

AA shareholders wake up and fire management in 3, 2, 1....


Edit: Or, if they do have a plan, they should loudly describe the ways that unions are blocking it.

[Edited 2011-09-29 08:40:45]
 
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enilria
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 3:48 pm

Quoting LAXintl (Thread starter):
Man, the debt keeps piling up, as the cash burns.

Does anybody know the implied Ch11 risk in the interest rate? There is a formula to calculate it versus prime. It must be 75% +.

The USA system is broken. You mortgage a bunch of planes, file Ch11, eliminate the debt, emerge, and remortgage them again. What a joke.
 
sxf24
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:00 pm

Quoting enilria (Reply 4):
Does anybody know the implied Ch11 risk in the interest rate? There is a formula to calculate it versus prime. It must be 75% +.

Because the debt is issuance is an EETC, the credit rating and interest rate are based more on the collateral, than AA's financial position. EETC's a structured so the aircraft are held in trust and leased to AA. There is also cash equal to at least 3 interest payments held for the beneficiary of the trust so note holders will continue to be paid in the event of a default.

EETCs also provide additional legal protection to creditors in the event of a bankruptcy, making this type of financial instrument lower risk than other types of airline debt.

Quoting SunriseValley (Reply 1):
What is the rating on this sort of debt?

S&P actually rated the A-tranche (senior) debt A-. This is based on the excellent collateral and a relatively low loan-to-value (about 56%).
 
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DeltaMD90
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:01 pm

I thought just about every piece of this company was already collateral... what of AA isn't collateral? Are they gonna start using their pilots as collateral next?   
Ironically I have never flown a Delta MD-90 :)
 
DFWHeavy
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:04 pm

I read this yesterday in the Dallas Morning News. Everything they have is mortgaged up to their eyeballs. It will be interesting to see how this plays out should AA file bankruptcy....which they probably will at some point.
Christopher W Slovacek
 
sxf24
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:10 pm

Quoting DeltaMD90 (Reply 7):
I thought just about every piece of this company was already collateral... what of AA isn't collateral? Are they gonna start using their pilots as collateral next?

Most of these aircraft were already financed and will be refinanced by this debt. AA will get to keep very little of this cash, but at that same time will not have to pay $800M+ of debt payments this year.
 
Rbgso
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:10 pm

8% is a pretty high rate these days, obviously related to the associated risk. I simply don't see the current business plan being sustainable. You cannot borrow your way to prosperity.
 
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Stitch
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:13 pm

I expect AA to file C11 and divest themselves of the bulk of their MD-8X and 757 fleet to reduce future capital (payments) and operating (fuel + maintenance) costs. The Airbus deal is already structured to handle an AA bankruptcy and I expect Boeing was forced to do the same to get the 737 deal.
 
commavia
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:19 pm

To be expected when AMR has debt retirements coming up in the near future, and they're about to enter the winter months when operating cash flow is tighter. And, perhaps most importantly, AMR needs cash to fund the substantial capex bill in coming months with all the new aircraft deliveries.

[Edited 2011-09-29 09:19:41]
 
LAXintl
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:24 pm

Quoting enilria (Reply 4):
The USA system is broken. You mortgage a bunch of planes, file Ch11, eliminate the debt, emerge, and remortgage them again. What a joke.

Such certificates are entitled to 1110 protections, which limits default risk for trustees on the debt incase of Ch11. In general such pass through certificates are only issued for more modern, mostly liquid aircraft assets over a diverse portfolio, so their risk is considered on the safer side.
Also trustees also ultimately maintain right to take possession of the aircraft if required even in a BK process which provides incentive for debtor to keep paying.
From the desert to the sea, to all of Southern California
 
Rdh3e
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:24 pm

Quoting sxf24 (Reply 9):
Most of these aircraft were already financed and will be refinanced by this debt.

So are you saying they're essentially just refi-ing the AC for a lower interest rate? I'd be surprised it that was the case. Do you have a link?
 
FlyASAGuy2005
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:27 pm

Quoting LAXintl (Thread starter):

Ouch!

It seems like with every one of these threads that comes up, there will be those in denial. I've been saying it all through 2011. AA does not seem to have a defined plan to sustainability and profit. Have any of you looked at their investor presentations for crying out loud?! A joke when looking at the size and scope of a company that is American Airlines. Their schedule reduction was a start but it shows their timidness to let go on market share. Day-of-week- reductions has been the norm for NW (pre-merger), DL, and CO for quite a while now. Historically, it hasn't been AA's style of doing business save for Saturday, where just about everyone operates on a reduced flight schedule.

So reading through the filing, it seems to me like they cannot afford to make the big obligations due during year's end, coupled with the naturally softened 4th qtr which is a weaker one. IDK, maybe smarter people than me can show actual numbers and a timeline that AA has made public. I know I see such numbers in all of Delta's presentations.

Quoting Flighty (Reply 3):
AA shareholders wake up and fire management in 3, 2, 1....

I do believe that 2012 will be a new year in almost every sense. And I think that will include a new boss for AMR (just my personal opinion). BTW, how are their stocks doing on the heels of this release?

Quoting DeltaMD90 (Reply 7):
I thought just about every piece of this company was already collateral... what of AA isn't collateral? Are they gonna start using their pilots as collateral next?
Quoting rbgso (Reply 10):
I simply don't see the current business plan being sustainable.

Simply put, it is not.

Quoting rbgso (Reply 10):
You cannot borrow your way to prosperity.

You cannot. The United States Federal Government is only now finding this out go figure LOL. Don't get me wrong, most of the majors have been in this position at some point since 9/11. DL initially got a $500M boost from AMEX early on along with more money from GE Capital, Boeing and others. An additional $1B was leveraged with AMEX through the SkyMiles program at some point as well. Way back when before bankrupcy, when Leo and Michelle was at the reigns, DL mortgaed everything under the son and pissed away $100M in fuel hedging at a time when the price of oil was very low. Well, it bit them in the ass not too long after when everything shot through the roof.

Let me tell you, in this day and age, they won't increase their debt burden if they don't have to so it's clear that they are in a very tight spot.
What gets measured gets done.
 
HAL
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:27 pm

Quoting motif1 (Reply 2):
Quoting SunriseValley (Reply 1):What is the rating on this sort of debt?
AA

Just kidding

That was the best laugh of the morning!

HAL
One smooth landing is skill. Two in a row is luck. Three in a row and someone is lying.
 
sxf24
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 4:30 pm

Quoting rdh3e (Reply 14):
So are you saying they're essentially just refi-ing the AC for a lower interest rate? I'd be surprised it that was the case. Do you have a link?

They are refinancing at a higher rate. You can see AA's summary here: http://www.sec.gov/Archives/edgar/da.../000095012311086861/d84607afwp.htm
 
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lightsaber
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 7:11 pm

Wow. Just wow. I'm pessimistic on AA avoiding CH 11 and yet I'm surprised by the magnitude of their cash burn.

Quoting motif1 (Reply 2):
Quoting SunriseValley (Reply 1):
What is the rating on this sort of debt?

AA

Just kidding

   Best comeback of the day!   

Quoting Flighty (Reply 3):
AA shareholders wake up and fire management in 3, 2, 1....

Too late. I see no way for AA to avoid BK. They should finish this transaction and declare. I was of the opinion that they should wait for Aircraft deliveries... But not they are running out of items to hock.

Quoting enilria (Reply 4):
Does anybody know the implied Ch11 risk in the interest rate? There is a formula to calculate it versus prime. It must be 75% +.

While others have already explained the transaction, I would put CH11 at 90%+. If AA is really predicting that type of winter cash burn... I'd put it at 97%+.

Quoting rbgso (Reply 9):
8% is a pretty high rate these days, obviously related to the associated risk. I simply don't see the current business plan being sustainable. You cannot borrow your way to prosperity.

Today it is nearly impossible to raise cash in CH11. If AA doesn't enter CH11 soon, they won't be able to exit.  

I really thought they could wait out a year or maybe a little longer. But now I have extreme doubts. AMR's stock is at a new 52 week low for good reason.

Lightsaber
"They did not know it was impossible, so they did it!" - Mark Twain
 
Rdh3e
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 7:19 pm

Quoting lightsaber (Reply 17):
While others have already explained the transaction, I would put CH11 at 90%+. If AA is really predicting that type of winter cash burn... I'd put it at 97%+.

If what the other poster said is true, it seems like raising this cash is to extend their mortgages on those Aircraft. IE, they were to repay the principle, which would have eaten a significant part of their cash, so they refinanced the AC in order to reduce their cash outlay. So it's really a move to prevent themselves from laying out this much cash, rather than predicting they are going to be that far negative from operations.

Interesting indeed.
 
slcdeltarumd11
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 7:31 pm

Quoting rbgso (Reply 9):
8% is a pretty high rate these days, obviously related to the associated risk. I simply don't see the current business plan being sustainable. You cannot borrow your way to prosperity.

True but i think the plan is just to borrow until the fuel efficient planes arrive. They are getting a good amount of cash and were able to get the new planes on good terms. Can they last that long?

I think AA needs to rush retire more mad dogs. They are clearly loosing money in this high fuel world we live in. They might need less frequencies on some routes but I don't see them needing to cancel any cities. Just reduce the MD fleet they clearly can't get rid of them all. Personally i really wish the best for AA and they are generating cash and have a good amount but i think something needs to be done to slow down the bleeding.
 
moman
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 7:39 pm

The cornerstone strategy is going to take AA to the grave.
AA Platinum Member - American Airlines Forever
 
micstatic
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 7:43 pm

Quoting moman (Reply 20):

The cornerstone strategy is going to take AA to the grave.

No kidding. This is very bad news for AA. Didn't they post somewhere their top 10 money losing routes? I could have sworn I saw LA-NYC on their somewhere??
S340,DH8,AT7,CR2/7,E135/45/170/190,319,320,717,732,733,734,735,737,738,744,752,762,763,764,772,M80,M90
 
moman
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 8:04 pm

Quoting micstatic (Reply 21):
No kidding. This is very bad news for AA. Didn't they post somewhere their top 10 money losing routes? I could have sworn I saw LA-NYC on their somewhere??

No, that was an analyst who estimated AA's losses, although the criteria seemed suspect. I doubt AA loses money on NYC-LHR and MIA-EZE, both of which this analyst said lost money.

As far as cornerstone, I don't see how AA can ever make it work:

NYC - #2/#3 player depending on the metrics
ORD - #2/#3 player depending on the metrics (WN @ MDW included)
DFW - Top dog, WN @ DAL is a threat with the expiration of Wright Amendment
MIA - Top dog, S. FL competition heating up
LAX - #2 after UA

AA loses out on opportunities to serve P2P routes outside of these markets. Right now they are flowing 95% of their traffic over one of these cornerstones.
AA Platinum Member - American Airlines Forever
 
FlyASAGuy2005
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 8:05 pm

Quoting micstatic (Reply 21):
No kidding. This is very bad news for AA. Didn't they post somewhere their top 10 money losing routes? I could have sworn I saw LA-NYC on their somewhere??

AA never posted such information. BTS data can be gathered with some research as to how much someone is making between route pairs but it doesn't really paint a full picture, even if you have the cost per seat mile down. It was some reporter/agency that said their "bread and butter" routes were money losers.

Quoting slcdeltarumd11 (Reply 19):
True but i think the plan is just to borrow until the fuel efficient planes arrive.

That's a plan? As I've said all along, they need a REAL, defined plan with numbers. I have yet to see anything that even shows how much they plan on saving with these shiney new plans that they won't even own BTW. Point blank, Boeing and Airbus have them by the balls with the deal.
What gets measured gets done.
 
moman
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 8:08 pm

Quoting FlyASAGuy2005 (Reply 23):
That's a plan? As I've said all along, they need a REAL, defined plan with numbers. I have yet to see anything that even shows how much they plan on saving with these shiney new plans that they won't even own BTW. Point blank, Boeing and Airbus have them by the balls with the deal.

I got attacked for saying it last time, but I still believe AA is looking at the wrong thing to fix with respect to the fleet. If they would circle the MD-80 fleet around DFW and use it where the fuel burn doesn't matter so much. If the Dugan mod works out, that's even more savings in the bank.

[Edited 2011-09-29 13:10:15]
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micstatic
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 8:09 pm

thanks for clarifying guys. Either way, I think we all agree that AA will have to morph in a major way to get back into the black. Simply having more efficient airplanes will not make that happen in my opinion.
S340,DH8,AT7,CR2/7,E135/45/170/190,319,320,717,732,733,734,735,737,738,744,752,762,763,764,772,M80,M90
 
slcdeltarumd11
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 8:29 pm

NYC - #2/#3 player depending on the metrics
ORD - #2/#3 player depending on the metrics (WN @ MDW included)
DFW - Top dog, WN @ DAL is a threat with the expiration of Wright Amendment
MIA - Top dog, S. FL competition heating up
LAX - #2 after UA
[/quote]

All going points But AA has alot of valuable assets too.

Unlike another in trouble airline like Frontier AA has tons of valuable routes IE JFK-LAX and LHR-JFK, LGA slots, DCA slots, LHR slots and access to 6 of the countries most coveted airports. Those are all valuable and great things for AAs future.

IMHO AA needs to retire the 762 and MD fleets ASAP even if they need to reduce market-share. Instead of 8 flights a day on DFW-TUL make it 6, instead of 7 flights a day on DFW-TUL make it 5 etc etc just examples not anything to pick on those cities. Clearly AA will loose some customers but they could be a smaller leaner airline who bleeds slower and they can retire more of those fuel thirsty machines. They are clearly loosing money. Why not reduce frequencies immediately and retire more MDs before expensive maintenance? I think this is the best way for AA to morph until these planes arrive. Flying less frequencies would allow for all the international connections just less domestic low fare travelers which isn't necessarily a bad thing.

It is a tough problem
 
LAXtoATL
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 8:53 pm

Quoting moman (Reply 20):
The cornerstone strategy is going to take AA to the grave.

Maybe it was suppose to be the gravestone strategy and it got misinterpreted as it moved up the chain.

Quoting micstatic (Reply 21):
No kidding. This is very bad news for AA. Didn't they post somewhere their top 10 money losing routes? I could have sworn I saw LA-NYC on their somewhere??

AA never posted nor never would announce their top money losing routes. An analyst outlined what were their biggest money losing routes. Some question whether he knew what he was talking about, but personally I think he was probably pretty close even if his numbers weren't exact. Three things that are obvious about the LA-NYC route is that it operates with a lot of corporate contract travel (which are usually discounted fares) and it operates with very high cost aircraft by a carrier with already higher costs than competitors and the route has a lot of competition - there is no doubt in my mind that the route does lose a lot of money. However, that is a key route for AA linking two of their biggest operations. There might be things they could do to trim the losses like maybe reducing frequency or switching aircraft but they certainly can't cut that particular route. Its what is referred to as a 'loss leader', a company accepts that they will lose money on that particular product but it anticipates making up the difference by selling other products to the same consumer at a sufficient profit to offset the loss.

Quoting moman (Reply 22):
I doubt AA loses money on NYC-LHR and MIA-EZE, both of which this analyst said lost money.

Well, its not as clear as LA-NYC, but NYC-LHR also has a lot of competition and AA maintains a lot of capacity on the route (because they still cherish market share over profits) so it is conceivable to me that they do lose money on the route. Also, keep in mind that AA uses LHR to funnel a lot of low-yielding onward connections through on BA. The issue with EZE, is that AA operates premium heavy high CASM 777 into the market and then leaves the aircraft on the ground all day tieing up 2 aircraft. If they aren't selling (not upgrading) out the First Class cabin and most of Business Class I could see how this route could lose money as well (especially after you factor in AA's costs - costs which are only going to increase as they take on more debt at higher interest rates). [A lot of people like to point to the fact that it is common for deep S. America flights to operate in red-eye in both directions and that this isn't common to AA, I realize that and I understand why its done but it doesn't change the fact that it increases the costs associated with operating the route.

Quoting moman (Reply 22):
As far as cornerstone, I don't see how AA can ever make it work:

NYC - #2/#3 player depending on the metrics
ORD - #2/#3 player depending on the metrics (WN @ MDW included)
DFW - Top dog, WN @ DAL is a threat with the expiration of Wright Amendment
MIA - Top dog, S. FL competition heating up
LAX - #2 after UA

AA loses out on opportunities to serve P2P routes outside of these markets. Right now they are flowing 95% of their traffic over one of these cornerstones.

Personally I think the cornerstone strategy is one of the best decisions they have made lately. P2P flights are more expensive than flights from hubs. Their issues are just a lot bigger than the cornerstone strategy and they haven't addressed them yet and that is why their results continue to decline. I think the results would be even worse if they hadn't refocused their efforts on their 5 hubs. That being said, I don't think they will be able to sustain a hub/focus on all 5 cities. Depending on competitive forces, I believe LAX, ORD, or NYC will be drawn down eventually

Quoting FlyASAGuy2005 (Reply 23):
Point blank, Boeing and Airbus have them by the balls with the deal.

Its actually the lessors that have them by the balls. Airbus and Boeing gave the sweetheart deal to the leasing companies (not AA) to finance the deal for AA. And not really sure how anybody has AA by the balls with deal, AA will pay market rates to lease the aircraft and the only way they default will be if they file for bankruptcy protection where they can reject the leases under court protection. In that event, I am sure the manufacturers gave the lessors some guarantees in that event (like they would re-market the aircraft for them to customers already in line or possibly even cash). Either way I don't see the downside for AA, either the new aircraft help reduce fuel and maintenance expenses enough to offset the new lease payments and AA starts heading towards profitability or they file for bankruptcy protection and shed some or all of those lease obligations. (I do not believe aircraft alone will get them on the path to profitability but assuming that other changes are made in conjunction with bringing on these more efficient aircraft can change AA's financial course, though at this point I am really skeptical AA can turn this around without a bankruptcy restructuring)
 
moman
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 8:54 pm

Quoting slcdeltarumd11 (Reply 26):
Flying less frequencies would allow for all the international connections just less domestic low fare travelers which isn't necessarily a bad thing.

Agreed with that, but blaming the aircraft for the revenue/cost problem is a little simplistic. I recall Jack Welch of GE saying that if you can't be #1 or a strong #2 in your business, strengthen up or get out. That's one reason I think cornerstone is the road to failure, especially with AA being a weak #2 in a few cornerstones. They are competing with big boys with a lot less debt and lower unit costs. It really makes the prospect of success doubtful.
AA Platinum Member - American Airlines Forever
 
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lightsaber
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 9:11 pm

Quoting moman (Reply 24):
If they would circle the MD-80 fleet around DFW and use it where the fuel burn doesn't matter so much.

Won't help. The 737NG and A32x have improved their maintenance costs to the point that even without a fuel burn savings a new leased 737NG/A32x is cheaper to fly than a fully owned MD-80.   16K+ cycles on the engines! I forget was the maximum is on the JT8D... But even as cheap as those engines are to maintain, they're having to be pulled for overhauls too often.

There is a reason the MD-80 resale values are about the cost of a C-check: they're impossible to make money off of.   They were great in 1980... There time has come and gone.

Don't forget the MD-80s are mostly past their 2nd D-check when maintenance costs really spike. Yes, AA has a few coming up on that 2nd D-check. (1999 build aircraft) IMHO it is simply not worth paying for an MD-80 D-check no matter the airframe age.  

Lightsaber
"They did not know it was impossible, so they did it!" - Mark Twain
 
goldenstate
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 9:54 pm

Quoting moman (Reply 22):
As far as cornerstone, I don't see how AA can ever make it work:

NYC - #2/#3 player depending on the metrics
ORD - #2/#3 player depending on the metrics (WN @ MDW included)
DFW - Top dog, WN @ DAL is a threat with the expiration of Wright Amendment
MIA - Top dog, S. FL competition heating up
LAX - #2 after UA

AA loses out on opportunities to serve P2P routes outside of these markets. Right now they are flowing 95% of their traffic over one of these cornerstones.

AA cannot compete beyond the cornerstones, or even address network gaps from the cornerstones, until their structural cost issues are resolved. Retreating to core markets is a pretty standard procedure for a network airline that is not healthy. An expansionary strategy with an uncompetitive cost structure is doomed to failure. Revenue premiums and market presence take time and sustained investment to build up.

Conversely, and unfortunately for AA, revenue premiums in core markets can erode quickly. The competitive situation you reference above is not a dealbreaker in and of itself. The network problem for AA is universal--its merged competitors are building networks of unprecedented scope and investing heavily in product upgrades. Their efforts to increase corporate traffic share are succeeding. As a result, AA unit revenue growth is badly lagging that of UA and DL.

The short term problem is an unsustainable labor cost structure, outdated product, and inefficiently utilized assets. In the longer term, the balance sheet is highly leveraged and strategic options for M&A appear to be very limited. Additionally, a Chapter 11 filing would be extremely risky at a time when competitors are healthy, flush with liquidity, and highly aggressive. They won't hesitate to meddle if they sense an opportunity.

AA can still turn this thing around but they are running out of time. I don't think it will happen with their current leadership. They do not appear to be capable of driving full scale organizational change or ever regaining the trust of their labor unions. I see AA as more of a high risk/high reward opportunity for an outsider, specifically a turnaround artist who understands frontline employee relations, operational fundamentals, and product merchandising. A few names come to mind. Perhaps the AMR board will act boldly....
 
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par13del
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 10:08 pm

Quoting goldenstate (Reply 30):
Conversely, and unfortunately for AA, revenue premiums in core markets can erode quickly. The competitive situation you reference above is not a dealbreaker in and of itself. The network problem for AA is universal--its merged competitors are building networks of unprecedented scope and investing heavily in product upgrades. Their efforts to increase corporate traffic share are succeeding. As a result, AA unit revenue growth is badly lagging that of UA and DL.
Quoting goldenstate (Reply 30):
Additionally, a Chapter 11 filing would be extremely risky at a time when competitors are healthy, flush with liquidity, and highly aggressive. They won't hesitate to meddle if they sense an opportunity.

Thy won't need to, AA will shed more than expensive leases in Chpt.11, if they emerge by themselve they will be a smaller carrier and even if their cost match those of their competitors they will be a small fish swimming in a bid pond. No way they can preserve all their current hubs in Chpt.11 and defend them when they emerge, if they shed a couple to focus on one or two they still face the prospect of an assault.

I really would like to know what their thoughts are for the future even if it includes a voluntary Chpt.11 filing.
 
NYCAdvantage
Posts: 85
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 10:25 pm

Quoting slcdeltarumd11 (Reply 19):
True but i think the plan is just to borrow until the fuel efficient planes arrive.

The way it's going I wonder who is going to fly those new birds, just read this today.

"Adding to the urgency for a pilot accord is the fact that American has ordered hundreds of Boeing Co. (BA) and Airbus SAS jets it can’t fly until new pay scales are negotiated"

AMR in Stalemate in Bid for $800 Million Labor Savings

then you have American chairman and CEO Gerard Arpey speaks of bankruptcy with great, great distaste. Asked in a June interview if he wishes in retrospect that AMR had filed for bankruptcy, he quickly snapped, "Never."

Even with the competitive advantage now held by competitors who did go into bankruptcy court? No, Arpey said, "because I don't feel those companies have achieved permanent competitive advantage by going bankrupt. They clearly have advantages today, but those advantages I don't believe are sustainable over the long run."
Buzz about eventual, possible bankruptcy at AMR gets buzzier

Quite honestly with hell breaking all over AA, I wonder if they are talking in Mandarin because for what I read no one here at A.net or at AA understand what the heck they are talking or doing.
 
ckfred
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Thu Sep 29, 2011 10:50 pm

Quoting enilria (Reply 4):
The USA system is broken. You mortgage a bunch of planes, file Ch11, eliminate the debt, emerge, and remortgage them again. What a joke.

This sentiment was repeated many times, as the UA bankruptcy dragged on. It's a policy issue. In Europe, bankruptcy is designed to get the creditors as much money as possible, even if it ruins the debtor for many years. In the U.S., bankruptcy is designed to give the debtor a fresh start, even if all of the creditors take financial hits.
 
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fxramper
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 12:25 am

As stated by Stich, both a/c deals AA made are structured for an eminent chp 11.

Quoting Flighty (Reply 3):
AA shareholders wake up and fire management in 3, 2, 1....

They should get their winter survival loan, files chp 11, replace Arpey, and hire someone to bring them through bankruptcy.

Quoting lightsaber (Reply 17):
AMR's stock is at a new 52 week low for good reason.

Where does the value of the stock go after chp 11?

Quoting moman (Reply 24):
If they would circle the MD-80 fleet around DFW

A short term fix?
 
Max Q
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 12:33 am

Far better to file for bankruptcy now while they still have some cash and some ability to affect the outcome.





If they wait much longer there is a very good chance they will not be able to come back out.





That's right, I think there is a serious risk of liquidation if they continue this 'Ostrich Act' much longer.





There are plenty of Airlines out there that would be falling over themselves to pick up what's left.






I cannot believe how far the mighty AA has fallen, Crandall, SOB that he was would never have let this happen.
The best contribution to safety is a competent Pilot.
 
aacun
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 12:36 am

Quoting fxramper (Reply 34):
They should get their winter survival loan, files chp 11, replace Arpey, and hire someone to bring them through bankruptcy.

I think most of us AA employees will agree on this. Just declare bankruptcy, stop stalling. So we can get on with our lives, File, get someone who actually has the well being of the caririer at heart get serious about reaching agreements with the unions, and get on with running the airline back into profitability. No employee group will tell u they trust management. So the problem needs to be fixed from the root.
 
FlyASAGuy2005
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 1:42 am

Quoting NYCAdvantage (Reply 32):

Can't really do selective quoting because I'm on my phone but your 5th paragraph shows the fundimental problem that is the current AMR management team. What kind of assesment is that? Not to mention, Arpey is ON THE RECORD for saying that one of their strategies is to simply wait out for their competitors costs to rise to their current disadvantegous levels. That was insane!!! No one sees the shortsighted, nonsensical way of thinking that is that statement?
What gets measured gets done.
 
comorin
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 2:02 am

Quoting sxf24 (Reply 5):

Goos post, sir.

I don't have access to a BB terminal but do you know what the CDS spread is on AMR?

It will help answer this question on implied default probability.

Thanks
 
Okie
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 3:02 am

Quoting aacun (Reply 36):
I think most of us AA employees will agree on this. Just declare bankruptcy, stop stalling. So we can get on with our lives, File, get someone who actually has the well being of the caririer at heart get serious about reaching agreements with the unions, and get on with running the airline back into profitability. No employee group will tell u they trust management.


Well not working for AA I would say this. I have watched the ups and downs of the industry for many a year and it has not mattered much whether it was Crandall, Arpey or anyone else sitting at the top at AMR the unions groups have always painted the management as evil. I have from the outside looking in considered Arpey as trying to work with the unions more than anyone before him, at least it is the appearance from here.

Just be careful about what you wish for, the AMR board could put someone in Arpey's place that is a "gunslinger" for lack of better term. The replacement would take the Chapter 11, throw all the labor contracts out the window with chapter 11 protection, give everybody a wage haircut and all heck would break loose similar to what happened to CO many years ago. Oh lets not forget, for the well being of the company.

I would not have a clue if that would happen but trying to point out there are other outcomes that need considered.
Okie
 
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lightsaber
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 3:44 am

Quoting comorin (Reply 38):
I don't have access to a BB terminal but do you know what the CDS spread is on AMR?
"Credit-default swaps on the parent of American Airlines soared to 49.5 percent upfront yesterday from 29.25 percent on Aug. 1, according to CMA. That means it costs $4.95 million upfront and $500,000 a year to protect $10 million of debt for five years, the highest of the major U.S. airlines tracked by the CME Group Inc. unit.
That compares with about 18 percent upfront for Delta Air Lines Inc. (DAL) and United Continental Holdings Inc. (UAL),"


http://mobile.bloomberg.com/news/201...-rises?category=%2Fnews%2Fbonds%2F


I let someone who knows CDS better than I put that into default risk. But that seems like incredibly steep insurance. What are AMR's bonds selling for on the secondary market? If the insurance is that high, they must be selling at a steep discount.

Boy does AA have a low overall rating:
"The ratings of the Certificates consider the credit quality of American (Corporate Family Rating of Caa1, negative outlook)"
http://www.moodys.com/research/Moody...an-Airlines-2011-2-EETC--PR_226517

From Wikipedia:"Caa1, Caa2, Caa3: Moody judges obligations rated CAA as of "poor standing and are subject to very high credit risk",[19] and have "extremely poor credit quality. Such banks may be in default..

Lightsaber
"They did not know it was impossible, so they did it!" - Mark Twain
 
acelanzarote
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 9:33 am

Where would this leave BA and Oneworld if the unthinkable happened with AA?
from the Island with sun and great photo's.. Why not visit Lanzarote
 
Byrdluvs747
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 9:54 am

Quoting aacun (Reply 36):
Just declare bankruptcy, stop stalling. So we can get on with our lives, File, get someone who actually has the well being of the caririer at heart get serious about reaching agreements with the unions, and get on with running the airline back into profitability.

You do realize that once AA files, AMR won't have to "reach agreement" with the unions. The unions will have to take whatever gets handed to them in bankruptcy.
The 747: The hands who designed it were guided by god.
 
UAL777UK
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 10:02 am

Quoting okie (Reply 39):
Just be careful about what you wish for, the AMR board could put someone in Arpey's place that is a "gunslinger" for lack of better term. The replacement would take the Chapter 11, throw all the labor contracts out the window with chapter 11 protection, give everybody a wage haircut and all heck would break loose similar to what happened to CO many years ago. Oh lets not forget, for the well being of the company.
Quoting Byrdluvs747 (Reply 42):

You do realize that once AA files, AMR won't have to "reach agreement" with the unions. The unions will have to take whatever gets handed to them in bankruptcy.

When I see all this and I see AA teetering with CH11, I wonder if a certain Glen Tilton is wating for his phone to ring??
 
twinotter
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 10:41 am

Quoting rbgso (Reply 9):
You cannot borrow your way to prosperity.

American's situation notwithstanding, as a blanket statement this is not true. Most businesses were not profitable at startup and go through periods where borrowing is required to ensure future prosperirty. Amazon, for example, lost money for years.
 
jfk777
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 12:02 pm

Quoting enilria (Reply 4):
The USA system is broken. You mortgage a bunch of planes, file Ch11, eliminate the debt, emerge, and remortgage them again. What a joke

A JOKE ? Really. Airplane debt holders are secured whatever else may happen with an airline bankruptcy. Boeing 738 & 777 are desirable planes if they have to be sold.

Air Canada went the Candaian ecquilvalent of Ch 11 in the early 1990's. It seems to be ok for it.
 
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STT757
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 12:13 pm

Quoting UAL777UK (Reply 43):
I wonder if a certain Glen Tilton is wating for his phone to ring??

If AA files CH-11 I would expect AA's board to be getting phone calls from Tempe.
Eastern Air lines flt # 701, EWR-MCO Boeing 757
 
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par13del
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 12:22 pm

Quoting STT757 (Reply 46):
If AA files CH-11 I would expect AA's board to be getting phone calls from Tempe.

Since DL/NW and CO/UA hooked up, all that was left of the legacies was AA and the US/HP conglomerate, so if the trend is that consolidation must occur, if AA does go Chpt.11 one would expect someone to call.
DL and UA would probably not be allowed by the Feds so whose left, I would not limit it to Tempe.
On the other hand, AA may have so much influence that they may actually have the US Congress change ownership laws so that they would be the first to get majority foreign ownership, and here we were thinking AA management had no clue 
 
delta2ual
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 12:29 pm

How times have changed. After reading "Skygods" about Pan Am (someone on here recommended it), it's hard to believe that AA is now the "financially troubled" AA-just like Pan Am was. The book talks about how, at that time, AA,UA & DL were loaded with cash and looking for ways to spend it. New routes, new airplanes, hiring new employees. So sad really. I think if the gov't would relax foreign ownership laws, US carriers may benefit. Not sure how US employees would fare.
From the world's largest airline-to the world's largest airline. Delta2ual
 
comorin
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RE: AMR Seeks $958mil Loans - Cover Winter Cash Burn

Fri Sep 30, 2011 1:49 pm

Quoting lightsaber (Reply 40):
Credit-default swaps on the parent of American Airlines soared to 49.5 percent upfront yesterday from 29.25 percent on Aug. 1, according to CMA.

Thanks, lightsaber! CDS modeling may be fun for someone with your sharp mind to wade into. It's a lot of calcs based on guesses - but the virtue of it is it reflects a market clearing price for those guesses.

Its been a while since I worked on CDS's but at 495 basis point spread the market SWAG* for default probability is about 99%.between now and 2015, and about 80% over the next year.

Sharper minds, please correct as needed.

* SWAG = Scientific Wild-Assed Guess.