MohawkWeekend wrote:

I like airlines and the people that work for them. But it's really trucks, railroads, ships and barges that America has to have. If this were WWIII do you really think the Govt would think that all those flights to MCO were absolutely necessary? You would have a nationalized industry with only the "must fly" on it.

It would be wise to reflect on how the US Govt used commercial aviation in WW II. And if Global Warming becomes the next crisis, you'll have the same type of impact.

In times of war the DOD uses civilian planes to move troop and equipment its called CRAF.

AA's service quality, seating in coach, baggage policies, etc. are really besides the point, unless you think it's appropriate for regulators to use this crisis to blackmail AA into changing it's policies; rather than, say, actually regulate the practices they find objectionable. And whatever they do should be applied to the airlines as a whole.

American Airlines loads up on cash ahead of travel dry spell

Mar. 19, 2020 7:53 AM ET (AAL)By: Clark Schultz, SA News Editor

American Airlines Group (NASDAQ:AAL) discloses that it entered into a credit pact for $1B senior secured delayed draw term loan credit facility for general corporate uses.

The company says it has ~$8.4B of total available liquidity, consisting of $4.2B in unrestricted cash and short-term investments, $3.2B in undrawn capacity under American's revolving credit facilities and $1.0B in undrawn capacity under the facility.

For those interested according to Air Mobility Command Website -

As of June 2014, 24 carriers and 553 aircraft are enrolled in CRAF. This includes 517 aircraft in the international segment with 391 in the long-range international section and 126 in the short-range international section.

Listed carriers are all the US Airlines along with all the US Air Cargo operators. So this is about maybe 10% of the US fleet. I imagine many Reserve pilots are exploring returning to the USAF/Navy/ANG

AvroLanc wrote:

Pellegrine wrote:

Boof02671 wrote:

So you want to see 750,000 airline employees lose their jobs and hundreds of thousands maybe millions of other associated workers lose their jobs too?

Yet it was ok for the Feds to bailout banks and Wall Street? The fed injected $2.2 trillion into the market the past week. You really want the US to go into a depression? Airline employees suffered enough after 9/11. We lost our pensions, pay and benefits and 100,000 jobs.

We're going to be in a depression already. Unless they bailout the hospitality industry with already 5 million+ out of work, other industries shutting down, no airline bailouts. Airlines aren't special. IMO, shut the whole economy down for 90+ days, have the Fed print money, pay salaries from the Fed Gov.

Finally someone who see's the extent of this. In 3-4 months(if we are lucky) people may begin to return to work. These people would have had very limited income during this period and will be in no position to be flying around anywhere. As for those who are privelidged to keep an income during this crisis will find a very different landscape post. I wish everyone well, and stay safe and healthy.

I suspect the world economy will take quite a while to recover. I also wonder if our politicians are flying around in private aircraft to avoid the minions.

chonetsao wrote:

I agree with many posters in this thread. If AA is to accept any government subsidies, AA must:
1, Doug Parker and the previous senior management from HP and US must leave the company
2, Restricted salary and compensation for senior management
3, Be more customer friendly. Customer satisfaction must be incorporated to the new management compensation structure.

LOL, no way. This is one of those naked attempts at using a crisis to advance an agenda you already held. In reality, Doug Parker didn't create this crisis. Senior management compensation didn't create this crisis. Nor did poor customer satisfactions cause this crisis.

About the only measure I'm seeing AA management could have taken to weather this storm would have been to hoard more cash than some central banks.

We are going to have to change the law because before stock buy-backs (late 70's early 80's), corporate raiders would eat up companies that had too much cash. Buy the company, steal the cash, load it up with debt and then head for the next target. I think someone tried this against TWA. So stock buy backs are bad (I agree) but holding cash just opens you up to a raider. Don't shoot the messenger but maybe we need to bring back the CAB. Treat airlines like Utilities.

Somebody should start that thread - "Time to bring back the CAB?"

From another thread


Internal memo, verified by CNN:
https://twitter.com/CNN/status/1240692037004886017

"The striking numbers in an internal email from American Airlines President Robert Isom include a reduction of international flights by 75 percent and domestic flights by 30 percent in April, “with plans to reduce it even further in May.”

AA is grounding nearly half of its fleet and canceling 55,000 flights next month, the message said American would park 130 wide body and 320 narrow body planes.

Dallas Morning News Article

In the fight for their life

https://www.dallasnews.com/business/air ... 50-planes/

BA744PHX wrote:

Who exactly is Sam Chui? Another blogger? Why not throw DL, UA, WN, F9, AS ect ect into the mix. UA due to their large Asia network and DL (i believe) they state they are the largest airline to Europe.

Jeez! Sam Chui is just another Armchair CEO who runs Nothing in the Airline business!! Hell! His opinion and a $1.25 will get you a coke out of the vending Maching!

Boof02671 wrote:

Dallas Morning News Article

In the fight for their life

https://www.dallasnews.com/business/air ... 50-planes/

So? Wouldn't this apply to ALL the airlines? I see nothing that makes American any more Dire than United or Delta. It looks like a conclusion looking for the book to review!

MohawkWeekend wrote:

We are going to have to change the law because before stock buy-backs (late 70's early 80's), corporate raiders would eat up companies that had too much cash. Buy the company, steal the cash, load it up with debt and then head for the next target. I think someone tried this against TWA. So stock buy backs are bad (I agree) but holding cash just opens you up to a raider. Don't shoot the messenger but maybe we need to bring back the CAB. Treat airlines like Utilities.

Somebody should start that thread - "Time to bring back the CAB?"

Please explain why stock buybacks are bad. And if stock buybacks are bad, then are cash dividends also bad? They are fundamentally the same transaction. I'm interested in how you can take a position against distributing cash to shareholders and then say airlines should be treated like utilities - a sector notable for how much cash they distribute to shareholders.

There must be a reason that buy backs were the method of cash distribution rather than dividends? Is it because the means of the deciders compensation was benefited by one over the other? If companies had so much cash to burn then why did they also need lower corporate taxes as they didn't have anything useful to do. Buying back stock at this point has built no value and if they go bankrupt and wipe out shareholders they also receive no value.

MSPNWA wrote:

enilria wrote:

Trust me I am extremely aware of the variability of airline costs. You are confusing short term variability with long term variability. Short term they can't get rid of aircraft, they have to pay the crew 100% inside the crew bid, and they only really save inflight food, landing fees, and fuel. As you saw, I already cut their systemwide fuel bill significantly. So no, I'm dead on. Plus I'd say 70% down for April is now VERY conservative. It's gonna be worse.

I'm not going to go into the math again which has been wiped away, but you are talking to an economist, so you can be assured that I'm acutely aware of airline cost variability.

Anyway one slices it by looking at fuel, labor, maintenance, landing fees, and other savings, we can expect AA to be saving considerably more than 2.5% with a 10% April capacity cut. And it jives with the theory. If airlines are only going to yield a 25% cost savings of a capacity cut, there's essentially no point to reducing a schedule close-in. It doesn't take much revenue to render the capacity cut an even larger loss of money.

Bottom line. I said AA would be likely to file for bankruptcy and was savaged. I think now it's looking like I was right. I didn't want to be right, but the stock is down 70% and at $4B market cap they are only worth 1/3rd more than AS.

DfwRevolution wrote:

MohawkWeekend wrote:

We are going to have to change the law because before stock buy-backs (late 70's early 80's), corporate raiders would eat up companies that had too much cash. Buy the company, steal the cash, load it up with debt and then head for the next target. I think someone tried this against TWA. So stock buy backs are bad (I agree) but holding cash just opens you up to a raider. Don't shoot the messenger but maybe we need to bring back the CAB. Treat airlines like Utilities.

Somebody should start that thread - "Time to bring back the CAB?"

Please explain why stock buybacks are bad. And if stock buybacks are bad, then are cash dividends also bad? They are fundamentally the same transaction. I'm interested in how you can take a position against distributing cash to shareholders and then say airlines should be treated like utilities - a sector notable for how much cash they distribute to shareholders.

I am not going to answer your question here, but trying to explain the good and the bad about buy back. So relax.

First, there was a study few years ago about buy back, the conclusion is buy back does not support share prices. In fact, most company have buy back programme have their share price undervalued.

Second, buy backs happens when the management and boardroom believes that the share price is too low for its performance. So let us say, company AIRX has 500 millions shares outstanding, AIRX is making $2 per share profit this quarter, so $1 billion. The share price is $20. And AIRX is paying a dividend of $0.10 this quarter. So here is the issues. Issue one, AIRX is not going to pay more dividend. Once the dividend is raised, shareholder would expect higher dividend quarter after quarter. If the business failed to deliver, share price tumbles and the management would be under pressure to quit.

Issue two, should AIRX is making the same profit quarter after quarter, pretty soon the total profit will be more than the total market cap. ($4 billion annual profit VS $10 billion market cap, so 2 and half year).

Under this background, the stock price is not moving higher, the P/E is so low and the management think there is fundamental it could not change. So the best way to move the share price is to buy back shares. The math is simple, when you buy back more shares, the less shares in circulation and higher earning per share it would become.

The share price got boosted, and it traded at 50 at one stage. But share holder does not really benefit in this situation unless he/she decides to sell the shares. Once the buy back paired down, the share price went back to $20 range again. Even though now there is only 300 million shares left. The market cap is even smaller.

So I am not answering your question and points. But I would say cash dividend is fundamentally different from share buybacks. Cash dividend directly benefit shareholders, share buy backs only benefit insiders. Yes there are share holders benefited if they have sold their share at high. But once they sell, they no longer the shareholder of the company, or less a shareholder with less shares. The long term shareholder suffers.

The example I used is AIRX, you can find it among the big US3, of which I am not going to disclose. But I have to admit I changed few numbers for simplicity of illustration. And the CEO of this company said it will never loose money again. Trading around $10 currently, I would not say the share buyback is helping the shareholders at all. At present the shareholder would rather have more cash dividend!

And have over $8 billion of cash and equivalents on hand, every airline will file if thus continues and no Federal help. It’s happening all over the world now.

AA needs to drastically cut domestic capacity right now. There are a lot of airplanes flying around empty and in many cases totally unnecessary.
I live in Tampa, and following this weekend when the majority of Spring Break visitors will be exiting, AA is still running a full schedule at very low load factors. 5 nonstops daily to PHL, 10 to CLT, 7 to DFW, 4 to MIA, 3 to DCA, 3 to ORD. My neighbor is a F/A and she just did an out and back schedule yesterday. Her morning flight to CLT had 11 people on it, and the return last night had 39. Both on A321's.
Disney and Universal are closed and yet AA is flying even more segments from MCO to the above hubs with way too much capacity.
No one needs 4 connecting hub options for flights from Tampa or Orlando to Seattle or anywhere right now.
This schedule is not downsized through April 30th and they've introduced $35-80 fares today to/from Florida into April, when the public has been advised to curtail travel and stay home.
These flights bleed red ink and AA can cut flight segments 50% and still offer sufficient service to whomever does travel.
When people can't go to the beach, the Mall or dine out with friends and family as normal, they're not going to randomly fly somewhere and AA should understand that by now.

DfwRevolution wrote:

chonetsao wrote:

I agree with many posters in this thread. If AA is to accept any government subsidies, AA must:
1, Doug Parker and the previous senior management from HP and US must leave the company
2, Restricted salary and compensation for senior management
3, Be more customer friendly. Customer satisfaction must be incorporated to the new management compensation structure.

LOL, no way. This is one of those naked attempts at using a crisis to advance an agenda you already held. In reality, Doug Parker didn't create this crisis. Senior management compensation didn't create this crisis. Nor did poor customer satisfactions cause this crisis.

About the only measure I'm seeing AA management could have taken to weather this storm would have been to hoard more cash than some central banks.

AA would be much better equipped to weather this crisis if they had used that buyback money to pay down debt instead. So Doug Parker didn't create the Covid-19 crisis but there are lots of steps he could of taken that would of lead to a less grim outlook. If you compensate a CEO strictly in stock of course he wants buybacks so that his salary would be inflated although it's going to bite him for years to come. The biggest reason the stock has underperformed for years is because their massive debt.

PI4EVR wrote:

AA needs to drastically cut domestic capacity right now. There are a lot of airplanes flying around empty and in many cases totally unnecessary.
I live in Tampa, and following this weekend when the majority of Spring Break visitors will be exiting, AA is still running a full schedule at very low load factors. 5 nonstops daily to PHL, 10 to CLT, 7 to DFW, 4 to MIA, 3 to DCA, 3 to ORD. My neighbor is a F/A and she just did an out and back schedule yesterday. Her morning flight to CLT had 11 people on it, and the return last night had 39. Both on A321's.
Disney and Universal are closed and yet AA is flying even more segments from MCO to the above hubs with way too much capacity.
No one needs 4 connecting hub options for flights from Tampa or Orlando to Seattle or anywhere right now.
This schedule is not downsized through April 30th and they've introduced $35-80 fares today to/from Florida into April, when the public has been advised to curtail travel and stay home.
These flights bleed red ink and AA can cut flight segments 50% and still offer sufficient service to whomever does travel.
When people can't go to the beach, the Mall or dine out with friends and family as normal, they're not going to randomly fly somewhere and AA should understand that by now.

AA is trimming flights but cutting flights in March does not save costs very much beyond fuel as the crew pairings are already guaranteed; and even then AA is cutting about 10-15% of Mainline capacity each day. AA also hasn't loaded anything beyond the initial 15% cut for April and the government markets that are not operating. The second round of severe cuts (think 50-60% domestic) has not yet been loaded.

Reply to DfwRevolution:

My understanding is that executive compensation is usually driven off of stock price. So the more stock you buy and take off the market, the more money Sr. Exec's make. Plus their options are worth more. Notice how stock prices go up when a Company announces they are laying off a slew of people (e.g. Boeing engineers) So management will have a more short term outlook That being said borrowing to pay dividend's (which a lot of oil companies are doing now) is just as bad.

I think it's a lot more transparent when companies pay a dividend. I'm not an economist but even I can figure out if a company can support their payouts. There was a reason that share buybacks we illegal until the early 80's. We've gotten rid of a lot of the protections that our Grandparents put in place after the Depression.

Exeiowa wrote:

There must be a reason that buy backs were the method of cash distribution rather than dividends? Is it because the means of the deciders compensation was benefited by one over the other?

Stock buybacks give management more flexibility on when to distribute cash versus a dividend which must be distributed on a declared date. Stock buybacks as a behavior are also understood by the market as one-time events where dividends - once set - are expected into perpetuity. It is devastating to a company when they reduce dividend payouts. There is no inherent reason why "the decider's compensation would benefit from one over the other."

Exeiowa wrote:

If companies had so much cash to burn then why did they also need lower corporate taxes as they didn't have anything useful to do. Buying back stock at this point has built no value and if they go bankrupt and wipe out shareholders they also receive no value.

Distributing cash to shareholders is something useful. If the firm does not have any more projects to fund, then the responsible action is to give the cash to investors so they can put it to work somewhere else. Imagine the CEO saying to the shareholders: "We didn't have any incremental projects that cleared our hurdle rate, so we just gave the cash to the tax collector." If it was your money, you'd throw rotten fruit.

JohanTally wrote:

AA would be much better equipped to weather this crisis if they had used that buyback money to pay down debt instead. So Doug Parker didn't create the Covid-19 crisis but there are lots of steps he could of taken that would of lead to a less grim outlook. If you compensate a CEO strictly in stock of course he wants buybacks so that his salary would be inflated although it's going to bite him for years to come. The biggest reason the stock has underperformed for years is because their massive debt.

How much of AA's debt is maturing in the next 3-6 months while they weather this crisis? Probably on the order of $700 million to $1.4 billion. I don't think they would be materially stronger but for these debt payments.

chonetsao wrote:

So I am not answering your question and points. But I would say cash dividend is fundamentally different from share buybacks. Cash dividend directly benefit shareholders, share buy backs only benefit insiders. Yes there are share holders benefited if they have sold their share at high. But once they sell, they no longer the shareholder of the company, or less a shareholder with less shares. The long term shareholder suffers.

Everyone has the opportunity to sell, so it does not follow that stock buybacks only help insiders. It is a feature, not a bug, that a stock buyback affords the shareholders the option of whether to recognize a gain or not. A dividend forces a capital gain - and therefore a taxable event - for everyone.

Here's most people right now who are talking about stock buybacks: "Something which I couldn't comprehended happened and the blame belongs with something I don't understand."

"I have a three post per topic limit. You're welcome to have the last word". I like that.

We can agree to disagree on this one. I just think the majority of American Airlines shareholders today would have been better off today with the cash dividends in the bank. Especially the "widows and orphans". who aren't active traders.

"How much of AA's debt is maturing in the next 3-6 months while they weather this crisis? Probably on the order of $700 million to $1.4 billion. I don't think they would be materially stronger but for these debt payments."

Although they obviously need much more than .7-1.4 billion but if they had less outstanding debt it would make borrowing easier to stomach. Also if they had more assets paid off it could help. Lenders might ultimately charge higher interest because their already high debt load.

JohanTally wrote:

"How much of AA's debt is maturing in the next 3-6 months while they weather this crisis? Probably on the order of $700 million to $1.4 billion. I don't think they would be materially stronger but for these debt payments."

Although they obviously need much more than .7-1.4 billion but if they had less outstanding debt it would make borrowing easier to stomach. Also if they had more assets paid off it could help. Lenders might ultimately charge higher interest because their already high debt load.

In this environment, disclosed debt maturity dates have little relevance. When financial covenants are breached, the majority of debt becomes payable on demand. Some wily suppliers also link credit period to loan covenant breaches in their Terms and Conditions.

MohawkWeekend wrote:

Don't shoot the messenger but maybe we need to bring back the CAB. Treat airlines like Utilities.

Somebody should start that thread - "Time to bring back the CAB?"

Im not sure we need full CAB-like regulation of airlines (i.e. route regulation), but I do think we need to apply some rules that are applied to other industries. Given the boom-bust cycle of the airline industry, it would seem there is a need for mandatory capitalization reserves similiar to regulations imposed on the banking industry. This would most likely go hand in hand with a ban on stock buybacks, and executive stock compensation.

I also agree with the point that the current execs who squandered billions in profits to engage in stock buybacks should be requied to step down.

I heard Trump has ordered an online survey form so that all a.netters can provide their own list of conditions to any assistance provided to AA. Once all the lists have been collected, the top ten will be selected and implemented. Go for it!

scbriml wrote:

I heard Trump has ordered an online survey form so that all a.netters can provide their own list of conditions to any assistance provided to AA. Once all the lists have been collected, the top ten will be selected and implemented. Go for it!

Can you please post a link to the form?


All kidding aside, AA should activate the remainder of debt facilities yesterday, before they get locked out.
After that, they should ground everything and ask all the staff to take unpaid leave until government money starts flowing to the employees.
With 8 billions of cash in hand they can weather this and will have sufficient reserves to restart operations.

However, if they insist on continuing to fly, those 8 billions will be gone in no time and Ch.11 will be inevitable for them.

The same goes for UA and DL.

DfwRevolution wrote:

Exeiowa wrote:

There must be a reason that buy backs were the method of cash distribution rather than dividends? Is it because the means of the deciders compensation was benefited by one over the other?

Stock buybacks give management more flexibility on when to distribute cash versus a dividend which must be distributed on a declared date. Stock buybacks as a behavior are also understood by the market as one-time events where dividends - once set - are expected into perpetuity. It is devastating to a company when they reduce dividend payouts. There is no inherent reason why "the decider's compensation would benefit from one over the other."

Exeiowa wrote:

If companies had so much cash to burn then why did they also need lower corporate taxes as they didn't have anything useful to do. Buying back stock at this point has built no value and if they go bankrupt and wipe out shareholders they also receive no value.

Distributing cash to shareholders is something useful. If the firm does not have any more projects to fund, then the responsible action is to give the cash to investors so they can put it to work somewhere else. Imagine the CEO saying to the shareholders: "We didn't have any incremental projects that cleared our hurdle rate, so we just gave the cash to the tax collector." If it was your money, you'd throw rotten fruit.

I was led to believe that the reason they needed the cut was to make investments, not to give it to shareholders. When asked the question would you like money people will say yes. Does not mean its the correct course of action overall for the health of the economy especially as they now all have a hand out wanting to be helped. Someone has to provide that money at some point, it would not be unreasonable to ask companies to shoulder that burden more in good times as we will be helping them in bad times because for whatever complicated reason they can't simply hold on to it for a rainy day.

No company keeps large sums of money for a rainy day as it makes them a target for a hostile takeover

Boof02671 wrote:

No company keeps large sums of money for a rainy day as it makes them a target for a hostile takeover

I've seen this repeated on this thread several times but this is BS.
There is a difference between keeping reserves and hoarding cash.

A company that hoards cash is indeed at risk of a hostile takeover, but companies trading at a mutliple of their equity or current assets is not at risk of any hostile takeover, because it would take a lot more money to purchase a controlling stake than can be found on their accounts.

In addition, there are now safeguards in place. Pulling out the cash to purposely leave an insolvent empty shell with debts is a crime subject to prosecution and jail time.

So I call BS.

I would rather risk hostile takeovers than companies coming cap in hand every few years. If it is a problem then I would imagine there is some rule making if done right could mitigate this problem.

Apple famously has a lot of cash (it only started giving dividends in the last few years) and no one has tried to take it over in recent memory.

AA is probably flying needed medical equipment and supplies in the bellies of it's planes. If people want to fly let them. I would also think medical professionals and staff will need transport. The airline can do that. Further cuts are coming anyway.

Waterbomber2 wrote:

Boof02671 wrote:

No company keeps large sums of money for a rainy day as it makes them a target for a hostile takeover

I've seen this repeated on this thread several times but this is BS.
There is a difference between keeping reserves and hoarding cash.

A company that hoards cash is indeed at risk of a hostile takeover, but companies trading at a mutliple of their equity or current assets is not at risk of any hostile takeover, because it would take a lot more money to purchase a controlling stake than can be found on their accounts.

In addition, there are now safeguards in place. Pulling out the cash to purposely leave an insolvent empty shell with debts is a crime subject to prosecution and jail time.

So I call BS.

If you're talking about the amount of cash you'd to run some of the world's largest carriers for months on end with virtually no revenues while avoiding decimating your payroll or asking for some kind of relief, I think that's closer to hoarding than just reserves.

Airlines had enough cash on hand to easily take something like this on the nose if it lasted maybe a month or two with the expectation that demand would return shortly after, but this could go on into next year for all we know and that's even leaving aside the likely recession that's coming.

I'm curious to see what you would've done if you were in charge in 2018 or something like that since you have so many opinions on this. Leaving aside AA because it was Doug Parker running off the deep end with buybacks that slanted the whole industry's statistics, what would you do if you were Brad Tilden at AS or Gary Kelly at WN (60ish% of FCF to buybacks)? What about Ed Bastian at DL (50ish% of FCF to buybacks)? You're already putting billions into capital investments and profit sharing (and finishing the last touches of the VX integration if you're AS). How much goes into the black swan fund in 2018? And how do you plan on keep your job in 2019 when institutional investors push for you be replaced? And how much extra time does that buy you when 2020 happens?

DfwRevolution wrote:

Exeiowa wrote:

There must be a reason that buy backs were the method of cash distribution rather than dividends? Is it because the means of the deciders compensation was benefited by one over the other?

Stock buybacks give management more flexibility on when to distribute cash versus a dividend which must be distributed on a declared date. Stock buybacks as a behavior are also understood by the market as one-time events where dividends - once set - are expected into perpetuity. It is devastating to a company when they reduce dividend payouts. There is no inherent reason why "the decider's compensation would benefit from one over the other."

Exeiowa wrote:

If companies had so much cash to burn then why did they also need lower corporate taxes as they didn't have anything useful to do. Buying back stock at this point has built no value and if they go bankrupt and wipe out shareholders they also receive no value.

Distributing cash to shareholders is something useful. If the firm does not have any more projects to fund, then the responsible action is to give the cash to investors so they can put it to work somewhere else. Imagine the CEO saying to the shareholders: "We didn't have any incremental projects that cleared our hurdle rate, so we just gave the cash to the tax collector." If it was your money, you'd throw rotten fruit.

Stock buybacks (in the U.S.) don't change taxes due. 'Devastating to a company' when they reduce dividend payouts? Why? People who pay attention to free cash flows recognize firms that have unsustainable dividends and price it in. See GE.

ShinyAndChrome wrote:

Waterbomber2 wrote:

Boof02671 wrote:

No company keeps large sums of money for a rainy day as it makes them a target for a hostile takeover

I've seen this repeated on this thread several times but this is BS.
There is a difference between keeping reserves and hoarding cash.

A company that hoards cash is indeed at risk of a hostile takeover, but companies trading at a mutliple of their equity or current assets is not at risk of any hostile takeover, because it would take a lot more money to purchase a controlling stake than can be found on their accounts.

In addition, there are now safeguards in place. Pulling out the cash to purposely leave an insolvent empty shell with debts is a crime subject to prosecution and jail time.

So I call BS.

If you're talking about the amount of cash you'd to run some of the world's largest carriers for months on end with virtually no revenues while avoiding decimating your payroll or asking for some kind of relief, I think that's closer to hoarding than just reserves.

Airlines had enough cash on hand to easily take something like this on the nose if it lasted maybe a month or two with the expectation that demand would return shortly after, but this could go on into next year for all we know and that's even leaving aside the likely recession that's coming.

I'm curious to see what you would've done if you were in charge in 2018 or something like that since you have so many opinions on this. Leaving aside AA because it was Doug Parker running off the deep end with buybacks that slanted the whole industry's statistics, what would you do if you were Brad Tilden at AS or Gary Kelly at WN (60ish% of FCF to buybacks)? What about Ed Bastian at DL (50ish% of FCF to buybacks)? You're already putting billions into capital investments and profit sharing (and finishing the last touches of the VX integration if you're AS). How much goes into the black swan fund in 2018? And how do you plan on keep your job in 2019 when institutional investors push for you be replaced? And how much extra time does that buy you when 2020 happens?

It seems that airlines have been distributing or reinvesting 100% of their earnings and only have customer deposits on their accounts currently.
What is happening with all the cancellations is that airlines are going to have to refund those deposits, resulting on a "bank run" on them.

A grounded airline the size of the US3 and EU3 can go for a while with let's say a month or two worth of revenues in liquidity available at the time of grounding, excluding deposits. If you can cut payroll, defer capital costs, are not spending money on fuel, have aircraft parked in the desert, you are not spending a lot. So you don't need to have huge reserves, just cash and investments that guarantee liquidity and limit eventual losses (guranteed funds, sovereign bonds, etc...)
This is a cyclical theme, it comes back every 10 years, so keeping this kind of money not only lets you survive, but makes you come out ahead when things start picking up again.
More than that is not necessary IMO, as long as you cut your losses quickly and don't keep flying empty and purging those reserves.

The big problem is that most airlines currently have very little liquidity, not even weeks worth of cash.
Yes, they may show billions in current assets on their balance sheets, but once they're done refunding cancelled bookings and paying some bills that can't wait, most will be at zero or negative.

So basically, they spent their cash as quick as they got it (in stock buybacks, dividends, bonusses, profit-sharings ;, etc...), without healthy reserves for emergencies, as explained in the video below:

https://www.youtube.com/watch?v=alzrS3St2AM

Waterbomber2 wrote:

In addition, there are now safeguards in place. Pulling out the cash to purposely leave an insolvent empty shell with debts is a crime subject to prosecution and jail time.

So I call BS.

Where - in what specific legal jurisdiction(s) - are those safeguards in place? Forcing an acquisition to borrow and make special dividend payments to the acquirer is standard practice for U.S. private equity. They'll argue that they thought the firm's finances were 'adequate.' Under-financed spin-offs litter the land. Study Johnson Controls' spin-off of Adient.

https://www.institutionalinvestor.com/a ... -Watch-Out

Waterbomber2 wrote:

ShinyAndChrome wrote:

Waterbomber2 wrote:

I've seen this repeated on this thread several times but this is BS.
There is a difference between keeping reserves and hoarding cash.

A company that hoards cash is indeed at risk of a hostile takeover, but companies trading at a mutliple of their equity or current assets is not at risk of any hostile takeover, because it would take a lot more money to purchase a controlling stake than can be found on their accounts.

In addition, there are now safeguards in place. Pulling out the cash to purposely leave an insolvent empty shell with debts is a crime subject to prosecution and jail time.

So I call BS.

If you're talking about the amount of cash you'd to run some of the world's largest carriers for months on end with virtually no revenues while avoiding decimating your payroll or asking for some kind of relief, I think that's closer to hoarding than just reserves.

Airlines had enough cash on hand to easily take something like this on the nose if it lasted maybe a month or two with the expectation that demand would return shortly after, but this could go on into next year for all we know and that's even leaving aside the likely recession that's coming.

I'm curious to see what you would've done if you were in charge in 2018 or something like that since you have so many opinions on this. Leaving aside AA because it was Doug Parker running off the deep end with buybacks that slanted the whole industry's statistics, what would you do if you were Brad Tilden at AS or Gary Kelly at WN (60ish% of FCF to buybacks)? What about Ed Bastian at DL (50ish% of FCF to buybacks)? You're already putting billions into capital investments and profit sharing (and finishing the last touches of the VX integration if you're AS). How much goes into the black swan fund in 2018? And how do you plan on keep your job in 2019 when institutional investors push for you be replaced? And how much extra time does that buy you when 2020 happens?

It seems that airlines have been distributing or reinvesting 100% of their earnings and only have customer deposits on their accounts currently.
What is happening with all the cancellations is that airlines are going to have to refund those deposits, resulting on a "bank run" on them.

A grounded airline the size of the US3 and EU3 can go for a while with let's say a month or two worth of revenues in liquidity available at the time of grounding, excluding deposits. If you can cut payroll, defer capital costs, are not spending money on fuel, have aircraft parked in the desert, you are not spending a lot. So you don't need to have huge reserves, just cash and investments that guarantee liquidity and limit eventual losses (guranteed funds, sovereign bonds, etc...)
This is a cyclical theme, it comes back every 10 years, so keeping this kind of money not only lets you survive, but makes you come out ahead when things start picking up again.
More than that is not necessary IMO, as long as you cut your losses quickly and don't keep flying empty and purging those reserves.

The big problem is that most airlines currently have very little liquidity, not even weeks worth of cash.
Yes, they may show billions in current assets on their balance sheets, but once they're done refunding cancelled bookings and paying some bills that can't wait, most will be at zero or negative.

So basically, they spent their cash as quick as they got it (in stock buybacks, dividends, bonusses, profit-sharings ;, etc...), without healthy reserves for emergencies, as explained in the video below:

https://www.youtube.com/watch?v=alzrS3St2AM

No, I want numbers. I want every backseat quarterback to tell me what they would do and how much of each dollar of cash flow goes to the contingency fund on the off chance something like this happens. I want to hear how they would justify it to their investors when they get called out during earnings calls for electing to pay a few hundred million extra in tax for the privilege of saving rather than invest it in their business or reward the people choosing to risk their money in their company.

Don't act like this kind of disaster is baked into the airline cycle. This isn't 9/11 or the Great Recession or the SARS or MERS or the dot com bust or the Gulf War. The airlines prepared for this just as well as every other business in America and when you look at all the people who've already lost their jobs, I'd say they prepared even better than most. Tell me what you would do and how you would plan to take your business out the other side of this in one piece if it goes all the way into 2021.

Exeiowa wrote:

I would rather risk hostile takeovers than companies coming cap in hand every few years. If it is a problem then I would imagine there is some rule making if done right could mitigate this problem.

Apple famously has a lot of cash (it only started giving dividends in the last few years) and no one has tried to take it over in recent memory.

At the margins airlines pull even in banner years, someone the size of the Big 4 wouldn't be an attractive target for a hostile takeover in any case. The danger is execs and boards getting purged by investors demanding an ROI on the money they put into the industry.

As for Apple, they alternate on and off as the most valuable company in the entire world. They can raise more cash than some central banks so they get to run their business the way they want to and investors tolerate it. Airlines and most other businesses will never get that luxury.

MIflyer12 wrote:

DfwRevolution wrote:

Exeiowa wrote:

There must be a reason that buy backs were the method of cash distribution rather than dividends? Is it because the means of the deciders compensation was benefited by one over the other?

Stock buybacks give management more flexibility on when to distribute cash versus a dividend which must be distributed on a declared date. Stock buybacks as a behavior are also understood by the market as one-time events where dividends - once set - are expected into perpetuity. It is devastating to a company when they reduce dividend payouts. There is no inherent reason why "the decider's compensation would benefit from one over the other."

Exeiowa wrote:

If companies had so much cash to burn then why did they also need lower corporate taxes as they didn't have anything useful to do. Buying back stock at this point has built no value and if they go bankrupt and wipe out shareholders they also receive no value.

Distributing cash to shareholders is something useful. If the firm does not have any more projects to fund, then the responsible action is to give the cash to investors so they can put it to work somewhere else. Imagine the CEO saying to the shareholders: "We didn't have any incremental projects that cleared our hurdle rate, so we just gave the cash to the tax collector." If it was your money, you'd throw rotten fruit.

Stock buybacks (in the U.S.) don't change taxes due. 'Devastating to a company' when they reduce dividend payouts? Why? People who pay attention to free cash flows recognize firms that have unsustainable dividends and price it in. See GE.

Cash Dividends trigger income tax obligations immediately for shareholders. Growth in their share value is not taxable right away, and is taxed at a lower rate than ordinary income. A buyback is, in theory, better than a dividend for this reason. But if shareholders are going to be cleaned out then it was a bad deal for them. They should instead wish the company held onto the cash and used it to survive, preserving the company that shareholders own.

LCDFlight wrote:

Cash Dividends trigger income tax obligations immediately for shareholders. Growth in their share value is not taxable right away, and is taxed at a lower rate than ordinary income. A buyback is, in theory, better than a dividend for this reason. But if shareholders are going to be cleaned out then it was a bad deal for them. They should instead wish the company held onto the cash and used it to survive, preserving the company that shareholders own.

I am not in favor of stock buybacks, however, it's not realistic to say the airlines should have held onto the cash.

AA purchased $12.4B worth of their stock since 7/2014. That sounds like a lot of money, and it is. However... AA's opex since 1/2015 is $192.8B. It's not even a dent.

Even if AA kept that $12.4B in cash, which they wouldn't have, as some venture capital firm would have engineered a leveraged buyout to get it, that wouldn't even pale in comparison to the $42.7B opex in FY19. That's a little over 3 months in expenses.

And this is using the total sum of the buybacks AA has done since 2014!

Maybe 3 months of extra cash would make the difference, maybe not. I know the numbers sound large, and the optics are bad. I'm not defending it, and I'm sure the airlines would have handled it differently if they had a crystal ball.

But the problem with airlines, all airlines, right now is LACK OF DEMAND. The business model works, and will work, but we have to get through this virus situation first.

usflyer msp wrote:

77H wrote:

usflyer msp wrote:

1) Scott Kirby at UA is far worse. See their refund policy for 'Rona or the instance on no hand baggage for Basic Economy pax for examples.
2) The government should not be micromanaging these companies but, if the government is going to bail them out, it should receive shares just like any other investor.

The “no baggage in basic economy” sob story is getting so tiresome. The airline makes it exceedingly clear what services you’re entitled to as a basic economy passenger. I know because I’ve purchased several. It is ultimately the consumers choice to purchase that ticket versus a regular economy ticket, etc. It’s like choosing a to buy a Corolla and then complaining it doesn’t perform like a 3 Series.

As for AA’s Oasis product, again the airlines publish seat width, pitch and what amenities one can expect on the aircraft scheduled to operate that flight. For the average person, a plane ticket is not an insignificant purchase. Consumers failing to do their due diligence on what they’re getting for their money is somehow the fault of the airline ?

Depending on the time of year and route being flown, a domestic round trip ticket can cost as much a laptop now days. Would you just walk into an electronic store and buy the first laptop you see simply because it fits your baseline criteria of being a laptop ? Or are you going to do some research and compare models ? If that’s how you make purchases, to each his own but what you end up with is on you.

77H

I would not disagree with you. My point was stop dragging AA management as customer unfriendly when the policies instituted by the current management of UA have been far more restrictive for pax.

Anyone that says that American is a better airline then United (or Delta for that matter) is not living on the same planet as the rest of us. United has a far better balance sheet, a much more uniform product, a cleaner, more usable website and app, higher quality lounges (both domestic clubs and long haul business class lounges), a superior airport experience, you name it.... I have been top tier on both UA and AA multiple times in the last several years and can say that with authority. I also spent 8 years in the past working at American so my bias is absolutely towards them, but I have to be honest, they are the worst of the pack. That is reality.

The real kicker is Doug Parker's arrogant comment that the US majors would never lose money again. Almost reminds me of the Titanic's captain, EJ Smith, and his famous line about "I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel ..."

Perhaps no one could have foreseen an event that affected demand to this extreme. But it's also criminally negligent that American doesn't have a cleaner balance sheet and more cash to ride out this crisis after the bounty of the past 7-8 years.

The airlines should have either reduced debt or issued special one-time bonus dividends. All of those would have been better options. Heck, even if you reinvested the dividend in American Airlines stock at least you'd own more shares. Now the all that money spent on the share buyback has done nothing for the shareholder who held.
What does it say that even Donald Trump feels airline share buybacks are bad?

AAIL86 wrote:

usflyer msp wrote:

77H wrote:

The “no baggage in basic economy” sob story is getting so tiresome. The airline makes it exceedingly clear what services you’re entitled to as a basic economy passenger. I know because I’ve purchased several. It is ultimately the consumers choice to purchase that ticket versus a regular economy ticket, etc. It’s like choosing a to buy a Corolla and then complaining it doesn’t perform like a 3 Series.

As for AA’s Oasis product, again the airlines publish seat width, pitch and what amenities one can expect on the aircraft scheduled to operate that flight. For the average person, a plane ticket is not an insignificant purchase. Consumers failing to do their due diligence on what they’re getting for their money is somehow the fault of the airline ?

Depending on the time of year and route being flown, a domestic round trip ticket can cost as much a laptop now days. Would you just walk into an electronic store and buy the first laptop you see simply because it fits your baseline criteria of being a laptop ? Or are you going to do some research and compare models ? If that’s how you make purchases, to each his own but what you end up with is on you.

77H

I would not disagree with you. My point was stop dragging AA management as customer unfriendly when the policies instituted by the current management of UA have been far more restrictive for pax.

Anyone that says that American is a better airline then United (or Delta for that matter) is not living on the same planet as the rest of us. United has a far better balance sheet, a much more uniform product, a cleaner, more usable website and app, higher quality lounges (both domestic clubs and long haul business class lounges), a superior airport experience, you name it.... I have been top tier on both UA and AA multiple times in the last several years and can say that with authority. I also spent 8 years in the past working at American so my bias is absolutely towards them, but I have to be honest, they are the worst of the pack. That is reality.

The real kicker is Doug Parker's arrogant comment that the US majors would never lose money again. Almost reminds me of the Titanic's captain, EJ Smith, and his famous line about "I cannot imagine any condition which would cause a ship to founder. I cannot conceive of any vital disaster happening to this vessel ..."

Perhaps no one could have foreseen an event that affected demand to this extreme. But it's also criminally negligent that American doesn't have a cleaner balance sheet and more cash to ride out this crisis after the bounty of the past 7-8 years.

That has not been my experience at all. The only thing I would give UA is the more useful website/app.
Regardless, my comment was about customer friendly policies on which UA at the bottom. UA does do a good job of disclosing its customer unfriendly policies but at the end of the day, they are still customer unfriendly.

OK, maybe not a liquidation but how about AA being encouraged to accept bids? Similar to when Wells Fargo was paid by the Feds to acquire Wachovia?

This thread goes on? If AA (and other airlines) are forced into bankruptcy it will be a prepackaged, orderly Chapter 11 reorganization. AA seemed to be slow on drawling down capacity but that is quickly changing. I'm at the AA AC this morning and there's red all over the board. I think we will see massive scheduling changes in the next 2 weeks and downgauge of equipment. No more widebodies on trunk routes. Lot's of frequencies cut.

delimit wrote:

AA's service quality, seating in coach, baggage policies, etc. are really besides the point, unless you think it's appropriate for regulators to use this crisis to blackmail AA into changing it's policies; rather than, say, actually regulate the practices they find objectionable. And whatever they do should be applied to the airlines as a whole.

Exactly. At this point it's about saving this industry, not the companies in particular, and trying to soften the blow to our economy during this period. The government would be stupid to not provide aid.

Here’s an interesting article.

https://www.fool.com/investing/2020/03/ ... backs.aspx

It says that AA was really the only airline to waste their cash flow on stock buy backs. Based on this, I would say bankruptcy or merger is a real possibility.

MrBretz wrote:

Here’s an interesting article.

https://www.fool.com/investing/2020/03/ ... backs.aspx

It says that AA was really the only airline to waste their cash flow on stock buy backs. Based on this, I would say bankruptcy or merger is a real possibility.

AA has over $8 billion of cash on hand and all airlines bought their stock back.

The fool isn’t the most accurate

As a group, the six airlines spent 96% of their free cash flow on stock buybacks over the past 10 full years through 2019.

https://www.marketwatch.com/story/airli ... 2020-03-18

Boof02671 wrote:

MrBretz wrote:

Here’s an interesting article.

https://www.fool.com/investing/2020/03/ ... backs.aspx

It says that AA was really the only airline to waste their cash flow on stock buy backs. Based on this, I would say bankruptcy or merger is a real possibility.

AA has over $8 billion of cash on hand and all airlines bought their stock back.

The fool isn’t the most accurate

As a group, the six airlines spent 96% of their free cash flow on stock buybacks over the past 10 full years through 2019.

https://www.marketwatch.com/story/airli ... 2020-03-18

And the company you love to hate (DL) did the least stock buybacks compared to their free cash flow of the big 4 (WN: 70% of their money spent, UA: 77%, AA: more than 100%, DL: 49%). Maybe they have a strategy that works and keep everyone happy (including the employees who refuse to unionize...).

WayexTDI wrote:

Boof02671 wrote:

MrBretz wrote:

Here’s an interesting article.

https://www.fool.com/investing/2020/03/ ... backs.aspx

It says that AA was really the only airline to waste their cash flow on stock buy backs. Based on this, I would say bankruptcy or merger is a real possibility.

AA has over $8 billion of cash on hand and all airlines bought their stock back.

The fool isn’t the most accurate

As a group, the six airlines spent 96% of their free cash flow on stock buybacks over the past 10 full years through 2019.

https://www.marketwatch.com/story/airli ... 2020-03-18

And the company you love to hate (DL) did the least stock buybacks compared to their free cash flow of the big 4 (WN: 70% of their money spent, UA: 77%, AA: more than 100%, DL: 49%). Maybe they have a strategy that works and keep everyone happy (including the employees who refuse to unionize...).

Delta still spent money and I said nothing about unions, but their pilots and dispatchers are most certainly unionized. And there are two active campaigns with two unions vying for the FAs and one for the ramp.

Just like you are wrong in the WN thread.