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LAXintl
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Updated: American Airlines Business & Finance Discussion

Mon May 18, 2020 3:06 pm

Concerns increasing about the financial stability of AA.

While publicly AA has been sanguine about the risk, and even at last weeks earnings call puzzled analyst with its lack of information about how it planned to tackle its pile of debt, nor lay out longer term roadmap for restructuring.
Cost of servicing the current debt while during period of reduced liquidity and the increased cost or risk in attaining new money (look at UA's failed bond offering) add to the concern over AA.


From FT today;

Investors are betting American Airlines will file for bankruptcy for the second time in a decade.

American’s debt totals $34bn, well above both Delta and United, and almost six times as much as Southwest. That reality is driving speculation that American, which filed for Chapter 11 nine years ago, could be headed back to court

The price for the Fort Worth airline’s credit default swaps has risen since February and outstripped other big US carriers. Historically, paying more for swaps, a financial instrument to insure against corporate default on debt, has indicated a greater risk of that happening. Bloomberg data show that investors think the airline’s default probability in the next five years is nearly 100 per cent.
American’s five-year credit default swaps hit 6,659 basis points, according to IHS Markit data. The price has risen more than 4,000 per cent in the past three months. The comperative market priced swaps for United Airlines at 3,677bp, for Delta Air Lines at 1,212bp, and for Southwest Airlines at 505bp.



https://www.ft.com/content/d0b9dc48-d7c ... 365cb4f4f4

=
Last edited by LAXintl on Mon May 18, 2020 3:12 pm, edited 1 time in total.
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:08 pm

In other words, Boeing's CEO will be shown to have been correct.
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lightsaber
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:12 pm

Unfortunately, AA has a negative book value. Unless they can default, I do not see avoiding CH11, again...

Lightsaber
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:14 pm

Investors bet on a lot of things. For many of those bets to be made there has to be somebody betting the other way - a counter-party, betting just as much $. Carriers can't hedge against oil prices going up beyond price $xx/barrel without somebody confident that oil will be able to be acquired for less than $xx/barrel.

That said, I wouldn't want to be holding any AA debt.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:28 pm

I'm assuming AA will try some kind of out of court settlement in which bondholders first take a haircut and then trade some debt for equity, refinance the remaining debt at higher rates. Even that might be just a temporary measure if the industry can't get back to near where it was.

Remember pre COVID-19 AA barely made money from flying. With 25%+ unemployment cc applications and more importantly approvals will be way down. So AA gets the double whammy. If an out of court settlement can't be reached then it's off to Chapter 11 with the power of the Bankruptcy Court. When you factor in the LUS bankruptcies this will be a "Chapter 44."
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:30 pm

I am of the mindset a Chapter 11 of AA would plunge UA and DL into a similar need to compete through reduced costs done by shedding unneeded assets as AA will do.

This could trigger other prepackaged arrangements too.
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catiii
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:32 pm

Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.


How? Debt restructuring isn't "out of business," which is what he said.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:35 pm

Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.


Yes, he is probably right, but statements like that can also start a poisonous downward spiral on their own.
Just like when an airline CEO publicly speculates about the possible demise of a competing airline.

One should be very careful about making such statements.
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:53 pm

Dahlgardo wrote:
Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.


Yes, he is probably right, but statements like that can also start a poisonous downward spiral on their own.
Just like when an airline CEO publicly speculates about the possible demise of a competing airline.

One should be very careful about making such statements.


So you guys think AA is going to liquidate and cease operations? Because he was asked if he thought a major US carrier would "go out of business."
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:54 pm

KlimaBXsst wrote:
I am of the mindset a Chapter 11 of AA would plunge UA and DL into a similar need to compete through reduced costs done by shedding unneeded assets as AA will do.

This could trigger other prepackaged arrangements too.


It will he hard for UA and DL to hold out. The wisdom of AA not going through ch11 last time alongside the others will be tested again, this time in reverse.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:56 pm

If AA choses to go this route they should do it sooner than later while they have cash and hand, and can self finance like they did before. DIP financing will likely be difficult to come by and a DIP may see more value in liquidated assests.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:57 pm

catiii wrote:
Dahlgardo wrote:
Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.


Yes, he is probably right, but statements like that can also start a poisonous downward spiral on their own.
Just like when an airline CEO publicly speculates about the possible demise of a competing airline.

One should be very careful about making such statements.


So you guys think AA is going to liquidate and cease operations? Because he was asked if he thought a major US carrier would "go out of business."


I seriously doubt it. AA’s Achilles heel is the high debt load. If they shed their debt they’ll be in a perfect position to continue their operation successfully in the Post Covid era.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 3:58 pm

catiii wrote:
Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.

How? Debt restructuring isn't "out of business," which is what he said.

Actually the term used is "reorganization" ( ref: https://en.wikipedia.org/wiki/Chapter_1 ... tates_Code ) so what emerges from BK is a new business that just happens to have the same name as the old one. Surely the creditors and share holders who get wiped out won't feel it's the same business.

Dahlgardo wrote:
Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.

Yes, he is probably right, but statements like that can also start a poisonous downward spiral on their own.
Just like when an airline CEO publicly speculates about the possible demise of a competing airline.

One should be very careful about making such statements.

I agree that Calhoun has made several regrettable statements that IMO show he isn't worthy of his giant pay packet.

For what he gets paid, he should be more insightful as to what he says and what he chooses to not say.

On the other hand I doubt his statement on an airline going under had much impact, he was just stating the obvious.

In some way his statement ended up preparing the industry and the public for the inevitable.

But I do understand why airline CEOs wish he just kept his mouth shut, and I bet he now does as well.
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Arion640
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 4:02 pm

Looks like buffet was right to dump his airline shares.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 4:10 pm

A more meaningful analysis will be on which of the US3 will not file for Chap 11 in the near future.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 4:17 pm

AAPramugari14 wrote:

I seriously doubt it. AA’s Achilles heel is the high debt load. If they shed their debt they’ll be in a perfect position to continue their operation successfully in the Post Covid era.

There is a huge problem with that thesis. Most of AA's debt is secured by assets. The only way for AA to get rid of that debt is to forfeit the assets. Most of it is aircraft, so all that has to happen for AA to essentially cease to exist is for competitors to offer AA's creditors more $$ for their assets than AA is willing to pay.

Creditors are also unlikely to lend any credence to a plan by current management given they drove the bus that led here with reckless borrowing. It was one thing for UA/DL to buy-back shares through earnings. AA borrowed money to perform share buy-backs and here we are.

This lack of credibility means they are open the possibility of an alternate plan being presented to the court and supported by bondholders. This could come from anywhere, including a merger or breakup offer.
 
Curiousflyer
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 4:52 pm

Indeed AA seems to be the most in debt in the US aviation industry, and it will be difficult to just shed assets. If they shed assets, it is not much better than a bankruptcy as they would have to reduce service, lay staff off, etc. And then they will have a hard time finding lenders for upcoming financing needs. They might find a way to survive, Qantas and BA might decide AA is too valuable a partner to let them go down, but there is a good chance they could go in Chapter 11 or even completely fold.
 
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LAXintl
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 4:55 pm

Somewhat related to see how AA stacks up to peers.
This was an estimated ratio of cash, revolver, and assets they can tap vs debt. Chart created prior to Q1 results.

Image
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LAXintl
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:02 pm

And breakdown of obligations for next 5 years per Q1 report

Image
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:21 pm

Parker and company have generally done great at AA, and AA is a very different company than the enterprise that filled BK back in 2011.

However as we have seen the refresh of AA has been at the expense of a large debt load, and while it was sustainable in good times, now that the music has stopped its becomes a potential dagger.

Certainly hope AA makes it, though I see a period of painful bloodletting ahead.
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questions
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:21 pm

LAXintl wrote:
Somewhat related to see how AA stacks up to peers.
This was an estimated ratio of cash, revolver, and assets they can tap vs debt. Chart created prior to Q1 results.

Image


Can someone explain this a little more?

What are:
- Unrestricted Cash and ST Inv
- Undrawn Revolver
- EST. Unencumbered Assets

It appears the three make up “liquidity estimates.” Why is liquidity shown as a percentage of trailing twelve month revenue? What is it measuring? And therefore telling us? Why 67.2% may be better or worse than 17.5%?

Understanding basic finance and how financial performance is measured in the industry is important. Not just for me but others as well.

Thanks.
 
D L X
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:22 pm

Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.


1) these investors are *following* Boeing's CEO, not the reason he suggested what he did.

2) AA's stock is up 10% today, so investors may have just as clearly changed their minds.

OR, it's a fluid situation and nobody outside of Dallas knows.
 
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janders
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:28 pm

questions wrote:
Can someone explain this a little more?

What are:
- Unrestricted Cash and ST Inv
- Undrawn Revolver
- EST. Unencumbered Assets

It appears the three make up “liquidity estimates.” Why is liquidity shown as a percentage of trailing twelve month revenue? What is it measuring? And therefore telling us? Why 67.2% may be better or worse than 17.5%?

Understanding basic finance and how financial performance is measured in the industry is important. Not just for me but others as well.

Thanks.


Its a pretty simple chart.

Basically shows how much wood the airline can burn when revenue dries up.

Unrestricted Cash and ST Inv = cash in the bank and value of short term investments cash out

Undrawn Revolver = money it can drawn down (think of it as a line of credit)

EST. Unencumbered Assets = Assets that have not already pledged as collateral which it may borrow against.
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:29 pm

At this point reality doesn't matter. The perception of reality has already taken over.
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questions
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:38 pm

janders wrote:
questions wrote:
Can someone explain this a little more?

What are:
- Unrestricted Cash and ST Inv
- Undrawn Revolver
- EST. Unencumbered Assets

It appears the three make up “liquidity estimates.” Why is liquidity shown as a percentage of trailing twelve month revenue? What is it measuring? And therefore telling us? Why 67.2% may be better or worse than 17.5%?

Understanding basic finance and how financial performance is measured in the industry is important. Not just for me but others as well.

Thanks.


Its a pretty simple chart.

Basically shows how much wood the airline can burn when revenue dries up.

Unrestricted Cash and ST Inv = cash in the bank and value of short term investments cash out

Undrawn Revolver = money it can drawn down (think of it as a line of credit)

EST. Unencumbered Assets = Assets that have not already pledged as collateral which it may borrow against.


What’s simple to interpret for some is not simple to others.

Your explanation is spot on helpful.

Thanks!
 
Blerg
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:46 pm

So what went wrong since their last Chapter 11 filing? UA and DL seem to have found their way to profitability and stability while AA hasn't.
 
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OzarkD9S
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:58 pm

This may be a stupid question but under the CARES act, can an airline file CH11 before October 1 or not? I don't recall reading about that in any of the details I'm familiar with.

Thanks
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 5:59 pm

Westerwaelder wrote:
KlimaBXsst wrote:
I am of the mindset a Chapter 11 of AA would plunge UA and DL into a similar need to compete through reduced costs done by shedding unneeded assets as AA will do.

This could trigger other prepackaged arrangements too.


It will he hard for UA and DL to hold out. The wisdom of AA not going through ch11 last time alongside the others will be tested again, this time in reverse.


There is one caveat to that.

If AA successfully restructures in bankruptcy then yeah UA and DL (and maybe even WN) will probably have to go through BK as well just to keep their costs in line with AA. If AA files and ends up liquidating there would be no need to. UA and DL would probably wait to file until AAs fate is known.
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:03 pm

Revelation wrote:
catiii wrote:
Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.

How? Debt restructuring isn't "out of business," which is what he said.

Actually the term used is "reorganization" ( ref: https://en.wikipedia.org/wiki/Chapter_1 ... tates_Code ) so what emerges from BK is a new business that just happens to have the same name as the old one. Surely the creditors and share holders who get wiped out won't feel it's the same business.


Incorrect. What emerges from BK is a business that has renegotiated/written off a lot of its liabilities, potentially removed a lot of shareholder equity, and usually has an ownership structure that resembles who owned the business in the past. The airline would still retains most of the employees (often, but not always, including senior management), aircraft, headquarters, airport gate leases, etc.

If it "is a new business that just happens to have the same name as the old one" then that was a Chapter 7 bankruptcy where the name and trademark were sold to another buyer, or the trademark was abandoned and someone else picked it up. Just as a business being sold to a new owner doesn't mean it is out of business, an airline undergoing a re-org isn't out of business either.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:03 pm

OzarkD9S wrote:
This may be a stupid question but under the CARES act, can an airline file CH11 before October 1 or not? I don't recall reading about that in any of the details I'm familiar with.

Thanks


I don't think there is any language in CARES preventing a company from filing for chapter 11. There would probably be quite a fight in court by the unions arguing CARES preserves their benefits/pay and prevents layoffs until October 1. CARES (and all of the other rescue packages Congress have passed) isn't particularly well written....it was done in a rush for obvious reasons. Like in everything the lawyers will be the only real winners :)
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:04 pm

Blerg wrote:
So what went wrong since their last Chapter 11 filing? UA and DL seem to have found their way to profitability and stability while AA hasn't.


I cant remember the exact dates, but UA and DL filed for CH11 a few years before AA did which may of helped them have better profits during a period that AA was in CH11 and recovering. Also I dont know if the US AA merger was exactly as easy as the UA CO and DL NW mergers. US AA seems to be still merging stuff out with unions and other areas.
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:05 pm

Threatening bankruptcy could also be a play to get more Federal 'bailout' monies although I think is very unfair to bail them out while 10's of millions are out of work and broke and getting little real relief.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:26 pm

GEUltraFan9XGTF wrote:
At this point reality doesn't matter. The perception of reality has already taken over.


Bingeaux. Markets are people and they're not always logical. A company I used to hold, (ticker BH) has a market cap less than the value of the stock it holds in other companies.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:27 pm

Upside: NEW PAINT JOB, BAYBEE!!!111!!!
 
Blerg
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:33 pm

divemaster08 wrote:
Blerg wrote:
So what went wrong since their last Chapter 11 filing? UA and DL seem to have found their way to profitability and stability while AA hasn't.


I cant remember the exact dates, but UA and DL filed for CH11 a few years before AA did which may of helped them have better profits during a period that AA was in CH11 and recovering. Also I dont know if the US AA merger was exactly as easy as the UA CO and DL NW mergers. US AA seems to be still merging stuff out with unions and other areas.


Interesting, thank you. Let's see what becomes of AA in the coming weeks and months.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:34 pm

Blerg wrote:
So what went wrong since their last Chapter 11 filing? UA and DL seem to have found their way to profitability and stability while AA hasn't.

It's funny, we used to think of UA having lost its way till Smisek got caught out and was replaced. My opinion is that AA has cheapened its operations and thus its brand to the point no one wants to use them, and a new and more enlightened leadership would help a lot. UA was doing the same thing in the Smisek era and has been able to improve its reputation a lot in a relatively short period.

lowfareair wrote:
What emerges from BK is a business that has renegotiated/written off a lot of its liabilities, potentially removed a lot of shareholder equity, and usually has an ownership structure that resembles who owned the business in the past. The airline would still retains most of the employees (often, but not always, including senior management), aircraft, headquarters, airport gate leases, etc.

I was following you till your statement about ownership. What I've seen is the new ownership is quite different. The old ownership largely gets wiped out, the new ownership ends up largely being the creditors of the old business. Often, the old senior management is replaced. The old management quite often was stacked with "turnaround specialists" trying to save the old business on behalf of the old ownership/BoD. The new enterprise usually has a very different business profile and usually needs new management better able to take advantage of that environment. The new enterprise ends up with the same assets as before but usually a lot less of them. For instance the US3 ended up using the same airports after they all went through BK but had a lot less gates at some. One example: All the free gates at BOS allowed B6 to become the biggest airline at BOS, allowed WN to draw down MHT and PVD to focus on BOS, etc.

In the end we're just disagreeing about semantics. I doubt any of the US3 would think of themselves as the same business before and after BK, yet in many ways they were, and in others they were not.
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Lostmoon744
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:37 pm

catiii wrote:
Dahlgardo wrote:
Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.


Yes, he is probably right, but statements like that can also start a poisonous downward spiral on their own.
Just like when an airline CEO publicly speculates about the possible demise of a competing airline.

One should be very careful about making such statements.


So you guys think AA is going to liquidate and cease operations? Because he was asked if he thought a major US carrier would "go out of business."



I don't think they're filing for Ch. 7 to liquidate. I believe it's a Ch. 11 filing.
 
777Mech
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 6:53 pm

Blerg wrote:
So what went wrong since their last Chapter 11 filing? UA and DL seem to have found their way to profitability and stability while AA hasn't.


Shiny plane syndrome.

Borrowing money to do stock buy backs, etc
 
cschleic
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:11 pm

janders wrote:
questions wrote:
Can someone explain this a little more?

What are:
- Unrestricted Cash and ST Inv
- Undrawn Revolver
- EST. Unencumbered Assets

It appears the three make up “liquidity estimates.” Why is liquidity shown as a percentage of trailing twelve month revenue? What is it measuring? And therefore telling us? Why 67.2% may be better or worse than 17.5%?

Understanding basic finance and how financial performance is measured in the industry is important. Not just for me but others as well.

Thanks.


Its a pretty simple chart.

Basically shows how much wood the airline can burn when revenue dries up.

Unrestricted Cash and ST Inv = cash in the bank and value of short term investments cash out

Undrawn Revolver = money it can drawn down (think of it as a line of credit)

EST. Unencumbered Assets = Assets that have not already pledged as collateral which it may borrow against.


The liquidity vs. revenue does give an indication of how much cash or cash that could be generated they have to offset revenue. But in terms of burn rate, wouldn't it make sense to compare liquidity against operating expenses and other required expenditures (after cutting out things like repurchases)? That shows how long the cash lasts if revenue goes to $0 and is being discussed at the various HQs these days. It could be a different percentage, or number of months, vs. comparing to revenue.

Related question...are negative pledges on assets common in the industry? That's where, in a loan from lender A, the airline promises not to pledge any of those unencumbered assets to get a loan from anyone else, effectively reducing potential liquidity unless renegotiated with A.
 
strfyr51
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:14 pm

AAPramugari14 wrote:
catiii wrote:
Dahlgardo wrote:

Yes, he is probably right, but statements like that can also start a poisonous downward spiral on their own.
Just like when an airline CEO publicly speculates about the possible demise of a competing airline.

One should be very careful about making such statements.


So you guys think AA is going to liquidate and cease operations? Because he was asked if he thought a major US carrier would "go out of business."


I seriously doubt it. AA’s Achilles heel is the high debt load. If they shed their debt they’ll be in a perfect position to continue their operation successfully in the Post Covid era.

Or American could swap debt for equity. If any debtors want to take their assets? they could and then they'd be stuck holding the bag. I doubt this is exactly the time to be forcing the issue.
 
ILNFlyer
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:19 pm

Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.


Could even go chapter 13.
 
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:32 pm

ILNFlyer wrote:
Revelation wrote:
In other words, Boeing's CEO will be shown to have been correct.


Could even go chapter 13.


Boeings CEO could file for Chapter 13 but AA cannot...chapter 13 is for personal bankruptcy not for corporations.

Chapter 11 is the corporate equivalaent.
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STT757
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:33 pm

divemaster08 wrote:
Blerg wrote:
So what went wrong since their last Chapter 11 filing? UA and DL seem to have found their way to profitability and stability while AA hasn't.


I cant remember the exact dates, but UA and DL filed for CH11 a few years before AA did which may of helped them have better profits during a period that AA was in CH11 and recovering. Also I dont know if the US AA merger was exactly as easy as the UA CO and DL NW mergers. US AA seems to be still merging stuff out with unions and other areas.


Something else that has been discussed on here over the years is whether AA needed to slim down after their merger with US. DL closed two hubs, CVG and MEM, after their merger with NWA. UA closed CLE. Both airlines also reorganized their fleets. I feel that since the merger AA, while performing well, was too bloated and needed to slim down. One of the areas they took on debt was their fleet rejuvenation, they had a ton of older aircraft like the MD-80s. They announced a huge deal with Airbus, whom they were on the outs with after AA 587, and Boeing to renew their fleet.

They should of took advantage of the merger with US to trim down and use the excess capacity created to replace older aircraft. Not to pick on Phoenix, but perhaps closing the PHX hub and redeploying those freed up aircraft to DFW and ORD to replace their MD-80s would have been more prudent. Same thing on the AA side at JFK, perhaps they held on too long for prestige when they should have been redeploying those long haul aircraft to PHL, ORD, MIA etc.. and allow the consolidation to push out older long haul aircraft.
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luckyone
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:34 pm

divemaster08 wrote:
Blerg wrote:
So what went wrong since their last Chapter 11 filing? UA and DL seem to have found their way to profitability and stability while AA hasn't.


I cant remember the exact dates, but UA and DL filed for CH11 a few years before AA did which may of helped them have better profits during a period that AA was in CH11 and recovering. Also I dont know if the US AA merger was exactly as easy as the UA CO and DL NW mergers. US AA seems to be still merging stuff out with unions and other areas.

Just for completion's sake:
United filed in 2002. It's merger partner Continental filed twice in 1983 and 1990.

Delta and Northwest filed within minutes of each other September 14, 2005 and exited in May 2007 (tell me that they weren't talking...).

American filed in 2011. The economy wasn't exactly cooking between 2007 and 2011.
 
United1
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:41 pm

luckyone wrote:
divemaster08 wrote:
Blerg wrote:
So what went wrong since their last Chapter 11 filing? UA and DL seem to have found their way to profitability and stability while AA hasn't.


I cant remember the exact dates, but UA and DL filed for CH11 a few years before AA did which may of helped them have better profits during a period that AA was in CH11 and recovering. Also I dont know if the US AA merger was exactly as easy as the UA CO and DL NW mergers. US AA seems to be still merging stuff out with unions and other areas.

Just for completion's sake:
United filed in 2002. It's merger partner Continental filed twice in 1983 and 1990.

Delta and Northwest filed within minutes of each other September 14, 2005 and exited in May 2007 (tell me that they weren't talking...).

American filed in 2011. The economy wasn't exactly cooking between 2007 and 2011.


Another bit to keep in mind is AA filed for BK under different rules than UA, DL or NW did. After UAs BK the rules were changed a bit and DL and NW filed on the last day the old rules were in effect. AA may not have been able to shed as much as the others did.

That being said AA has really squandered a lot of the opportunities they were given both after BK and the merger. They have been a mess for a while.
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:43 pm

ILNFlyer wrote:
Could even go chapter 13.


When was the last time a major corporation sought C13? C13 is too long and drawn out, so more likely to be C11 or C7.

Survival of the underlying corporation requires getting into C11, completing reorg and and shedding debt/cost as quickly as possible, then emerging. The longer the process languishes, the more likely the company will not emerge.

If AA files Chapter 11 (Reorganization), then it will be extremely difficult for UA and DL (and possibly others) to remain competitive unless they do the same. A post-C11 AA with reduced cost structure would give them an advantage. At that point, UA, DL, etc. would be seeking C11 in order to achieve similar cost reductions, resulting in a leveling of the playing field.

If AA ceases operations and seeks Chapter 7 (Liquidation), then everything gets sold to the highest bidder as creditors seek to recover as much as possible through the sale of assets.

United1 wrote:
Another bit to keep in mind is AA filed for BK under different rules than UA, DL or NW did. After UAs BK the rules were changed a bit and DL and NW filed on the last day the old rules were in effect. AA may not have been able to shed as much as the others did. That being said AA has really squandered a lot of the opportunities they were given both after BK and the merger. They have been a mess for a while.


:checkmark: :checkmark: :checkmark: Excellent point! I recall much concern expressed after AA's prepackaged C11 that the company had not been able to make enough meaningful cost reduction or shed as much debt as various parties would have preferred.
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EMB170
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:52 pm

My questions:

(1) If AA files for Chapter 11, and re-emerges, what incentive is there for DL and UA not do the same thing? (Without bringing politics into this argument, is this what is meant by corporations abusing bankruptcy?) Would AA have a 'damaged credit rating' that would prevent them from being able to secure capital in the future?

(2) As has been stated, most of AA's assets are secured with its aircraft. Given that AA has already parked (or soon will) park the MD-80, 757, 767, EMB-190, and A330 fleets, some permanently, wouldn't the easiest course be for other entities to take up the worthwhile parts of those fleets (primarily EMB-190 and A330 aircraft, by my guess)? Would that provide enough capital to keep AA going?

(3) If all else fails, would the perspective of the nation's largest airline (with hubs in the largest metro areas in the country) be enough to cause the Trump administration to decide that AA is 'too big to fail', giving AA a government bailout in much the same way that GM and Chrysler were bailed out during an election year?
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luckyone
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 7:57 pm

STT757 wrote:
divemaster08 wrote:
Blerg wrote:
So what went wrong since their last Chapter 11 filing? UA and DL seem to have found their way to profitability and stability while AA hasn't.


I cant remember the exact dates, but UA and DL filed for CH11 a few years before AA did which may of helped them have better profits during a period that AA was in CH11 and recovering. Also I dont know if the US AA merger was exactly as easy as the UA CO and DL NW mergers. US AA seems to be still merging stuff out with unions and other areas.


Something else that has been discussed on here over the years is whether AA needed to slim down after their merger with US. DL closed two hubs, CVG and MEM, after their merger with NWA. UA closed CLE. Both airlines also reorganized their fleets. I feel that since the merger AA, while performing well, was too bloated and needed to slim down. One of the areas they took on debt was their fleet rejuvenation, they had a ton of older aircraft like the MD-80s. They announced a huge deal with Airbus, whom they were on the outs with after AA 587, and Boeing to renew their fleet.

They should of took advantage of the merger with US to trim down and use the excess capacity created to replace older aircraft. Not to pick on Phoenix, but perhaps closing the PHX hub and redeploying those freed up aircraft to DFW and ORD to replace their MD-80s would have been more prudent. Same thing on the AA side at JFK, perhaps they held on too long for prestige when they should have been redeploying those long haul aircraft to PHL, ORD, MIA etc.. and allow the consolidation to push out older long haul aircraft.

AA didn't have any secondary city hubs to eliminate though. STL was already eliminated. After that, AA's hub had no overlap, and for a long while their strategy was "Cornerstone," that I'm sure many of us recall. They had no secondary midwestern hub because they had THE midwestern hub, ORD. PHX, perhaps less than ideally, served a role similar to DEN and SLC at UA and DL respectively.
 
rising
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 8:00 pm

The airlines now, at least the Big 4, are really too big to fail. There are so many stakeholders- airports, employees, customers, businesses, politicians- I feel like it would be politically impossible to liquidate them, especially the largest airline in the world carrying the nation's name, over COVID.

Maybe restructure the debt. But the problem is not the amount of debt. It rarely is. It's the rate and the cost to service it. At the end of the day, AA has a revenue problem, not a cost problem.

Not sure we're in a liquidity crisis or unfavorable interest rate environment in the United States.
Last edited by rising on Mon May 18, 2020 8:03 pm, edited 1 time in total.
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Revelation
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Re: FT: Investors bet AA will file for BK

Mon May 18, 2020 8:01 pm

United1 wrote:
luckyone wrote:
divemaster08 wrote:
I cant remember the exact dates, but UA and DL filed for CH11 a few years before AA did which may of helped them have better profits during a period that AA was in CH11 and recovering. Also I dont know if the US AA merger was exactly as easy as the UA CO and DL NW mergers. US AA seems to be still merging stuff out with unions and other areas.

Just for completion's sake:
United filed in 2002. It's merger partner Continental filed twice in 1983 and 1990.

Delta and Northwest filed within minutes of each other September 14, 2005 and exited in May 2007 (tell me that they weren't talking...).

American filed in 2011. The economy wasn't exactly cooking between 2007 and 2011.


Another bit to keep in mind is AA filed for BK under different rules than UA, DL or NW did. After UAs BK the rules were changed a bit and DL and NW filed on the last day the old rules were in effect. AA may not have been able to shed as much as the others did.

That being said AA has really squandered a lot of the opportunities they were given both after BK and the merger. They have been a mess for a while.

Thanks for everyone for spelling out the history. I remember it this way, especially DL and NW doing bankruptcy when they did to take advantage of the old laws. UA stayed in BK for a very long time, 4 years ( ref: https://www.forbes.com/sites/nataliesac ... ppen-next/ ) and its competitors were p*ssed that it could operate that long while deferring bills the entire time. I'm not sure DL and NW lobbied for the changed laws, or if they talked ahead of time, but clearly they filed so they could take advantage of the old laws.

https://www.forbes.com/sites/nataliesac ... ppen-next/ also says:

On April 9, Social Capital CEO Chamath Palihapitiya went viral when he told CNBC that the government should not be giving handouts to Wall Street hedge funds or billion-dollar corporations, suggesting that it should give Americans more cash directly. “What we’ve done is disproportionately prop up and protect poor performing CEOs, companies and boards,” said Palihapitiya. “The point is that the bankruptcy process isn't set up to drive layoffs,” he told Forbes, “but rather cleaning up balance sheets and corporate offices to get competent leaders and clean cap tables in place to run a business.”

Seems to be a useful thing for many on this site to keep in mind.

The quote the article ends with also seems relevant:

Even with a bailout, Barnett says a bankruptcy is inevitable. “I don’t think the kind of [bailout] we have here precludes bankruptcies at all,” he says. “It lasts through September. When autumn comes, then what?”
Wake up to find out that you are the eyes of the world
The heart has its beaches, its homeland and thoughts of its own
Wake now, discover that you are the song that the morning brings
The heart has its seasons, its evenings and songs of its own
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