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

Tue May 19, 2020 4:13 pm

Detroit313 wrote:
Let's not pretend that Delta and United don't have a lot of debt either. 23-24 billion of debt is a lot of money. Not far behind AA and not with the young fleet AA has. By the end of the year it will be even higher for all of them.

US airlines file for bankruptcy all the time. All the legacy airlines have done it once or twice before already. It is an easy way to get out of difficult situations and cut costs.

If one of the legacy airlines does it, then the others will have to do it too. Otherwise the one that went through bankruptcy will have a big competitive advantage.

I'd say that US airlines only go through BK reluctantly and if there is no other path forward. Deciding to do so usually wipes out the very people making the decision to do so, since the executives are often paid in stock bonuses and options and thus are big shareholders. Given the BoD has representatives of large share holders, they too won't vote for BK willingly. Quite often the executives lose their jobs during BK or within a few months thereafter. It's often a career disaster for those in the C suite.

I think your last point may turn out to be true, but the devil's in the details. AA has the shortest rope. How much rope does UA and DL have before they chose to swing is going to be an interesting thing to see, potential cases for future business school textbooks.
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winginit
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Re: FT: Investors bet AA will file for BK

Tue May 19, 2020 4:21 pm

Loads of insights from American's call today:

Cash burn currently at $70M/day, aiming to reduce to $50M/day by June

No plans to add to widebody fleet for 3-4 years

15% LDF in April, 35% in May

In what was definitely the highlight of the call, it was mentioned not only that the AAdvantage program is worth between $18B and $30B, but that the program has already been leveraged. That's, in my mind, hugely concerning for AA as I believe that was viewed by many analysts as a sort of silver bullet that might prevent BK.

For a bit of comedy, in a hot mic moment after the call, management realized that they hadn't previously disclosed that valuation.
 
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LAXintl
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Re: FT: Investors bet AA will file for BK

Tue May 19, 2020 5:52 pm

Yes some more firm statements from management today.

CFO Kerr stated - “We are going to go through and right-size this airline from a cost perspective to make sure we’re a profitable airline next year".
Everything from CapEx to staffing under review.

They said May load factors were about 35% but obviously is deceiving as schedule being flown is so small. Isom said obviously not an environment the airline can operate in.
While people might want to travel, its a concern that no sign of corp or premium travel demand returning. Most corp policies prevent travel likely through the end of the year.

Fleet wise Isom mentioned seeking to reduced fleet complexity including sub types. Older 737s also likely retired (few weeks ago they mentioned 42 737s).
Widebodies likely less demand as international arena slower recover. Besides short term 787 deliveries don't see need for more widebodies next 3-4 years.
Will be announcing additional international cuts.(suspect most of Sum20 schedule will get gutted).
Will look to lean more on JV partners during this period.
From the desert to the sea, to all of Southern California
 
tomcat
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Re: FT: Investors bet AA will file for BK

Tue May 19, 2020 6:11 pm

winginit wrote:
Loads of insights from American's call today:

Cash burn currently at $70M/day, aiming to reduce to $50M/day by June

No plans to add to widebody fleet for 3-4 years

15% LDF in April, 35% in May

In what was definitely the highlight of the call, it was mentioned not only that the AAdvantage program is worth between $18B and $30B, but that the program has already been leveraged. That's, in my mind, hugely concerning for AA as I believe that was viewed by many analysts as a sort of silver bullet that might prevent BK.

For a bit of comedy, in a hot mic moment after the call, management realized that they hadn't previously disclosed that valuation.


It's interesting to read that they're still burning $70M/day. Indeed, their FY2019 operating expenses, excluding depreciation and amortization were about $40B or $110M/day. So their current operating expenses are still above 60% of their regular level. This is huge considering their current flying program.
 
winginit
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Re: FT: Investors bet AA will file for BK

Tue May 19, 2020 6:20 pm

LAXintl wrote:
Will look to lean more on JV partners during this period.


Other international carriers have said this as well (KE most recently, and I believe QR), and I'm just genuinely confused as to what it means in practice. International business travel is going to be the absolute last thing to return, and the finances of international partner carriers are even more dire than those of the US3. Is this just a shadowy way of saying that AA and others are going to scale back their own international fliers and let partners do it for them?
Last edited by winginit on Tue May 19, 2020 6:22 pm, edited 1 time in total.
 
tphuang
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Re: FT: Investors bet AA will file for BK

Tue May 19, 2020 6:20 pm

avek00 wrote:
Gotta raise that cash somehow...

American Will Pledge The AAdvantage Program To The Federal Government Within 6 Weeks

https://viewfromthewing.com/american-wi ... n-6-weeks/


So they just pledged the most valuable asset they have to get that $4.75 billion loan. What else do they have now to get liquidity from the market? A bunch of old planes and engines? Those are certainly not getting valued by the market as much. How many of the gates and slots they have are still unencumbered at this point? Those has to be most valuable asset I would imagine.

Looks like this current treasury department is run by a bunch of sharks and aren't willing to take any of the old planes that the market doesn't want to take as collateral.

Basically, the ff program was their most valuable asset left and they couldn't borrow anywhere close to the value that its appraised for.

If there is anything that should alarm AA employees, this should be it.
 
winginit
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Re: FT: Investors bet AA will file for BK

Tue May 19, 2020 6:24 pm

tphuang wrote:
avek00 wrote:
Gotta raise that cash somehow...

American Will Pledge The AAdvantage Program To The Federal Government Within 6 Weeks

https://viewfromthewing.com/american-wi ... n-6-weeks/


So they just pledged the most valuable asset they have to get that $4.75 billion loan. What else do they have now to get liquidity from the market? A bunch of old planes and engines? Those are certainly not getting valued by the market as much. How many of the gates and slots they have are still unencumbered at this point? Those has to be most valuable asset I would imagine.

Looks like this current treasury department is run by a bunch of sharks and aren't willing to take any of the old planes that the market doesn't want to take as collateral.

Basically, the ff program was their most valuable asset left and they couldn't borrow anywhere close to the value that its appraised for.

If there is anything that should alarm AA employees, this should be it.


Completely agree. They've shown their cards there in more ways than one, and the very obvious conclusion is that AA is simply no longer able to competitively borrow in the same way that DL and UA still can. That's hugely concerning especially if, as I suspect is the case, DL and UA haven't had to even mention their loyalty programs to creditors because they have so many other unencumbered assets.
 
tphuang
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Re: FT: Investors bet AA will file for BK

Tue May 19, 2020 6:38 pm

Revelation wrote:
Detroit313 wrote:
Let's not pretend that Delta and United don't have a lot of debt either. 23-24 billion of debt is a lot of money. Not far behind AA and not with the young fleet AA has. By the end of the year it will be even higher for all of them.

US airlines file for bankruptcy all the time. All the legacy airlines have done it once or twice before already. It is an easy way to get out of difficult situations and cut costs.

If one of the legacy airlines does it, then the others will have to do it too. Otherwise the one that went through bankruptcy will have a big competitive advantage.

I'd say that US airlines only go through BK reluctantly and if there is no other path forward. Deciding to do so usually wipes out the very people making the decision to do so, since the executives are often paid in stock bonuses and options and thus are big shareholders. Given the BoD has representatives of large share holders, they too won't vote for BK willingly. Quite often the executives lose their jobs during BK or within a few months thereafter. It's often a career disaster for those in the C suite.

I think your last point may turn out to be true, but the devil's in the details. AA has the shortest rope. How much rope does UA and DL have before they chose to swing is going to be an interesting thing to see, potential cases for future business school textbooks.


100% correct on this. Try to get another job if you are at the helm in a BK and your competitors all managed to avoid it. If these top level people that work for AA want to have a good career after this, they need to start shedding cost fast. $11 billion with no other asset to borrow against and demand(especially corporate demand) at rock bottom isn't going to last as long as people think.

winginit wrote:
Loads of insights from American's call today:

Cash burn currently at $70M/day, aiming to reduce to $50M/day by June

No plans to add to widebody fleet for 3-4 years

15% LDF in April, 35% in May

In what was definitely the highlight of the call, it was mentioned not only that the AAdvantage program is worth between $18B and $30B, but that the program has already been leveraged. That's, in my mind, hugely concerning for AA as I believe that was viewed by many analysts as a sort of silver bullet that might prevent BK.

For a bit of comedy, in a hot mic moment after the call, management realized that they hadn't previously disclosed that valuation.

cash burn is still $70M/day? That's disastrous. Everyone else has gotten that number a lot lower already. Investors really need to be asking AA management what they are doing?

So let's say optimistically they have $11 billion by end of June, which seems like an optimistic scenario at this point. There seems to be very fewer other cash avenues left. They are still burning $50 million a day and unlikely to lower that by much given demand is still weak and they can't do headcount reductions yet. If they burn 45 million a day in Q3. Let's say Q4 they trim the head count to the same degree that UA/DL trims and lower cash burn to $30 million a day. Given that UA has said they can trim it down to $20 million a day in Q4 in an emergency scenario, then $30 million a day for AA seems pretty reasonable number to use. They will be down to $4 billion by the end of the year.

Keep in mind they have to keep certain amount of liquidity for some of these borrows they made, so they will have to file chapter 11 at this point.

Now if demand turns around in an optimistic scenario. They burn $45 million a day in July, 35 in Aug, 30 in Sep, 25 in Oct/Nov, 20 in Dec, they will still be down to around $5.5 billion by the end of this year. And that's a good scenario. I still think they'd need to file chapter 11 in Q1.
 
winginit
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Re: FT: Investors bet AA will file for BK

Tue May 19, 2020 6:54 pm

tphuang wrote:
cash burn is still $70M/day? That's disastrous. Everyone else has gotten that number a lot lower already. Investors really need to be asking AA management what they are doing?


I was surprised to see that stat alone not impact the stock. I recall hearing that UA brought that down to $50M/day even at some point in late April and assuming that's comparable to DL it's a staggering stat indeed.
 
NYCAAer
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Re: FT: Investors bet AA will file for BK

Tue May 19, 2020 8:46 pm

hohd wrote:
MSPNWA wrote:
Rdh3e wrote:
AA borrowed money to perform share buy-backs and here we are.

777Mech wrote:
Borrowing money to do stock buy backs, etc

NYCAAer wrote:
If he didn’t borrow money to do stock buybacks, AA might have had a fighting chance of avoiding Chapter 11.


This statement is highly misleading at the very best. AA didn't fund their buybacks with debt. They were making large profits, and they were paying back the owners as every company should look to do. According to this belief, we should say that all the major carriers funded their buybacks with debt. So, let's say it. DL funded their buybacks with debt. UA funded the buybacks with debt. Throw WN in there too. Fair is fair.



It does not matter what they borrowed money for, their debt load was higher than their peers and instead of paying down debt they chose to do stock buy backs. If they made large profits, then they should have used some of it to pay down debt or not acquire new debt.

All that money which was used for buy back has been wasted. By now most airlines should know that every 10 to 15 years there is an "event" which could cause a sudden down turn in travel, so they have to plan accordingly.


Yes, but Dougie thought they were never going to lose money again! That has certainly come back to bite him in the you-know-where! What a fool.
 
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IrishAyes
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 12:28 am

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'm with you all the way, Dahlgardo. I said the same thing on the most recent episode of the "Airways Podcast" where I said it smells of bad partnership. All of the big four are major customers of Boeing jets, and on top of everything, they all suffered greatly (sans DL) from the MAX issue.

I hate the word, "optics" because I think its a bullsh*t word, but when it does apply, like in this case, the outcome could be very unfavorable.
 
N649DL
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:58 am

dstblj52 wrote:
727LOVER wrote:
Can someone please explain to me why AA is in so much debt?
Didn't they shed debt back during bankruptcy 7-8 years ago?

They bought 460 new planes during or immediately after bankruptcy which were apparently not brilliantly priced essentially meaning they bet on relatively high oil prices but with crude sitting below 60 dollars a barrel on average during this period that investment never paid off. They also had relatively weak cash flow during this period and spent more of each dollar on stock buybacks but spent less in total, meaning they never directed the kind of cashflow delta or southwest did to pay down their debts from the mergers and 2008, throw in being overstaffed especially in upper management where they didn't cut anywhere near the same number of people that delta and united did in their respective mergers. To be honest, I think a lot of the problem was that Doug parker was always thinking about his next acquisition from America west he merged with US airways which allowed him to build an airline into the big 6, unfortunately that merger was so badly bungled that when the big round of mergers happened us airways was not in a position to take advantage of it, and end up with the last pick at the dance and even that happened much later than either of the other two mergers. While we have seen that it takes a while for a merged airline to really start firing on all cylinders honestly delta merged in 2008 at wasn't really performing well till 2015, while united merged in 2010 and wasn't really showing the benefits till 2018, while American is still in the malaise of a merger. with a management team that seems to be almost falling apart, see the Doug parker Scott Kirby split and the number of former northwest people who got fired in the delta northwest merger who ended up replacing people at American,


Actually, IIRC, a lot of Middle-Management ex-NW people replaced the DL folks post merger. It was very top heavy NW folks at the merged DL.
 
Max Q
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 7:34 am

In the past a CH11 filing could be entered into with certain factors reasonably understood, a business plan could be formulated with a cogent revenue / cost projection. Investors understood the risks and were able to make educated decisions on how to ‘place their bets’



How on earth do you do that now ? The only thing you can count on is more uncertainty, it looks like we’re on a road to recovery but there’ll be hiccups on the way and for many / most investors / debt holders / financial institutions involved in a CH 11 filing the risks may well be seen as too great



Keeping their heads above water while avoiding bankruptcy is a high priority for the nations airlines, those that do file for reorganization may not exit
The best contribution to safety is a competent Pilot.


GGg
 
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cirrusdragoon
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 7:47 am

CFO quells speculation of bankruptcy... and of course only time will tell.

https://www.forbes.com/sites/willhorton ... 34029370ea

« Points »
- CFO concedes American needs to boost its standing with investors.
-American is prioritizing a $4.75 billion CARES Act government loan, expects to finalize the loan by the end of June, bringing cash to $11 billion.
-expects to be profitable next year and immediately address its debt pile.
-All of the excess cash will go to debt repayments, everything will go to that over the next five years
-Government loans, separate from the CARES Act payroll grants, can act as a benchmark for future deals.

-American would “follow that up” with financing its peers have already done, including secured debt, a secondary offering or pre-selling AAdvantage frequent flyer miles
 
Max Q
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 9:58 am

‘All the excess cash will go to debt repayments’


Like they’d have a choice at that point


I’ve been saying this for years though, the last few years have been incredibly good for the US major airline industry


They had the opportunity to pay off most of their debt and build substantial cash reserves instead they blew nearly all their massive profits on ill advised stock buy backs, a strategy that is useless in this crisis
The best contribution to safety is a competent Pilot.


GGg
 
Miamiairport
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 11:12 am

In the absence of business travelers that buy higher priced tickets AA is still shoving more seats into a/c. So that's more seat capacity dumped into an already struggling market. So no surprise while I'm at the gate areas (since the damn ACs are still closed) when Group 9 is called 75% of the plane boards. Where is the discipline to keep seat capacity in lock?

So we the taxpayer provide a poorly run business a loan that it will surely default on in Chapter 11.
 
airlineaddict
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 12:04 pm

Not as versed on the debt/finance side...

While there’s been a lot of focus on Ch 11 bankruptcy, at some point, is there any alternate scenario where lenders agree to restructure the debt outside of bankruptcy?

IATA has said it will take five years for things to return to pre-COVID 19 levels. Not sure where the secured lenders will place their assets.
 
dfw88
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 1:16 pm

Max Q wrote:
‘All the excess cash will go to debt repayments’


Like they’d have a choice at that point


I’ve been saying this for years though, the last few years have been incredibly good for the US major airline industry


They had the opportunity to pay off most of their debt and build substantial cash reserves instead they blew nearly all their massive profits on ill advised stock buy backs, a strategy that is useless in this crisis


Everyone is focusing on all the negative aspects of the stock buy back but missing an important point. To be clear, I agree that AA bought back way too much stock and should have been paying down debt. However, stock buy backs are a way for a company to reward their investors. Without that financial incentive it would have been harder for companies, airlines included, to attract more potential investors and bring more investment money through the door. Without any extra investments generated the airlines could be hurting even more. So no, stock buy backs are not necessarily bad. The degree to which AA did them was certainly excessive - it seemed excessive at the time and even more so in hindsight - but that doesn't mean that AA, nor any other airline, should completely stop the practice in the long run. Rather, it seems clear that they should prioritize a portion of profits towards paying down debt, investing in the company, etc, before allocating a small portion of profits to rewarding shareholders.
 
Westerwaelder
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 2:54 pm

dfw88 wrote:
Max Q wrote:
‘All the excess cash will go to debt repayments’


Like they’d have a choice at that point


I’ve been saying this for years though, the last few years have been incredibly good for the US major airline industry


They had the opportunity to pay off most of their debt and build substantial cash reserves instead they blew nearly all their massive profits on ill advised stock buy backs, a strategy that is useless in this crisis


Everyone is focusing on all the negative aspects of the stock buy back but missing an important point. To be clear, I agree that AA bought back way too much stock and should have been paying down debt. However, stock buy backs are a way for a company to reward their investors. Without that financial incentive it would have been harder for companies, airlines included, to attract more potential investors and bring more investment money through the door. Without any extra investments generated the airlines could be hurting even more. So no, stock buy backs are not necessarily bad. The degree to which AA did them was certainly excessive - it seemed excessive at the time and even more so in hindsight - but that doesn't mean that AA, nor any other airline, should completely stop the practice in the long run. Rather, it seems clear that they should prioritize a portion of profits towards paying down debt, investing in the company, etc, before allocating a small portion of profits to rewarding shareholders.


So, how much additional investment did AA attract through their share buy back? Would be interesting to see given the amounts spent. My view is more cynical. It drives up the share price which is how many C-suite are incentivised - but happy to be convinced by the numbers.
 
UpNAWAy
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 3:10 pm

dfw88 wrote:
Max Q wrote:
‘All the excess cash will go to debt repayments’


Like they’d have a choice at that point


I’ve been saying this for years though, the last few years have been incredibly good for the US major airline industry


They had the opportunity to pay off most of their debt and build substantial cash reserves instead they blew nearly all their massive profits on ill advised stock buy backs, a strategy that is useless in this crisis


Everyone is focusing on all the negative aspects of the stock buy back but missing an important point. To be clear, I agree that AA bought back way too much stock and should have been paying down debt. However, stock buy backs are a way for a company to reward their investors. Without that financial incentive it would have been harder for companies, airlines included, to attract more potential investors and bring more investment money through the door. Without any extra investments generated the airlines could be hurting even more. So no, stock buy backs are not necessarily bad. The degree to which AA did them was certainly excessive - it seemed excessive at the time and even more so in hindsight - but that doesn't mean that AA, nor any other airline, should completely stop the practice in the long run. Rather, it seems clear that they should prioritize a portion of profits towards paying down debt, investing in the company, etc, before allocating a small portion of profits to rewarding shareholders.


Exactly, but it is not like AA would have had more cash on hand, they either do stock buybacks, increase or one time dividend bonus (my preference), or pay off aircraft. AA's debt it at historical cheap interest and even if they had paid off more aircraft you cant borrow against them now anyway (certainly not at any affordable rates). So the discussion about debt is really a non issue at this time. It is all about cash flow going forward that is all that matters.
 
MIflyer12
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 3:26 pm

Westerwaelder wrote:
So, how much additional investment did AA attract through their share buy back? Would be interesting to see given the amounts spent. My view is more cynical. It drives up the share price which is how many C-suite are incentivised - but happy to be convinced by the numbers.


I don't believe they issued any new equity over the buyback period, so the answer is zero incremental investment. Gains from the buybacks went to shareholders, not the company. You can get deeply into a Proxy Statement (SEC filing DEF 14A) if you want to know the formulas and payouts for the top execs. From the filing 4/28/20:

2020 LTIP Design
For 2020, our long-term incentive program for our named executive officers introduced a new design and metrics that are intended to better
reflect our long-term objectives. The performance-vesting component of the RSUs comprises 50% of each of our named executive officers’
annual grants. The metrics assigned to the performance-vesting schedule are spread in equal parts over three areas: our relative TSR using the
same peer set as in the 2019 LTIP, absolute free cash flow versus internal goals established by our Board, and relative adjusted pre-tax income
margin improvement against a weighted average of the same peer set used for the TSR goal. Each of these performance metrics will be measured over the three-year period ending at the end of fiscal 2022. The remaining 50% of our 2020 LTIP consists of time-vesting RSUs. Those LTIP awards were made in
February 2020.


It's popular here to complain about share buybacks - as if earnings could just sit in a piggy bank for the next black swan event. Google 'How did Carl Icahn get rich?' He hit a lot more firms than just TWA, but that should be amply cautionary.
Buybacks were very common across the Dow Jones Industrial Average composite 30 stocks (including Boeing and United Technologies) and the S&P 500 (which includes AS, AA, DL, WN and UA, all of which conducted buybacks to some degree). https://www.prnewswire.com/news-release ... 28874.html

AA's arrogance was paying dividends and conducting buybacks with borrowed money - free cash flow didn't cover it (because AA didn't earn as much as peers over the past ~five years). AA execs dismissed its debt excesses compared to UA and DL by arguing that its models of the balance sheet sheet showed things under control. Oops!
 
AA747123
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 3:45 pm

BN727227Ultra wrote:
Upside: NEW PAINT JOB, BAYBEE!!!111!!!


Yes the airlines that buy the ex AA assets will paint the airplanes in their own colors.
 
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DL747400
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 3:48 pm

UpNAWAy wrote:
AA's debt it at historical cheap interest and even if they had paid off more aircraft you cant borrow against them now anyway (certainly not at any affordable rates).


Not true. DL was able to raise significant funds by borrowing against a portion of their owned fleet. At very reasonable rates.

https://d18rn0p25nwr6d.cloudfront.net/C ... 0ce551.pdf
From First to Worst: The history of Airliners.net.

All posts reflect my opinions, not those of my employer or any other company.
 
Skyguy
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 4:09 pm

Is there some kind of ratio of maximum amount the Fed will lend to airlines to help, i.e. only a upto a certain percentage of debt liability can be borrowed by the airline? Given the $4.75B that AA is negotiating with the Fed, there is probably room for more if needed later in the year, it's unlikely AA will borrow unto it's full limit in one go by the end of June.
"Those who talk, do not know, and those who know, do not talk."
 
tphuang
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 4:14 pm

Skyguy wrote:
Is there some kind of ratio of maximum amount the Fed will lend to airlines to help, i.e. only a upto a certain percentage of debt liability can be borrowed by the airline? Given the $4.75B that AA is negotiating with the Fed, there is probably room for more if needed later in the year, it's unlikely AA will borrow unto it's full limit in one go by the end of June.

$4.75 billion is all they are eligible for.
 
Miamiairport
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 4:22 pm

tphuang wrote:
Skyguy wrote:
Is there some kind of ratio of maximum amount the Fed will lend to airlines to help, i.e. only a upto a certain percentage of debt liability can be borrowed by the airline? Given the $4.75B that AA is negotiating with the Fed, there is probably room for more if needed later in the year, it's unlikely AA will borrow unto it's full limit in one go by the end of June.

$4.75 billion is all they are eligible for.


How much time is that going to buy AA? AA needs to shed excess employees, planes, routes, and certain stations and hope like hell "profitable" air travel returns. The planes are the hard part because most have a lease payment attached to them
 
codc10
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 4:29 pm

DL747400 wrote:
UpNAWAy wrote:
AA's debt it at historical cheap interest and even if they had paid off more aircraft you cant borrow against them now anyway (certainly not at any affordable rates).


Not true. DL was able to raise significant funds by borrowing against a portion of their owned fleet. At very reasonable rates.

https://d18rn0p25nwr6d.cloudfront.net/C ... 0ce551.pdf


Essentially new (avg 4 years old) airplanes, though. It's the mid-life fleet, substantial portions of which are unencumbered among the US3, that would appear to be overvalued based on the tepid response to United's bond offering last week... although Gerry Laderman attributed some of that to bad timing, given a general bearish market outlook on the industry led by Buffett's well-publicized retreat from his airline positions just a few days before.
 
Boof02671
Posts: 2095
Joined: Sun Jul 10, 2016 12:15 am

Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 4:39 pm

American Airlines Exec Rejects Bankruptcy Speculation: ‘Take That One Off The List

https://www.forbes.com/sites/willhorton ... -list/amp/
 
UpNAWAy
Posts: 681
Joined: Thu Aug 11, 2016 12:42 pm

Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 4:55 pm

tphuang wrote:
avek00 wrote:
Gotta raise that cash somehow...

American Will Pledge The AAdvantage Program To The Federal Government Within 6 Weeks

https://viewfromthewing.com/american-wi ... n-6-weeks/


So they just pledged the most valuable asset they have to get that $4.75 billion loan. What else do they have now to get liquidity from the market? A bunch of old planes and engines? Those are certainly not getting valued by the market as much. How many of the gates and slots they have are still unencumbered at this point? Those has to be most valuable asset I would imagine.

Looks like this current treasury department is run by a bunch of sharks and aren't willing to take any of the old planes that the market doesn't want to take as collateral.

Basically, the ff program was their most valuable asset left and they couldn't borrow anywhere close to the value that its appraised for.

If there is anything that should alarm AA employees, this should be it.



I just listened to the call this story as presented was a lie. 1st off there is no deal yet, secondly they will be using only a portion of it as the collateral when it gets done, but there will still be ample value left to do other liquidity with it if necessary, plus they still have other more traditional avenues of credit. They have no big debt coming due for 2 plus years. If this last that long every airline in the world is BK.
 
seatback
Posts: 609
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:02 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.


If the past is any indication, then this will happen. Delta and United can't afford to allow AA to have a lower cost structure. They both probably do not want to make the same mistake AA years ago and not file.

How many BKs would this make Doug responsible for? Jeez.
 
MrPeanut
Posts: 157
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:07 pm

Boof02671 wrote:
American Airlines Exec Rejects Bankruptcy Speculation: ‘Take That One Off The List

https://www.forbes.com/sites/willhorton ... -list/amp/


The author of that article did an awful job. This is how bad information spreads around. American’s CFO said “American is not going away”, the CFO said nothing about whether his carrier would declare bankruptcy. “Going away” and “bankruptcy” are two different things yet the author thinks they are one in the same. It’s shocking the amount of poor journalism that is out there these days.

There is no doubt AA will need to re-organize in bankruptcy. They have way too much debt with significantly reduced revenue forecasted for the next 12 to 18 months.
 
Boof02671
Posts: 2095
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:15 pm

seatback 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.


If the past is any indication, then this will happen. Delta and United can't afford to allow AA to have a lower cost structure. They both probably do not want to make the same mistake AA years ago and not file.

How many BKs would this make Doug responsible for? Jeez.

Once again Doug has NEVER filed bankruptcy as a CEO.

US#1 was Dave Siegel.
US#2 was Bruce Lakefield
HP was Ed Beauvis

So you all need to try again
 
tphuang
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:19 pm

UpNAWAy wrote:
tphuang wrote:
avek00 wrote:
Gotta raise that cash somehow...

American Will Pledge The AAdvantage Program To The Federal Government Within 6 Weeks

https://viewfromthewing.com/american-wi ... n-6-weeks/


So they just pledged the most valuable asset they have to get that $4.75 billion loan. What else do they have now to get liquidity from the market? A bunch of old planes and engines? Those are certainly not getting valued by the market as much. How many of the gates and slots they have are still unencumbered at this point? Those has to be most valuable asset I would imagine.

Looks like this current treasury department is run by a bunch of sharks and aren't willing to take any of the old planes that the market doesn't want to take as collateral.

Basically, the ff program was their most valuable asset left and they couldn't borrow anywhere close to the value that its appraised for.

If there is anything that should alarm AA employees, this should be it.



I just listened to the call this story as presented was a lie. 1st off there is no deal yet, secondly they will be using only a portion of it as the collateral when it gets done, but there will still be ample value left to do other liquidity with it if necessary, plus they still have other more traditional avenues of credit. They have no big debt coming due for 2 plus years. If this last that long every airline in the world is BK.


Where is other more traditional avenues of credit? Have you seen UA (who has less debt) tried to raise money via bond recently? How did that go? I don't know how you can use part of your ff program as collateral. Who else is going to use other part? If there is a default, how can you split up the program. Makes no sense at all.

It's a complete untrue that every airline in the world is BK if this lasts longer. AS can cut park half of its fleet, retreat to PNW and AK and last 3 or 4 years no problem. WN with its great balance sheet if they wanted to, could cut half of their flying and last 3 or 4 years no problem. G4 is going to the first airline to return to profitability and they are already lowered their cash burn to a million a day.
 
LJ
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:21 pm

Boof02671 wrote:
American Airlines Exec Rejects Bankruptcy Speculation: ‘Take That One Off The List

https://www.forbes.com/sites/willhorton ... -list/amp/


As if a CFO would say otherwise. Don't get me wrong, I don't hope they will go bankrupt, but such a statement from a CFO is worthless.
 
Exeiowa
Posts: 339
Joined: Fri Jul 06, 2018 4:49 pm

Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:37 pm

At this point I am not worried about AA so much as debt contagion, AA might be alright in isolation but if we start to see a run on credit they become vulnerable. I have seen the phrase credit default swaps come up, this is the instrument that spread the GFC from mortgages to everything else well it looks like the same instrument might be coming up again. The rational being not everyone will stop paying their mortgages, but they did, here the rational is but not all companies will be unable to pay their debts. Well right now customers have evaporated for large portions of the economy, airlines chief among them
 
JAMBOJET
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:43 pm

LJ wrote:
Boof02671 wrote:
American Airlines Exec Rejects Bankruptcy Speculation: ‘Take That One Off The List

https://www.forbes.com/sites/willhorton ... -list/amp/


As if a CFO would say otherwise. Don't get me wrong, I don't hope they will go bankrupt, but such a statement from a CFO is worthless.

Fair point, but he's also the best positioned to say one way or the other and any CFO of a public company has a bit of restraint making random speculative statements to the Street with no backing.
 
aaway
Posts: 1449
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:45 pm

UpNAWAy wrote:
I just listened to the call this story as presented was a lie. 1st off there is no deal yet, secondly they will be using only a portion of it as the collateral when it gets done, but there will still be ample value left to do other liquidity with it if necessary, plus they still have other more traditional avenues of credit. They have no big debt coming due for 2 plus years. If this last that long every airline in the world is BK.


IIRC, the reference to "no big debt for 2 years" was in relation to aircraft debt. But, if you look at the image provided earlier - page 1 - in the thread, AA has (had) $3.3B due in 2021. The concern going forward is the ability to service the debt being that the revenue generation capability will be less due to be a smaller carrier. In recent years, (and arguably why this discussion is being had in the first place) AA refinanced debt rather than committing fully to employing cash to payoff debt.
Last edited by aaway on Wed May 20, 2020 5:55 pm, edited 2 times in total.
"The greatest mistake you can make in life is to continually be afraid you will make one." - Elbert Hubbard
 
aaway
Posts: 1449
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 5:51 pm

tphuang wrote:
Where is other more traditional avenues of credit? Have you seen UA (who has less debt) tried to raise money via bond recently? How did that go? I don't know how you can use part of your ff program as collateral. Who else is going to use other part? If there is a default, how can you split up the program. Makes no sense at all.


I believe that the management is taking a calculated risk that the U.S. government will be more likely to grant forbearance should AA default on the loan.
"The greatest mistake you can make in life is to continually be afraid you will make one." - Elbert Hubbard
 
dstblj52
Posts: 448
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Re: FT: Investors bet AA will file for BK

Wed May 20, 2020 10:46 pm

N649DL wrote:
dstblj52 wrote:
727LOVER wrote:
Can someone please explain to me why AA is in so much debt?
Didn't they shed debt back during bankruptcy 7-8 years ago?

They bought 460 new planes during or immediately after bankruptcy which were apparently not brilliantly priced essentially meaning they bet on relatively high oil prices but with crude sitting below 60 dollars a barrel on average during this period that investment never paid off. They also had relatively weak cash flow during this period and spent more of each dollar on stock buybacks but spent less in total, meaning they never directed the kind of cashflow delta or southwest did to pay down their debts from the mergers and 2008, throw in being overstaffed especially in upper management where they didn't cut anywhere near the same number of people that delta and united did in their respective mergers. To be honest, I think a lot of the problem was that Doug parker was always thinking about his next acquisition from America west he merged with US airways which allowed him to build an airline into the big 6, unfortunately that merger was so badly bungled that when the big round of mergers happened us airways was not in a position to take advantage of it, and end up with the last pick at the dance and even that happened much later than either of the other two mergers. While we have seen that it takes a while for a merged airline to really start firing on all cylinders honestly delta merged in 2008 at wasn't really performing well till 2015, while united merged in 2010 and wasn't really showing the benefits till 2018, while American is still in the malaise of a merger. with a management team that seems to be almost falling apart, see the Doug parker Scott Kirby split and the number of former northwest people who got fired in the delta northwest merger who ended up replacing people at American,


Actually, IIRC, a lot of Middle-Management ex-NW people replaced the DL folks post merger. It was very top heavy NW folks at the merged DL.

The merged company cut about half of management not sure on the percentages from each but a bunch of the people who got sacked in the merger have been turning up at the new American
 
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DL747400
Posts: 955
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Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 3:40 pm

codc10 wrote:
DL747400 wrote:
UpNAWAy wrote:
AA's debt it at historical cheap interest and even if they had paid off more aircraft you cant borrow against them now anyway (certainly not at any affordable rates).


Not true. DL was able to raise significant funds by borrowing against a portion of their owned fleet. At very reasonable rates.

https://d18rn0p25nwr6d.cloudfront.net/C ... 0ce551.pdf


Essentially new (avg 4 years old) airplanes, though. It's the mid-life fleet, substantial portions of which are unencumbered among the US3, that would appear to be overvalued based on the tepid response to United's bond offering last week... although Gerry Laderman attributed some of that to bad timing, given a general bearish market outlook on the industry led by Buffett's well-publicized retreat from his airline positions just a few days before.


And yet AA also has dozens of brand new aircraft, so what is the difference? I'm guessing that they may not be owned frames, so therefore cannot be used as collateral against loans. DL was able to quickly raise significant cash because they had very young frames which they owned outright and were able to pledge as collateral.
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tphuang
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Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 3:44 pm

DL747400 wrote:
codc10 wrote:
DL747400 wrote:

Not true. DL was able to raise significant funds by borrowing against a portion of their owned fleet. At very reasonable rates.

https://d18rn0p25nwr6d.cloudfront.net/C ... 0ce551.pdf


Essentially new (avg 4 years old) airplanes, though. It's the mid-life fleet, substantial portions of which are unencumbered among the US3, that would appear to be overvalued based on the tepid response to United's bond offering last week... although Gerry Laderman attributed some of that to bad timing, given a general bearish market outlook on the industry led by Buffett's well-publicized retreat from his airline positions just a few days before.


And yet AA also has dozens of brand new aircraft, so what is the difference? I'm guessing that they may not be owned frames, so therefore cannot be used as collateral against loans. DL was able to quickly raise significant cash because they had very young frames which they owned outright and were able to pledge as collateral.


Right, I would guess that AA's new aircraft are not unencumbered. Since it had so many new ones and interest rate have been low, it probably was just taking it's time paying them off.

Also, I'm not sure how much of AA's unencumbered assets are aircraft vs engine spares or slots or gates or something else. Either way, the treasury obviously did not think it was something they want.
 
Boof02671
Posts: 2095
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Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 4:20 pm

50% of the fleet is owned, 50% is leased for example only five of the 772ers are leased
 
codc10
Posts: 2863
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Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 4:58 pm

DL747400 wrote:
codc10 wrote:
DL747400 wrote:

Not true. DL was able to raise significant funds by borrowing against a portion of their owned fleet. At very reasonable rates.

https://d18rn0p25nwr6d.cloudfront.net/C ... 0ce551.pdf


Essentially new (avg 4 years old) airplanes, though. It's the mid-life fleet, substantial portions of which are unencumbered among the US3, that would appear to be overvalued based on the tepid response to United's bond offering last week... although Gerry Laderman attributed some of that to bad timing, given a general bearish market outlook on the industry led by Buffett's well-publicized retreat from his airline positions just a few days before.


And yet AA also has dozens of brand new aircraft, so what is the difference? I'm guessing that they may not be owned frames, so therefore cannot be used as collateral against loans. DL was able to quickly raise significant cash because they had very young frames which they owned outright and were able to pledge as collateral.


Without looking at AA's SEC filings to determine the answer, I would imagine fewer AA new aircraft are unencumbered, that's the difference.

Delta was able to raise cash via a debt offering on newer airplanes quite easily at a favorable rate, and there's nothing surprising about that. United did essentially the same thing a few weeks back with a sale-leaseback on a few new airplanes which were paid for in cash. The big question mark, and what I was referring to in my comment, is the mid-life fleet, more of which are owned by the US3. Until recently, those aircraft were considered a lever by which cash could be raised at competitive rates, or, in the case of United's bond offering, existing debt could be refinanced more favorably.

Some doubt has been cast on those prospects, insofar as the markets aren't as receptive to debt secured by older airplanes. Accordingly, valuation on those assets declines and limits the ability for airlines like DL, AA, UA, etc. to raise funds using that particular channel.
 
questions
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Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 5:02 pm

seatback 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.


If the past is any indication, then this will happen. Delta and United can't afford to allow AA to have a lower cost structure. They both probably do not want to make the same mistake AA years ago and not file.

How many BKs would this make Doug responsible for? Jeez.


A company can not file Chapter 11 just because a competitor has a lower cost structure.

People think Chapter 11 is an easy and inexpensive way for companies to simply shed debt, be released from contractual obligations and reduce costs.
 
winginit
Posts: 2851
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Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 5:08 pm

questions wrote:
seatback 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.


If the past is any indication, then this will happen. Delta and United can't afford to allow AA to have a lower cost structure. They both probably do not want to make the same mistake AA years ago and not file.

How many BKs would this make Doug responsible for? Jeez.


A company can not file Chapter 11 just because a competitor has a lower cost structure.

People think Chapter 11 is an easy and inexpensive way for companies to simply shed debt, be released from contractual obligations and reduce costs.


True but history has shown that especially in commercial aviation the cycle eventually catches up. For years and years AA in particular resisted BK even while DL/NW and UA/CO went through bankruptcies and mergers of their own. It took a few years, but eventually those two new combined carrier's abilities to operate without their previous debt loads made AA uncompetitive. Not only did it eventually push AA into their own bankruptcy, but they lag even today in part because they were the last domino to fall.
 
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STT757
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Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 6:25 pm

I'm not a bankruptcy expert here but I wanted to pose an alternative to some of the scenarios being thrown around. What about a deal with either an investment group, another airline (or both) where AA enters CH-11 and the assets of AA are purchased from the creditors by the investors and are transferred to a holding company. That company would then either emerge as the new AA with a new operating plan or be integrated into the merger partner.

Much of the debt could then be left behind with the old entity. Feasible?
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VS11
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Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 7:25 pm

STT757 wrote:
I'm not a bankruptcy expert here but I wanted to pose an alternative to some of the scenarios being thrown around. What about a deal with either an investment group, another airline (or both) where AA enters CH-11 and the assets of AA are purchased from the creditors by the investors and are transferred to a holding company. That company would then either emerge as the new AA with a new operating plan or be integrated into the merger partner.

Much of the debt could then be left behind with the old entity. Feasible?


No, and not even necessary. If the creditors were to voluntarily take a hit then the company does not need to enter into Ch11. They can renegotiate their credit agreements before that.

However, this bankruptcy discussion is totally theoretical because the Federal Reserve is already buying all sorts of debt, which means that when any airline stops servicing their debt, that debt can be simply sold to the Federal Reserve, which then can refinance it any way it wishes. The Fed can let any entity borrow and pay back in the next 100 or 200 years.
 
legend500
Posts: 172
Joined: Sat Jul 30, 2005 5:05 pm

Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 8:09 pm

VS11 wrote:
However, this bankruptcy discussion is totally theoretical because the Federal Reserve is already buying all sorts of debt, which means that when any airline stops servicing their debt, that debt can be simply sold to the Federal Reserve, which then can refinance it any way it wishes. The Fed can let any entity borrow and pay back in the next 100 or 200 years.


This is extremely smart and is, in fact, exactly what American is doing. They've leveraged part of AAdvantage for a loan ultimately held by the Fed. This in addition to warrants they've granted to the government for additional loans elsewhere.

For situations such as this, any securities or bankruptcy lawyer worth their salt will make something very clear - this isn't solely a financial or industrial decision, it's political as well. American and Southwest, and to an extent United, are all truly too big to be allowed to fail. Not because they fly a bunch a people, but because their collapse would cause a systemic collapse. This isn't about AA, SWA or UA - it's about Boeing and its suppliers. Boeing stock got hammered because Delta announced a relatively small thing - the early retirement of their 777 fleet. Compared to the possibility of a liquidation of any of the other three mentioned, that announcement was a fraction of a fraction, and it still did major damage.

Calhoun made the mistake of saying the first part of what everyone already knows. There's the possibility of a liquidation. The second part is that it won't be any US airline which is mainly a Boeing customer. It's doubtful it will get to that point, but if it does, the USG will pull out everything to save Boeing.
 
MohawkWeekend
Posts: 251
Joined: Tue Jan 08, 2019 2:06 pm

Re: FT: Investors bet AA will file for BK

Thu May 21, 2020 8:22 pm

If what you are saying is correct, then the US Government should own American AIrlines outright. Wipe out the shareholders. It should be no different than General Motors in 2009.
    300 319 320 321 707 717 720 727 72S 737 73S 734 735 73G 738 739 747 757 762 ARJ B11 C212 CRJ CR2 CR7 CR9 CV5 D8S DC9 D9S D94 D95 D10 DH8 DTO EMB EM2 E135 E145 E190 FH7 F28 F100 FTRIMTR HRN L10 L15 M80 M90 SF3 SWM YS11
     
    VS11
    Posts: 1661
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    Re: FT: Investors bet AA will file for BK

    Thu May 21, 2020 8:24 pm

    legend500 wrote:
    VS11 wrote:
    However, this bankruptcy discussion is totally theoretical because the Federal Reserve is already buying all sorts of debt, which means that when any airline stops servicing their debt, that debt can be simply sold to the Federal Reserve, which then can refinance it any way it wishes. The Fed can let any entity borrow and pay back in the next 100 or 200 years.


    This is extremely smart and is, in fact, exactly what American is doing. They've leveraged part of AAdvantage for a loan ultimately held by the Fed. This in addition to warrants they've granted to the government for additional loans elsewhere.

    For situations such as this, any securities or bankruptcy lawyer worth their salt will make something very clear - this isn't solely a financial or industrial decision, it's political as well. American and Southwest, and to an extent United, are all truly too big to be allowed to fail. Not because they fly a bunch a people, but because their collapse would cause a systemic collapse. This isn't about AA, SWA or UA - it's about Boeing and its suppliers. Boeing stock got hammered because Delta announced a relatively small thing - the early retirement of their 777 fleet. Compared to the possibility of a liquidation of any of the other three mentioned, that announcement was a fraction of a fraction, and it still did major damage.

    Calhoun made the mistake of saying the first part of what everyone already knows. There's the possibility of a liquidation. The second part is that it won't be any US airline which is mainly a Boeing customer. It's doubtful it will get to that point, but if it does, the USG will pull out everything to save Boeing.


    Well, the mandate of the Fed is not narrowly focused on a single company or even a single industry. The Fed is more focused on having the capital markets up and running. But the Fed did say back in March that they would be buying high-yield bonds, which everybody understood generally to mean formerly investment-grade debt that was subsequently downgraded. The Fed has enlisted BlackRock to buy bonds on the Fed's behalf (In Fink We Trust: BlackRock Is Now ‘Fourth Branch of Government’ - https://www.bloomberg.com/news/articles ... nd=premium) so before we know it the Fed will hold bonds from all sorts of companies. I wouldn't be betting on a major US carrier going out of business soon.
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