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

Thu Jun 04, 2020 10:09 pm

Given the closure of ACs I’m forced to work at an empty gate. When I see an AA flight 75% of the flight seems to board with Group 9. Can AA actually stem loses by selling a sizable amount of BE fares?
 
chonetsao
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Re: FT: Investors bet AA will file for BK

Thu Jun 04, 2020 10:20 pm

Miamiairport wrote:
Given the closure of ACs I’m forced to work at an empty gate. When I see an AA flight 75% of the flight seems to board with Group 9. Can AA actually stem loses by selling a sizable amount of BE fares?


There is no evidence to suggest AA is selling 75% of the ticket at BE. It might be simply people are changing boarding behaviour by not to rush to board and cause crowed. Or simply, many people are trying to avoid crowded so boards later than designated group.

Plus BE does not need to be cheap. The idea of BE is to match price with ULCC. If a particular route does not have ULCC competition the price of BE can be very expensive in terms of revenue per seat mile.

So yes, in theory, even if AA sell all ticket in BE it could still achieve profitability as long as the BE price is above its cost per seat mile.

Let us say between XXX and YYY, one ULCC comes to market and start to sell ticket at $49. AA will start to sell same city pair in BE for $49 and the non-BE at $200. When the ULCC leaves the market, AA won't sell the $49 BE any more. Instead the price would be $200 for BE and $300 for non-BE. I hope you get the picture.
 
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Midwestindy
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Re: FT: Investors bet AA will file for BK

Thu Jun 04, 2020 10:25 pm

tphuang wrote:
Midwestindy wrote:
UALifer wrote:

Agreed, I think this is a big part of it. In addition to not being geographically ideal to connect people where traffic is currently going, UA’s hubs are in places that have opened up the least so far (think San Francisco, Chicago, New York). This may change over the next few weeks and we may see a bigger reaction from UA. But for now they have reason to be pessimistic.


Good point, looking at future bookings that looks to be the case

ATL, MIA, & DFW are ahead of the pack in terms of recovery
Image


Does that include connection? If it does, that just shows where airlines are getting people to connect at. Not that I doubt NYC is down 95%, but that demand drop would be more accurate here.


No it does not include connection, it is measuring yoy % change in airline bookings at those places
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FSDan
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Re: FT: Investors bet AA will file for BK

Thu Jun 04, 2020 10:31 pm

Midwestindy wrote:
UA is the least equipped of the US3 to tap into where demand is currently (Florida, Arizona, and the National Parks).


I agree regarding UA's relative weakness to Florida and Arizona vs AA and DL, but for National Parks destinations I would expect UA to be one of the better-positioned carriers with their strong service in the West. They serve the airports closest to the most popular National Parks like SEA, FCA, BZN, JAC, FAT, FLG, SGU, DEN, TYS/AVL, and BGR, but also serve some of the airports closest to less busy National Parks that other airlines don't serve: ACV, RDD, CNY, PUB, CMX, SHD, etc.
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GalaxyFlyer
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Re: FT: Investors bet AA will file for BK

Thu Jun 04, 2020 10:34 pm

DL747400 wrote:
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.


Chapter 13 is for individual bankruptcy, nothing to do with corporate reorganization.
 
nc3rd
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Re: FT: Investors bet AA will file for BK

Thu Jun 04, 2020 10:46 pm

janders wrote:
Imo, traffic is just not there and throwing capacity is merely going to increase the bleeding.

Just yesterday per Kirby at United employee town hall, he stated that this week their traffic was down 92% compared to last year. United carried a bit over 40,000 revenue passengers daily early this week when last year was over 500,000 during the first week of June.

No one here is privy to information that counts.
The views written above are mine and mine alone and do not represent any official information from any airline or company
 
nc3rd
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Re: FT: Investors bet AA will file for BK

Thu Jun 04, 2020 10:50 pm

Which airline was the most heavily banked into hubs and reliant on connecting traffic?
The views written above are mine and mine alone and do not represent any official information from any airline or company
 
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FLALEFTY
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Re: FT: Investors bet AA will file for BK

Thu Jun 04, 2020 10:55 pm

Midwestindy wrote:
UALifer wrote:
Midwestindy wrote:
Something that I think people are overlooking is UA's exposure, UA is the least equipped of the US3 to tap into where demand is currently (Florida, Arizona, and the National Parks). Sure they have DEN, but other than that EWR, SFO, IAD, LAX, and even ORD aren't really tailored to serve the current customer demand.

DL's ATL hub (somewhat SLC) and AA's CLT, DFW, & PHX hub's are really well placed to serve the market, therefore it makes sense that UA would be slower to bring back capacity than DL or AA.


Agreed, I think this is a big part of it. In addition to not being geographically ideal to connect people where traffic is currently going, UA’s hubs are in places that have opened up the least so far (think San Francisco, Chicago, New York). This may change over the next few weeks and we may see a bigger reaction from UA. But for now they have reason to be pessimistic.


Good point, looking at future bookings that looks to be the case

ATL, MIA, & DFW are ahead of the pack in terms of recovery
Image


It is strange that this survey did not include major hubs such as IAH/HOU & DEN. Also, what about other hubs such as PHL, CLT, BWI, DTW, MSP, PHX & SLC? They also ignored LAS, which is a slightly larger O&D market than MCO.
 
L.1011
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Speculation: If AA Were to Go Ch7...

Mon Jun 08, 2020 3:23 am

Hi all,

To be clear, I think it's less likely than not this actually happens. My take is that AA has enough value as a going concern that even if its debt load and years of mismanagement catch up with it, it'll go through another Ch11 cleansing rather than actually fail. But, if any major airline in the US were to go Ch7, I'm pretty sure AA is the top contender.

We all know COVID has created crazy times in the airline business; certainly one of the US3 going down would be part of that. For these purposes I'm assuming that the recent (small) recovery we're seeing continues, but not fast enough for AA, and as a result the remaining airlines are able to get the financing to seize the opportunities that result.

And of course it goes without saying that we don't want anybody out of work, so we'd like to see either AA pull through or the other airlines step in smoothly enough that everyone gets rehired quickly.

So with that, let's play a game of Risk, airline edition.

CLT
The conventional wisdom since the last round of mergers has been that UA is weak in the South, as it has the region bracketed with IAD and IAH but not an ATL or CLT. So the obvious pick here is that UA just rolls into town and starts building a Southern hub of its own. The question is what then happens with IAD - more on that when we talk DCA. But what gives me pause with this prediction is RDU, which sits in a metro that's about the same size as Charlotte with a stronger economy, was there for the taking, and UA demurred. Many said that was to protect IAD - if that was the case CLT wouldn't be any different, it's not much further. Of course, if missing the RDU opportunity was just Smisek incompetence allowing DL to roll in and build a focus city...

DFW
Just as UA is weak in the southeast, DL is weak in the fast-growing south central region, lacking a Texan hub. Purported AUS focus city notwithstanding, the obvious play here seems to be DL resurrecting its lost DFW hub without pesky AA to deal with.

ORD
In my mind the most likely move here is a substantial expansion by UA in an effort to replicate DL's ATL fortress. The only other possibility I could imagine would be DL trying to simply take over AA's close #2 position, but the DTW-MSP combo seems to better serve DL's strategy of dominating cities that aren't quite large enough to sustain dual hubs rather than fighting it out in the very largest.

LAX
As we all know, a super competitive market with no dominant carrier. DL seems to have been trying to slowly expand here; do they seize the opportunity to pick up the pace? UA seems to have been slowly retreating to an O&D presence in favor of SFO; do they seize the opportunity to reverse course? Does AS take another stab at making a stronger stand in California? Does WN try to bulk up further? (I'm not sure there's much more to do in SoCal that fits their model?) Sure seems like a golden opportunity for B6 to dump LGB for good, add more Mint capacity, and get a real foothold in the West. Given the nature of the LAX market, maybe it's all of the above to some extent.

MIA
Considering AA ran MIA along with CLT for years, DL declared an MIA focus city shortly before COVID, and both Avianca and LATAM have filed for bankruptcy, you'd think both UA and DL would have an interest in building an operation here. Thinking purely about geography, UA's IAH is slightly better positioned for Latin America flows than (presumably now DL's) DFW, but DL's ATL is better than (presumably now UA's) CLT. Then again, ATL is closer to MIA and would overlap more. Or maybe DFW+ATL and IAH+CLT are good enough. B6 is already #1 at the other two South Florida airports, and an A321XLR could get as far south as you'd want to go...

JFK/LGA
UA has said leaving JFK was a mistake, but they're not falling over themselves to have more than a token presence at LGA. Are corporate accounts really that adamant that LAX and SFO need to be from JFK and not EWR? If not if I'm UA I want to keep my full service fortress in New Jersey rather than running a split operation. DL, on the other hand, seems to be trying to grow at both LGA and JFK, and would presumably continue doing so. And certainly B6 would seem likely to seize the opportunity as well - if they want to run a proper transatlantic operation here they're going to need to continue to bulk up. Does WN finally decide to get serious about New York and jump in?

PHL
There's been a lot of talk about how much PHL leaks to the New York and DC airports, but at the end of the day Philadelphia does have almost 7 million people and plenty of business in its metro. Surely it's worth something. I find it hard to believe that UA would make a move given EWR less than 100 miles away and IAD not a great deal further the other direction. DL deciding to dominate Philly instead of fighting it out in New York would seem to be on-strategy for them, but it doesn't feel right to me either - there isn't enough domestic connecting flow to the north and east and making it a key transatlantic gateway would be to ATL's detriment. Let's remember that around the same time B6 swept into BOS they made a move at IAD as well. Do they try to take over in Philly and really start to be the key player in the Northeast? What about WN? They've got BWI right down the road, but that operation is a lot closer to UA/IAD and AA/DCA than PHL is to anything, so is the lack of competition appealing? Then again, Philadelphia is awfully big to be a WN-dominated city.

PHX
We've discussed how PHX is less attractive geographically as a mountain hub than SLC or DEN, so I don't see DL or UA headed here. Does WN try to dominate here? Correct me if I'm wrong, but PHX would be the biggest city dominated by WN without substantial competition if so. An idea I like is AS - they've been trying to diversify from the PNW and met serious resistance in California, this may be an easier place to slip in. Less likely I think is B6. They are certainly familiar with snowbird markets on the east coast, but to really take advantage of that in PHX they'd need to take the Midwest more seriously.

DCA
This one intrigues me. DL could simply step in and duplicate AA's operation, a big focus city/small hub serving east of the Mississippi/in-perimeter traffic. It doesn't do a thing they can't do in New York or Atlanta now, but it does give them access to a large and prosperous metro market. UA could attempt to build a multi-airport operation a la DL in New York, but they've shown no appetite for that in New York themselves (or Chicago, Houston, San Francisco, or Los Angeles for that matter.) And while DCA is a more desirable short-haul domestic airport for Washingtonians than IAD, if they draw IAD down too much you'd expect it to become a ULCC haven and depress yields at all three airports. Maybe they accept that - CLT can fully replace the IAD domestic connecting role, EWR can take over the international connections, and UA can ride its substantial FF base by serving high yielding short-haul domestic in the old AA space at DCA, and the O&D long-haul domestic and international at IAD. Ironically that would resemble the slowly withering AA operation at LGA and JFK respectively. You could also imagine B6 moving in here (see my PHL paragraph), or WN - I'm not sure how much out-of-perimeter they do at BWI but if it's not enough to be worth it wouldn't DCA be a better place to be?

Fleet
UA, DL, and WN have all shown an appetite for used airplanes when the opportunity presents itself, and it certainly would here. Obviously if they're taking over AA hubs and traffic everybody's going to need additional planes from somewhere. I'm less sure what happens here - as fleets have become more homogenous it becomes less obvious who might want what. The fleets, remaining A330s excepted, are all so large that it seems unlikely anyone takes them on whole. Thoughts on what happens here?

Partners
I see this as a wild card too. It doesn't seem to me that oneworld is more desirable than Star, but I can see one arguing it's more desirable than SkyTeam. I'd certainly rather have Qantas than Virgin Australia, for instance. So, does DL make the switch? Or, is oneworld stuck with cobbling together AS and maybe B6? Or (I'd guess this would be most likely) is there a game of musical chairs among the alliances?

Sorry for the length folks; this is something I've been thinking about for a little bit and I just wanted to get the ideas out there and open the door for some good old fashioned speculation. I hope everybody has some fun with it.
 
uadc8contrail
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Re: Speculation: If AA Were to Go Ch7...

Mon Jun 08, 2020 3:32 am

L1011,
good old speculation would have AA go into chapter 11 and nothing more....i have family at AA mainline and this is nothing but stirring the pot....sorry man....everyone is a equal opportunity bk filer in todays world and that includes the widget and the fallen tulip
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LCDFlight
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Re: Speculation: If AA Were to Go Ch7...

Mon Jun 08, 2020 4:18 am

L.1011 wrote:
Hi all,

To be clear, I think it's less likely than not this actually happens. My take is that AA has enough value as a going concern that even if its debt load and years of mismanagement catch up with it, it'll go through another Ch11 cleansing rather than actually fail. But, if any major airline in the US were to go Ch7, I'm pretty sure AA is the top contender.

We all know COVID has created crazy times in the airline business; certainly one of the US3 going down would be part of that. For these purposes I'm assuming that the recent (small) recovery we're seeing continues, but not fast enough for AA, and as a result the remaining airlines are able to get the financing to seize the opportunities that result.

And of course it goes without saying that we don't want anybody out of work, so we'd like to see either AA pull through or the other airlines step in smoothly enough that everyone gets rehired quickly.

So with that, let's play a game of Risk, airline edition.

CLT
The conventional wisdom since the last round of mergers has been that UA is weak in the South, as it has the region bracketed with IAD and IAH but not an ATL or CLT. So the obvious pick here is that UA just rolls into town and starts building a Southern hub of its own. The question is what then happens with IAD - more on that when we talk DCA. But what gives me pause with this prediction is RDU, which sits in a metro that's about the same size as Charlotte with a stronger economy, was there for the taking, and UA demurred. Many said that was to protect IAD - if that was the case CLT wouldn't be any different, it's not much further. Of course, if missing the RDU opportunity was just Smisek incompetence allowing DL to roll in and build a focus city...

DFW
Just as UA is weak in the southeast, DL is weak in the fast-growing south central region, lacking a Texan hub. Purported AUS focus city notwithstanding, the obvious play here seems to be DL resurrecting its lost DFW hub without pesky AA to deal with.

ORD
In my mind the most likely move here is a substantial expansion by UA in an effort to replicate DL's ATL fortress. The only other possibility I could imagine would be DL trying to simply take over AA's close #2 position, but the DTW-MSP combo seems to better serve DL's strategy of dominating cities that aren't quite large enough to sustain dual hubs rather than fighting it out in the very largest.

LAX
As we all know, a super competitive market with no dominant carrier. DL seems to have been trying to slowly expand here; do they seize the opportunity to pick up the pace? UA seems to have been slowly retreating to an O&D presence in favor of SFO; do they seize the opportunity to reverse course? Does AS take another stab at making a stronger stand in California? Does WN try to bulk up further? (I'm not sure there's much more to do in SoCal that fits their model?) Sure seems like a golden opportunity for B6 to dump LGB for good, add more Mint capacity, and get a real foothold in the West. Given the nature of the LAX market, maybe it's all of the above to some extent.

MIA
Considering AA ran MIA along with CLT for years, DL declared an MIA focus city shortly before COVID, and both Avianca and LATAM have filed for bankruptcy, you'd think both UA and DL would have an interest in building an operation here. Thinking purely about geography, UA's IAH is slightly better positioned for Latin America flows than (presumably now DL's) DFW, but DL's ATL is better than (presumably now UA's) CLT. Then again, ATL is closer to MIA and would overlap more. Or maybe DFW+ATL and IAH+CLT are good enough. B6 is already #1 at the other two South Florida airports, and an A321XLR could get as far south as you'd want to go...

JFK/LGA
UA has said leaving JFK was a mistake, but they're not falling over themselves to have more than a token presence at LGA. Are corporate accounts really that adamant that LAX and SFO need to be from JFK and not EWR? If not if I'm UA I want to keep my full service fortress in New Jersey rather than running a split operation. DL, on the other hand, seems to be trying to grow at both LGA and JFK, and would presumably continue doing so. And certainly B6 would seem likely to seize the opportunity as well - if they want to run a proper transatlantic operation here they're going to need to continue to bulk up. Does WN finally decide to get serious about New York and jump in?

PHL
There's been a lot of talk about how much PHL leaks to the New York and DC airports, but at the end of the day Philadelphia does have almost 7 million people and plenty of business in its metro. Surely it's worth something. I find it hard to believe that UA would make a move given EWR less than 100 miles away and IAD not a great deal further the other direction. DL deciding to dominate Philly instead of fighting it out in New York would seem to be on-strategy for them, but it doesn't feel right to me either - there isn't enough domestic connecting flow to the north and east and making it a key transatlantic gateway would be to ATL's detriment. Let's remember that around the same time B6 swept into BOS they made a move at IAD as well. Do they try to take over in Philly and really start to be the key player in the Northeast? What about WN? They've got BWI right down the road, but that operation is a lot closer to UA/IAD and AA/DCA than PHL is to anything, so is the lack of competition appealing? Then again, Philadelphia is awfully big to be a WN-dominated city.

PHX
We've discussed how PHX is less attractive geographically as a mountain hub than SLC or DEN, so I don't see DL or UA headed here. Does WN try to dominate here? Correct me if I'm wrong, but PHX would be the biggest city dominated by WN without substantial competition if so. An idea I like is AS - they've been trying to diversify from the PNW and met serious resistance in California, this may be an easier place to slip in. Less likely I think is B6. They are certainly familiar with snowbird markets on the east coast, but to really take advantage of that in PHX they'd need to take the Midwest more seriously.

DCA
This one intrigues me. DL could simply step in and duplicate AA's operation, a big focus city/small hub serving east of the Mississippi/in-perimeter traffic. It doesn't do a thing they can't do in New York or Atlanta now, but it does give them access to a large and prosperous metro market. UA could attempt to build a multi-airport operation a la DL in New York, but they've shown no appetite for that in New York themselves (or Chicago, Houston, San Francisco, or Los Angeles for that matter.) And while DCA is a more desirable short-haul domestic airport for Washingtonians than IAD, if they draw IAD down too much you'd expect it to become a ULCC haven and depress yields at all three airports. Maybe they accept that - CLT can fully replace the IAD domestic connecting role, EWR can take over the international connections, and UA can ride its substantial FF base by serving high yielding short-haul domestic in the old AA space at DCA, and the O&D long-haul domestic and international at IAD. Ironically that would resemble the slowly withering AA operation at LGA and JFK respectively. You could also imagine B6 moving in here (see my PHL paragraph), or WN - I'm not sure how much out-of-perimeter they do at BWI but if it's not enough to be worth it wouldn't DCA be a better place to be?

Fleet
UA, DL, and WN have all shown an appetite for used airplanes when the opportunity presents itself, and it certainly would here. Obviously if they're taking over AA hubs and traffic everybody's going to need additional planes from somewhere. I'm less sure what happens here - as fleets have become more homogenous it becomes less obvious who might want what. The fleets, remaining A330s excepted, are all so large that it seems unlikely anyone takes them on whole. Thoughts on what happens here?

Partners
I see this as a wild card too. It doesn't seem to me that oneworld is more desirable than Star, but I can see one arguing it's more desirable than SkyTeam. I'd certainly rather have Qantas than Virgin Australia, for instance. So, does DL make the switch? Or, is oneworld stuck with cobbling together AS and maybe B6? Or (I'd guess this would be most likely) is there a game of musical chairs among the alliances?

Sorry for the length folks; this is something I've been thinking about for a little bit and I just wanted to get the ideas out there and open the door for some good old fashioned speculation. I hope everybody has some fun with it.


AA is an excellent Ch11 candidate. I disagree that it is the top Ch 7 contender. To go Ch 7, you would have no profitable core business after reorganization. AA's franchises at DFW, MIA, DCA, CLT, (and ORD, PHL) are tremendous. Even PHX appears to pay its bills decade after decade.

Controversial, but I think. AA has a stronger core business than UAL does. And it is certainly stronger than all LCC except Allegiant and Southwest.
 
acentauri
Posts: 308
Joined: Wed Jun 22, 2016 12:35 am

Re: FT: Investors bet AA will file for BK

Mon Jun 08, 2020 5:46 am

This thread is nothing more than a creation by and fodder for existing Shorts, sweating more and more each day as the price moves into Stop Loss territory. :stirthepot:
 
chonetsao
Posts: 672
Joined: Sun Nov 06, 2005 3:55 pm

Re: Speculation: If AA Were to Go Ch7...

Mon Jun 08, 2020 10:57 am

L.1011 wrote:
Hi all,

To be clear, I think it's less likely than not this actually happens. My take is that AA has enough value as a going concern that even if its debt load and years of mismanagement catch up with it, it'll go through another Ch11 cleansing rather than actually fail. But, if any major airline in the US were to go Ch7, I'm pretty sure AA is the top contender.


Sorry for the length folks; this is something I've been thinking about for a little bit and I just wanted to get the ideas out there and open the door for some good old fashioned speculation. I hope everybody has some fun with it.


No, neither Chapter 11 nor Chapter 7 would happen. And AA is not the top contender neither. Boeing, Airbus, states of NC, TX and AZ invested a lot in AA and its related business. Majority of the debt is tied to new aircraft orders. None of the stake and debts holders would gain anything from CH11 or CH7. Sometimes they say, to a bank, the most important customer is not the one makes the most money, but the one owes the most money. AA is exactly the customer owes the most money, and it is everyone's interests to keep AA afloat.
 
Wacker1000
Posts: 233
Joined: Tue Jan 07, 2014 6:36 pm

Re: Speculation: If AA Were to Go Ch7...

Mon Jun 08, 2020 2:15 pm

LCDFlight wrote:

AA is an excellent Ch11 candidate. I disagree that it is the top Ch 7 contender. To go Ch 7, you would have no profitable core business after reorganization.


Their only profitable core business is selling credit cards. I guess they could start peddling other airlines' credit cards at terminal kiosks. ;)
 
cledaybuck
Posts: 1725
Joined: Thu Aug 18, 2016 6:07 pm

Re: FT: Investors bet AA will file for BK

Mon Jun 08, 2020 2:44 pm

FSDan wrote:
Midwestindy wrote:
UA is the least equipped of the US3 to tap into where demand is currently (Florida, Arizona, and the National Parks).


I agree regarding UA's relative weakness to Florida and Arizona vs AA and DL, but for National Parks destinations I would expect UA to be one of the better-positioned carriers with their strong service in the West. They serve the airports closest to the most popular National Parks like SEA, FCA, BZN, JAC, FAT, FLG, SGU, DEN, TYS/AVL, and BGR, but also serve some of the airports closest to less busy National Parks that other airlines don't serve: ACV, RDD, CNY, PUB, CMX, SHD, etc.

Of course they would need to ramp DEN back up for that to work. It seems UA is mostly opening more flights by proximity to hub. It can be difficult to make good connections through DEN from many places in the east right now.
As we celebrate mediocrity, all the boys upstairs want to see, how much you'll pay for what you used to get for free.
 
FSDan
Posts: 3340
Joined: Mon Jan 03, 2011 5:27 pm

Re: Speculation: If AA Were to Go Ch7...

Mon Jun 08, 2020 5:52 pm

L.1011 wrote:
So with that, let's play a game of Risk, airline edition.

CLT
The conventional wisdom since the last round of mergers has been that UA is weak in the South, as it has the region bracketed with IAD and IAH but not an ATL or CLT. So the obvious pick here is that UA just rolls into town and starts building a Southern hub of its own. The question is what then happens with IAD - more on that when we talk DCA. But what gives me pause with this prediction is RDU, which sits in a metro that's about the same size as Charlotte with a stronger economy, was there for the taking, and UA demurred. Many said that was to protect IAD - if that was the case CLT wouldn't be any different, it's not much further. Of course, if missing the RDU opportunity was just Smisek incompetence allowing DL to roll in and build a focus city...

DFW
Just as UA is weak in the southeast, DL is weak in the fast-growing south central region, lacking a Texan hub. Purported AUS focus city notwithstanding, the obvious play here seems to be DL resurrecting its lost DFW hub without pesky AA to deal with.

ORD
In my mind the most likely move here is a substantial expansion by UA in an effort to replicate DL's ATL fortress. The only other possibility I could imagine would be DL trying to simply take over AA's close #2 position, but the DTW-MSP combo seems to better serve DL's strategy of dominating cities that aren't quite large enough to sustain dual hubs rather than fighting it out in the very largest.

LAX
As we all know, a super competitive market with no dominant carrier. DL seems to have been trying to slowly expand here; do they seize the opportunity to pick up the pace? UA seems to have been slowly retreating to an O&D presence in favor of SFO; do they seize the opportunity to reverse course? Does AS take another stab at making a stronger stand in California? Does WN try to bulk up further? (I'm not sure there's much more to do in SoCal that fits their model?) Sure seems like a golden opportunity for B6 to dump LGB for good, add more Mint capacity, and get a real foothold in the West. Given the nature of the LAX market, maybe it's all of the above to some extent.

MIA
Considering AA ran MIA along with CLT for years, DL declared an MIA focus city shortly before COVID, and both Avianca and LATAM have filed for bankruptcy, you'd think both UA and DL would have an interest in building an operation here. Thinking purely about geography, UA's IAH is slightly better positioned for Latin America flows than (presumably now DL's) DFW, but DL's ATL is better than (presumably now UA's) CLT. Then again, ATL is closer to MIA and would overlap more. Or maybe DFW+ATL and IAH+CLT are good enough. B6 is already #1 at the other two South Florida airports, and an A321XLR could get as far south as you'd want to go...

JFK/LGA
UA has said leaving JFK was a mistake, but they're not falling over themselves to have more than a token presence at LGA. Are corporate accounts really that adamant that LAX and SFO need to be from JFK and not EWR? If not if I'm UA I want to keep my full service fortress in New Jersey rather than running a split operation. DL, on the other hand, seems to be trying to grow at both LGA and JFK, and would presumably continue doing so. And certainly B6 would seem likely to seize the opportunity as well - if they want to run a proper transatlantic operation here they're going to need to continue to bulk up. Does WN finally decide to get serious about New York and jump in?

PHL
There's been a lot of talk about how much PHL leaks to the New York and DC airports, but at the end of the day Philadelphia does have almost 7 million people and plenty of business in its metro. Surely it's worth something. I find it hard to believe that UA would make a move given EWR less than 100 miles away and IAD not a great deal further the other direction. DL deciding to dominate Philly instead of fighting it out in New York would seem to be on-strategy for them, but it doesn't feel right to me either - there isn't enough domestic connecting flow to the north and east and making it a key transatlantic gateway would be to ATL's detriment. Let's remember that around the same time B6 swept into BOS they made a move at IAD as well. Do they try to take over in Philly and really start to be the key player in the Northeast? What about WN? They've got BWI right down the road, but that operation is a lot closer to UA/IAD and AA/DCA than PHL is to anything, so is the lack of competition appealing? Then again, Philadelphia is awfully big to be a WN-dominated city.

PHX
We've discussed how PHX is less attractive geographically as a mountain hub than SLC or DEN, so I don't see DL or UA headed here. Does WN try to dominate here? Correct me if I'm wrong, but PHX would be the biggest city dominated by WN without substantial competition if so. An idea I like is AS - they've been trying to diversify from the PNW and met serious resistance in California, this may be an easier place to slip in. Less likely I think is B6. They are certainly familiar with snowbird markets on the east coast, but to really take advantage of that in PHX they'd need to take the Midwest more seriously.

DCA
This one intrigues me. DL could simply step in and duplicate AA's operation, a big focus city/small hub serving east of the Mississippi/in-perimeter traffic. It doesn't do a thing they can't do in New York or Atlanta now, but it does give them access to a large and prosperous metro market. UA could attempt to build a multi-airport operation a la DL in New York, but they've shown no appetite for that in New York themselves (or Chicago, Houston, San Francisco, or Los Angeles for that matter.) And while DCA is a more desirable short-haul domestic airport for Washingtonians than IAD, if they draw IAD down too much you'd expect it to become a ULCC haven and depress yields at all three airports. Maybe they accept that - CLT can fully replace the IAD domestic connecting role, EWR can take over the international connections, and UA can ride its substantial FF base by serving high yielding short-haul domestic in the old AA space at DCA, and the O&D long-haul domestic and international at IAD. Ironically that would resemble the slowly withering AA operation at LGA and JFK respectively. You could also imagine B6 moving in here (see my PHL paragraph), or WN - I'm not sure how much out-of-perimeter they do at BWI but if it's not enough to be worth it wouldn't DCA be a better place to be?


I puzzled this through in my mind a little while ago as well, and arrived at similar conclusions. Even down to AS potentially upping their PHX presence rather than DL or UA wanting to step in. A few of my own thoughts regarding the more complicated East Coast metro areas:

NYC
I think if all AA's slots came up for grabs, UA would probably consider significantly branching out beyond EWR. I could see them taking a chunk of AA's LGA slots (not all of them) and competing in key business markets like DFW, BOS, ATL, MIA, etc. At JFK, I think they'd try to get enough slots to provide a decent transcon service (certainly to SFO/LAX, but maybe also to SEA/SAN/LAS/PHX as well). DL and B6 could maybe each beef up their LGA and JFK holdings some as well, although I don't think there would be a seismic shift there. LGA could see an influx of additional LCC capacity as well.

D.C.
Similar to NYC, I could see UA getting a bit more excited about split hub operations if a major competitor like AA were to leave a hole to fill. If they had acquired CLT as a Southern hub, they could de-emphasize IAD connecting traffic and focus on key transcon and international O&D services from IAD and close-in domestic O&D services from DCA. DL could also try to grow their DCA presence back to what it used to be (~100 departures) or beyond. The interesting thing about DCA is that quite a few flights are to small markets (many of them state capitols) that would fight tooth and nail to keep their service, and probably wouldn't be great candidates for LCC service (see how LAN did for SY...). Those markets could end up getting split between UA and DL based on each airline's strengths.

PHL
This one is definitely the most interesting since I agree neither DL nor UA would likely be very interested in having a major presence there (and especially if both were able to grow more in NYC and D.C.). Could be an opportunity for B6 to branch out significantly, or could be fertile ground for a startup like Breeze...

On the West Coast, I think LAX would remain fragmented and constrained by facilities. B6 and other LCCs would have room to grow in T4-T5. United or DL could each try to expand their footprints, but would probably end up weirdly split up across terminals to do so.

While I don't think any of this will happen, it's certainly an interesting thought exercise!
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IrishAyes
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Re: FT: Investors bet AA will file for BK

Mon Jun 08, 2020 7:56 pm

the scenario planning with the hubs is fun to play in a hypothetical world, but unless you've actually worked in Commercial for a major U.S. carrier, which many of you have, given the MASSIVE disruption that has taken place, the largest airlines are going to have to move the heavy pieces around, piece by piece, month by month. the hub strategy that we see today might be (and likely will be) completely different in june 2021. as scott kirby said on the ua q1 earnings call, "everything is on the table....there are no sacred cows."
 
jplatts
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Re: Speculation: If AA Were to Go Ch7...

Mon Jun 08, 2020 9:49 pm

L.1011 wrote:
DCA
This one intrigues me. DL could simply step in and duplicate AA's operation, a big focus city/small hub serving east of the Mississippi/in-perimeter traffic. It doesn't do a thing they can't do in New York or Atlanta now, but it does give them access to a large and prosperous metro market. UA could attempt to build a multi-airport operation a la DL in New York, but they've shown no appetite for that in New York themselves (or Chicago, Houston, San Francisco, or Los Angeles for that matter.) And while DCA is a more desirable short-haul domestic airport for Washingtonians than IAD, if they draw IAD down too much you'd expect it to become a ULCC haven and depress yields at all three airports. Maybe they accept that - CLT can fully replace the IAD domestic connecting role, EWR can take over the international connections, and UA can ride its substantial FF base by serving high yielding short-haul domestic in the old AA space at DCA, and the O&D long-haul domestic and international at IAD. Ironically that would resemble the slowly withering AA operation at LGA and JFK respectively. You could also imagine B6 moving in here (see my PHL paragraph), or WN - I'm not sure how much out-of-perimeter they do at BWI but if it's not enough to be worth it wouldn't DCA be a better place to be?


Most of the destinations that AA serves nonstop from DCA have nonstop service out of IAD or BWI on other airlines, but there are some domestic destinations such as AGS, CRW, CHA, DSM, XNA, JAN, EYW, LAN, LIT, MGM, and TLH that have nonstop service out of DCA on AA but no nonstop service out of BWI or IAD and no nonstop service out of DCA on other airlines.

UA adding nonstop service to IAD from CRW, CHA, DSM, XNA, JAN, EYW, LAN, LIT, and TLH might be possibilities if additional demand to the DC market exists from these destinations or AA drops nonstop service to these destinations from DCA.

The majority of the destinations that have nonstop service out of DCA on AA will still continue to have nonstop service to DCA, IAD, or BWI on other airlines if AA significantly downsizes or eliminates its DCA hub or if AA is liquidated.
 
flyinghippo
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Re: Speculation: If AA Were to Go Ch7...

Mon Jun 08, 2020 10:22 pm

L.1011 wrote:
Hi all,

To be clear, I think it's less likely than not this actually happens. My take is that AA has enough value as a going concern that even if its debt load and years of mismanagement catch up with it, it'll go through another Ch11 cleansing rather than actually fail. But, if any major airline in the US were to go Ch7, I'm pretty sure AA is the top contender.

We all know COVID has created crazy times in the airline business; certainly one of the US3 going down would be part of that. For these purposes I'm assuming that the recent (small) recovery we're seeing continues, but not fast enough for AA, and as a result the remaining airlines are able to get the financing to seize the opportunities that result.

And of course it goes without saying that we don't want anybody out of work, so we'd like to see either AA pull through or the other airlines step in smoothly enough that everyone gets rehired quickly.

So with that, let's play a game of Risk, airline edition.

CLT
The conventional wisdom since the last round of mergers has been that UA is weak in the South, as it has the region bracketed with IAD and IAH but not an ATL or CLT. So the obvious pick here is that UA just rolls into town and starts building a Southern hub of its own. The question is what then happens with IAD - more on that when we talk DCA. But what gives me pause with this prediction is RDU, which sits in a metro that's about the same size as Charlotte with a stronger economy, was there for the taking, and UA demurred. Many said that was to protect IAD - if that was the case CLT wouldn't be any different, it's not much further. Of course, if missing the RDU opportunity was just Smisek incompetence allowing DL to roll in and build a focus city...

DFW
Just as UA is weak in the southeast, DL is weak in the fast-growing south central region, lacking a Texan hub. Purported AUS focus city notwithstanding, the obvious play here seems to be DL resurrecting its lost DFW hub without pesky AA to deal with.

ORD
In my mind the most likely move here is a substantial expansion by UA in an effort to replicate DL's ATL fortress. The only other possibility I could imagine would be DL trying to simply take over AA's close #2 position, but the DTW-MSP combo seems to better serve DL's strategy of dominating cities that aren't quite large enough to sustain dual hubs rather than fighting it out in the very largest.

LAX
As we all know, a super competitive market with no dominant carrier. DL seems to have been trying to slowly expand here; do they seize the opportunity to pick up the pace? UA seems to have been slowly retreating to an O&D presence in favor of SFO; do they seize the opportunity to reverse course? Does AS take another stab at making a stronger stand in California? Does WN try to bulk up further? (I'm not sure there's much more to do in SoCal that fits their model?) Sure seems like a golden opportunity for B6 to dump LGB for good, add more Mint capacity, and get a real foothold in the West. Given the nature of the LAX market, maybe it's all of the above to some extent.

MIA
Considering AA ran MIA along with CLT for years, DL declared an MIA focus city shortly before COVID, and both Avianca and LATAM have filed for bankruptcy, you'd think both UA and DL would have an interest in building an operation here. Thinking purely about geography, UA's IAH is slightly better positioned for Latin America flows than (presumably now DL's) DFW, but DL's ATL is better than (presumably now UA's) CLT. Then again, ATL is closer to MIA and would overlap more. Or maybe DFW+ATL and IAH+CLT are good enough. B6 is already #1 at the other two South Florida airports, and an A321XLR could get as far south as you'd want to go...

JFK/LGA
UA has said leaving JFK was a mistake, but they're not falling over themselves to have more than a token presence at LGA. Are corporate accounts really that adamant that LAX and SFO need to be from JFK and not EWR? If not if I'm UA I want to keep my full service fortress in New Jersey rather than running a split operation. DL, on the other hand, seems to be trying to grow at both LGA and JFK, and would presumably continue doing so. And certainly B6 would seem likely to seize the opportunity as well - if they want to run a proper transatlantic operation here they're going to need to continue to bulk up. Does WN finally decide to get serious about New York and jump in?

PHL
There's been a lot of talk about how much PHL leaks to the New York and DC airports, but at the end of the day Philadelphia does have almost 7 million people and plenty of business in its metro. Surely it's worth something. I find it hard to believe that UA would make a move given EWR less than 100 miles away and IAD not a great deal further the other direction. DL deciding to dominate Philly instead of fighting it out in New York would seem to be on-strategy for them, but it doesn't feel right to me either - there isn't enough domestic connecting flow to the north and east and making it a key transatlantic gateway would be to ATL's detriment. Let's remember that around the same time B6 swept into BOS they made a move at IAD as well. Do they try to take over in Philly and really start to be the key player in the Northeast? What about WN? They've got BWI right down the road, but that operation is a lot closer to UA/IAD and AA/DCA than PHL is to anything, so is the lack of competition appealing? Then again, Philadelphia is awfully big to be a WN-dominated city.

PHX
We've discussed how PHX is less attractive geographically as a mountain hub than SLC or DEN, so I don't see DL or UA headed here. Does WN try to dominate here? Correct me if I'm wrong, but PHX would be the biggest city dominated by WN without substantial competition if so. An idea I like is AS - they've been trying to diversify from the PNW and met serious resistance in California, this may be an easier place to slip in. Less likely I think is B6. They are certainly familiar with snowbird markets on the east coast, but to really take advantage of that in PHX they'd need to take the Midwest more seriously.

DCA
This one intrigues me. DL could simply step in and duplicate AA's operation, a big focus city/small hub serving east of the Mississippi/in-perimeter traffic. It doesn't do a thing they can't do in New York or Atlanta now, but it does give them access to a large and prosperous metro market. UA could attempt to build a multi-airport operation a la DL in New York, but they've shown no appetite for that in New York themselves (or Chicago, Houston, San Francisco, or Los Angeles for that matter.) And while DCA is a more desirable short-haul domestic airport for Washingtonians than IAD, if they draw IAD down too much you'd expect it to become a ULCC haven and depress yields at all three airports. Maybe they accept that - CLT can fully replace the IAD domestic connecting role, EWR can take over the international connections, and UA can ride its substantial FF base by serving high yielding short-haul domestic in the old AA space at DCA, and the O&D long-haul domestic and international at IAD. Ironically that would resemble the slowly withering AA operation at LGA and JFK respectively. You could also imagine B6 moving in here (see my PHL paragraph), or WN - I'm not sure how much out-of-perimeter they do at BWI but if it's not enough to be worth it wouldn't DCA be a better place to be?

Fleet
UA, DL, and WN have all shown an appetite for used airplanes when the opportunity presents itself, and it certainly would here. Obviously if they're taking over AA hubs and traffic everybody's going to need additional planes from somewhere. I'm less sure what happens here - as fleets have become more homogenous it becomes less obvious who might want what. The fleets, remaining A330s excepted, are all so large that it seems unlikely anyone takes them on whole. Thoughts on what happens here?

Partners
I see this as a wild card too. It doesn't seem to me that oneworld is more desirable than Star, but I can see one arguing it's more desirable than SkyTeam. I'd certainly rather have Qantas than Virgin Australia, for instance. So, does DL make the switch? Or, is oneworld stuck with cobbling together AS and maybe B6? Or (I'd guess this would be most likely) is there a game of musical chairs among the alliances?

Sorry for the length folks; this is something I've been thinking about for a little bit and I just wanted to get the ideas out there and open the door for some good old fashioned speculation. I hope everybody has some fun with it.


Very interesting. Chances of AA going under is very remote and with the uncertainty of COVID-19, who knows what the rest of US airlines will do if AA dissolves. But this is a thought-provoking exercise.

Here is my thought:

CLT - UA would salivate over a hub at CLT - IAD is not ideal for a hub (Too close to their EWR super hub, plus BWI and PHL sucking away traffic), CLT would provide UA a southern hub they sorely need. Not sure how this might impact UA's presence at IAD.

DFW - This would be a jackpot for DL - as you said, DL lacks any meaningful presence in Texas, and Austin is just not a big enough of a city (or airport) to make it work. If AA disappears, DFW would be DL's for the taking since UA won't compete there with IAH next door.

ORD - UA would solidify its position in ORD. DL might make a play but they already have a good structure in DTW and MSP - I just don't see DL giving up those hubs just to compete with UA for ORD.

JFK - Just like DL likes the huge advantage on DTW/MSP, UA enjoys the same, if not more, with EWR. Biggest O&D market, almost the only game in town for NJ (and NYS west of Hudson to the north, down as far as Philadelphia in the south) - for both domestic and international destinations. I don't think they would want to spend resources to fight with DL in JFK for meager gains. DL will put up a good fight in JFK.
B6 would expand like crazy in JFK and launch their European destinations from there. DL would get some AA slots as well and maybe turn it into a hub for majority of European flights that are not served by ATL/DTW/MSP. JFK would be further dominated by DL and B6.

LGA - UA, WN, and DL would expand, so will B6 and NK to some degree. I think the biggest beneficiary would be WN - they would finally have a chance to establish a base in NYC.

PHL and PHX - It will become the next CVG - DL and UA already would have their TATL hubs within 100 miles of PHL and they would not need another domestic hub with the likes of RDU/CTL in relatively close distance. Maybe NK (Maybe WN?) would swoop in and establish their dominance in PHL.

LAX - Another city DL would drool over. DL badly needs a presence in CA (and I'd say the west coast, as SEA is not a big enough market/airport, and AS is one tough competitor). WN and B6 would also jump in there. Not sure if UA will try their luck at LAX again given their hub at SFO.

Fleet - DL and UA will have their picks if the AA creditors are willing to sell/lease AA planes on the cheap. DL will look at the A320 NEOS while UA will take 787s. The 330/772 will head to the boneyard, while 77W will go somewhere else.

Alliance - I don't see DL jump to OW since they have a good partnership in AF/KL, and some extent KE. Also, they just got LAN to leave OW, I don't think OW would welcome DL into the mix. AS would be the connecting partner of OW in the west, and maybe B6 could join OW and be OW's airline of choice for the eastern US. DL might use this opportunity to lure JL away and finally have a partner in Japan (Not sure how KE would react...)
 
eightcone
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Re: FT: Investors bet AA will file for BK

Sun Jun 14, 2020 7:58 am

I was looking over the 8-k AA just filed with the SEC https://americanairlines.gcs-web.com/node/38321/html and had a question. If anyone recommends a good place to read up on this and get smart I would appreciate it.

The $2.1B in planes and parts they can claim as assets and the $1B in property makes sense. What I don’t understand is how the gates, slots, and routes are assets? They are services, leases, and privileges correct? A service only holds value if prepaid and you or someone else needs it in the future. Leases and privileges don’t hold value either unless there is scarcity in supply and demand and another airline has cash to buy up that opportunity.

The things I’m imagining I’m missing is that airlines can hold some sort of royalty on a route? That they properly own the gate and jetbridge at an airport, not lease it?

Anyway, if someone knows a book or article on airline accounting I’d be interested to study it.

Thanks
 
VS11
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Re: FT: Investors bet AA will file for BK

Sun Jun 14, 2020 5:29 pm

eightcone wrote:
I was looking over the 8-k AA just filed with the SEC https://americanairlines.gcs-web.com/node/38321/html and had a question. If anyone recommends a good place to read up on this and get smart I would appreciate it.

The $2.1B in planes and parts they can claim as assets and the $1B in property makes sense. What I don’t understand is how the gates, slots, and routes are assets? They are services, leases, and privileges correct? A service only holds value if prepaid and you or someone else needs it in the future. Leases and privileges don’t hold value either unless there is scarcity in supply and demand and another airline has cash to buy up that opportunity.

The things I’m imagining I’m missing is that airlines can hold some sort of royalty on a route? That they properly own the gate and jetbridge at an airport, not lease it?

Anyway, if someone knows a book or article on airline accounting I’d be interested to study it.

Thanks


"An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. "
....
Understanding Assets

"An asset represents an economic resource for a company or represents access that other individuals or firms do not have. A right or other access is legally enforceable, which means economic resources can be used at a company's discretion, and its use can be precluded or limited by an owner."

https://www.investopedia.com/terms/a/asset.asp
 
DfwRevolution
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Re: FT: Investors bet AA will file for BK

Sun Jun 14, 2020 5:54 pm

eightcone wrote:
I was looking over the 8-k AA just filed with the SEC https://americanairlines.gcs-web.com/node/38321/html and had a question. If anyone recommends a good place to read up on this and get smart I would appreciate it.

The $2.1B in planes and parts they can claim as assets and the $1B in property makes sense. What I don’t understand is how the gates, slots, and routes are assets? They are services, leases, and privileges correct? A service only holds value if prepaid and you or someone else needs it in the future. Leases and privileges don’t hold value either unless there is scarcity in supply and demand and another airline has cash to buy up that opportunity.

The things I’m imagining I’m missing is that airlines can hold some sort of royalty on a route? That they properly own the gate and jetbridge at an airport, not lease it?

Anyway, if someone knows a book or article on airline accounting I’d be interested to study it.

Thanks


Capital leases are shown on the balance sheet as assets because the terms of the contract are insignificantly different than a conventional purchase contract. Capital leases are long-term in nature, the lessor has a buy-out option at the end, etc. Showing these capital leases as assets is appropriate because it avoids a scenario where a firm could just lease *everything* to keep its principle assets off the books. Operating leases are generally not shown on the balance sheet because they are short-term in nature, the contract value is a minor fraction of the item's economic value, they can be readily cancelled, and so forth. There are some conditions where certain operating current lease expenses get shown on the balance sheet, but it's been a while, so don't ask me specifics!
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dfdubflyer
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Re: FT: Investors bet AA will file for BK

Sun Jun 14, 2020 11:40 pm

DfwRevolution wrote:
eightcone wrote:
I was looking over the 8-k AA just filed with the SEC https://americanairlines.gcs-web.com/node/38321/html and had a question. If anyone recommends a good place to read up on this and get smart I would appreciate it.

The $2.1B in planes and parts they can claim as assets and the $1B in property makes sense. What I don’t understand is how the gates, slots, and routes are assets? They are services, leases, and privileges correct? A service only holds value if prepaid and you or someone else needs it in the future. Leases and privileges don’t hold value either unless there is scarcity in supply and demand and another airline has cash to buy up that opportunity.

The things I’m imagining I’m missing is that airlines can hold some sort of royalty on a route? That they properly own the gate and jetbridge at an airport, not lease it?

Anyway, if someone knows a book or article on airline accounting I’d be interested to study it.

Thanks


Capital leases are shown on the balance sheet as assets because the terms of the contract are insignificantly different than a conventional purchase contract. Capital leases are long-term in nature, the lessor has a buy-out option at the end, etc. Showing these capital leases as assets is appropriate because it avoids a scenario where a firm could just lease *everything* to keep its principle assets off the books. Operating leases are generally not shown on the balance sheet because they are short-term in nature, the contract value is a minor fraction of the item's economic value, they can be readily cancelled, and so forth. There are some conditions where certain operating current lease expenses get shown on the balance sheet, but it's been a while, so don't ask me specifics!


As of last year with the adoption of ASC 842 operating leases are now shown on the balance sheet. The total operating lease liability on AAG’s balance sheet is $9.0b with a weighted average remaining lease term of 7.4 years.

Slots and route rights are fair valued based upon the future benefits you will attain from controlling that limited resource. For instance, DFW-STL would have no value attached to the route as anyone could start it, however DFW-PEK has limits on new entrants therefore (if it actually made money) you could fair value it and put it on the balance sheet.
 
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LAXintl
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Re: FT: Investors bet AA will file for BK

Tue Jun 16, 2020 6:07 pm

AA looking at a junk-bond offering to raise financing in cooperation Citigroup that would be backed by various collateral including facilities, gates, slots, and routes.

https://www.dallasnews.com/business/air ... financing/

Interesting to note that existing AA debt is trading between 71-81 cents to the dollar. Quite a discount.
From the desert to the sea, to all of Southern California
 
tphuang
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Re: FT: Investors bet AA will file for BK

Tue Jun 16, 2020 6:40 pm

So if they originally issued those bond at 4 to 5% yield, 80% par price would probably imply something crazy like 25% yield. Can't imagine AA go for something like that.
 
MIflyer12
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Re: FT: Investors bet AA will file for BK

Tue Jun 16, 2020 6:51 pm

dfdubflyer wrote:
Slots and route rights are fair valued based upon the future benefits you will attain from controlling that limited resource. For instance, DFW-STL would have no value attached to the route as anyone could start it, however DFW-PEK has limits on new entrants therefore (if it actually made money) you could fair value it and put it on the balance sheet.


And that's the problem. As carriers drop routes and terminate gate leases, those assets are no longer in scarce supply. Slot-use and route-use waivers just inhibit functioning of the markets.

UA couldn't (didn't want to) raise money at 11% secured by 350 aircraft. It will be interesting to see how much $ AA can raise with this collateral, for what duration, and at what cost. Keep an eye on the SEC filings.
 
MIflyer12
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Re: FT: Investors bet AA will file for BK

Tue Jun 16, 2020 6:53 pm

tphuang wrote:
So if they originally issued those bond at 4 to 5% yield, 80% par price would probably imply something crazy like 25% yield. Can't imagine AA go for something like that.


You can't calc yield without knowing time to maturity. LAXintl didn't reference that.
 
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LAXintl
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Re: FT: Investors bet AA will file for BK

Thu Jun 18, 2020 9:51 pm

This story figures without a boatload of free government cash AA going directly to BK court.

American Airlines May Be The First Airline Bankruptcy, But It Will Not Be The Last
https://seekingalpha.com/article/435435 ... ot-be-last

Also regarding bonds - the story says AAL junk bonds are yielding 31.756% and traded at 63 cents on the dollar currently.
From the desert to the sea, to all of Southern California
 
airhansa
Posts: 380
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Re: FT: Investors bet AA will file for BK

Thu Jun 18, 2020 10:35 pm

LAXintl wrote:
This story figures without a boatload of free government cash AA going directly to BK court.

American Airlines May Be The First Airline Bankruptcy, But It Will Not Be The Last
https://seekingalpha.com/article/435435 ... ot-be-last

Also regarding bonds - the story says AAL junk bonds are yielding 31.756% and traded at 63 cents on the dollar currently.


BK is often discussed on these forums as if there's no negative side effects to it, which I find strange. Surely there must be some negative side effects if an airline goes to BK just to restructure debts and reduce cost overloads?
 
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janders
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Re: FT: Investors bet AA will file for BK

Thu Jun 18, 2020 10:42 pm

Honestly, I don't see a good outcome for many airlines. Not only is the cash on hand going out the door fast, the new liquidity airlines are raising must also be paid back - outside a portion of the CARES Act money, its not free at all.
AA already had a massive debt load, now its only increasing while its overall financial condition weakens in this environment.
"We make war that we may live in peace." -- Aristotle
 
gen2stew
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Re: FT: Investors bet AA will file for BK

Thu Jun 18, 2020 11:01 pm

The only ones who fair well in bankruptcy are the attorneys.
I don't know why blessings wear disguises. If I were a blessing, I'd run around nude!
 
Detroit313
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Re: FT: Investors bet AA will file for BK

Thu Jun 18, 2020 11:11 pm

If AA files, UA and DL will file too. That's how it works and has always worked. UA and DL have a lot of debt too and it is rising very fast.
 
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lightsaber
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Re: FT: Investors bet AA will file for BK

Thu Jun 18, 2020 11:15 pm

airhansa wrote:
LAXintl wrote:
This story figures without a boatload of free government cash AA going directly to BK court.

American Airlines May Be The First Airline Bankruptcy, But It Will Not Be The Last
https://seekingalpha.com/article/435435 ... ot-be-last

Also regarding bonds - the story says AAL junk bonds are yielding 31.756% and traded at 63 cents on the dollar currently.


BK is often discussed on these forums as if there's no negative side effects to it, which I find strange. Surely there must be some negative side effects if an airline goes to BK just to restructure debts and reduce cost overloads?

The #1 negative is that the previous stock value is zero.

For American, there is too much debt. To create a healthier company, that means debt must be forgiven and new stock sold. After prior bankruptcies, it becomes trickier to sell stock. That means more debt forgiveness which is counter to the interests of all those junk bond holders.

The negatives are crew morale, the risk customers jump ship, but mostly worse new debt contracts, including aircraft leases. That means the airline is priced out of expansion.

One problem is greater payments into the overhaul fund for Aircraft and engines that are leased.

AA needs reduced lease payments and bankruptcy will provide that. The arbitrage on different traunches of aircraft debt will become brutal.

Lightsaber
Winter is coming.
 
Corpsnerd09
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Re: FT: Investors bet AA will file for BK

Thu Jun 18, 2020 11:25 pm

Detroit313 wrote:
If AA files, UA and DL will file too. That's how it works and has always worked. UA and DL have a lot of debt too and it is rising very fast.


Honestly, it would be dumber not to file... this is what happened to PMAA, didn't file when everyone else did and became largely burdened by all the extra costs that others no longer had to deal with.
 
ethernal
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Re: FT: Investors bet AA will file for BK

Thu Jun 18, 2020 11:29 pm

Corpsnerd09 wrote:
Detroit313 wrote:
If AA files, UA and DL will file too. That's how it works and has always worked. UA and DL have a lot of debt too and it is rising very fast.


Honestly, it would be dumber not to file... this is what happened to PMAA, didn't file when everyone else did and became largely burdened by all the extra costs that others no longer had to deal with.


I'm pretty sure the current owners of the company wouldn't appreciate their company declaring bankruptcy to make it easier for the next owners (...which would no longer be them).
 
MIflyer12
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Re: FT: Investors bet AA will file for BK

Fri Jun 19, 2020 12:19 am

Has anybody gone back to pricing of the credit default swaps today to see if Bloomberg's conclusion (the OP's source) still holds today, or if investors have substantially changed their bets?

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.

The statement is just a reflection of the statistics. I'm not saying that CDS' pricing has a powerful record as a predictor.
 
airbazar
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Re: FT: Investors bet AA will file for BK

Fri Jun 19, 2020 12:15 pm

FSDan wrote:
Midwestindy wrote:
UA is the least equipped of the US3 to tap into where demand is currently (Florida, Arizona, and the National Parks).


I agree regarding UA's relative weakness to Florida and Arizona vs AA and DL, but for National Parks destinations I would expect UA to be one of the better-positioned carriers with their strong service in the West. They serve the airports closest to the most popular National Parks like SEA, FCA, BZN, JAC, FAT, FLG, SGU, DEN, TYS/AVL, and BGR, but also serve some of the airports closest to less busy National Parks that other airlines don't serve: ACV, RDD, CNY, PUB, CMX, SHD, etc.

As someone who is a UA FF and CC holder, and is currently shopping for a family vacation to Montana/Wyoming next month, AA is by far the cheapest and most available carrier out there. Way cheaper than even Spirit for my flight to Kalispell/Glacier or Bozeman. UA is the most expensive and they don't even seem to have much capacity before August. The general feeling I get from shopping around for flights is that AA is the only carrier out there trying to stay in operation and doing everything they can to put butts in their seats. UA and DL seem to have pretty much given up on Summer which sucks because I could really use those UA free check bags that come with my CC :)
 
Miamiairport
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Re: FT: Investors bet AA will file for BK

Fri Jun 19, 2020 1:27 pm

As someone that's been around the Chapter 11 process it's very cumbersome. Essentially the Court and Creditors' Committees can overrule management decisions. It's massively time consuming for management and the lawyers get rich. It's very destructive to employee relations. Still, sometimes it's the only way to survive. If AA can cut losses it might get creditors to agree to an out of court restructuring of debt.
 
VS11
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Re: FT: Investors bet AA will file for BK

Fri Jun 19, 2020 2:01 pm

It is worth remembering the steps the Fed Reserve is taking, which is to buy corporate debt. Even European companies are coming to the US to raise funds because of loans many call "free". There is a famous saying "Don't fight the Fed". Yes, all airlines have huge costs and very little revenue right now but that's why these funding programs are in place.

"Earlier this week, the Fed spelled out in greater detail how it will execute a $250 billion program to buy outstanding bonds of companies that had investment-grade ratings as of mid-March and began purchases in the secondary market. It is also introducing a separate $500 billion program for newly issued debt."

Foreign Businesses Hit Bonanza in U.S. Credit Markets
https://www.wsj.com/articles/foreign-bu ... 1592567782
 
dfw88
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Re: FT: Investors bet AA will file for BK

Fri Jun 19, 2020 2:04 pm

With the caveat that this article is a month old, here's a counter perspective from someone who thinks (or at least thought) that AA is unlikely to file for bankruptcy:

https://www.forbes.com/sites/tedreed/2020/05/24/why-chatter-about-an-american-airlines-bankruptcy-is-nonsense/#197e54b85b7e

As someone who's not a finance expert I'm not certain about any of this, but it sure seems like AA is betting the farm on demand returning more quickly than expected. Their schedule is bigger in a clear play for market share. If people really do want to travel, domestically at least, in July then AA stands to profit and could pull out of this in good shape. If those planes all leave empty then it won't work as well.

I do also have to wonder about all of the reporting on this, from both sides. A lot of journalists are paid to write articles and articles with a lot of wishy-washy "maybe, maybe not" rhetoric probably don't get read. A lot of the definite statements may be coming from gross interpolations of data in an attempt to get readers as opposed to sound financial analyses. One of the downsides of the 24-hour news cycle. Or maybe not. I'll happily admit that I don't know the answer here. :D
 
UpNAWAy
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Re: FT: Investors bet AA will file for BK

Fri Jun 19, 2020 2:39 pm

I think that article is closer to reality than any of the imminent BK ones. What does AA and AA Execs have to gain by BK? Nothing really. The debt is almost exclusively new aircraft and the lenders will gladly extend and rewrite leases to get through this. The issue is does this last months or years? if its measured in years then every single airline worldwide will file BK.
 
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DL717
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Re: FT: Investors bet AA will file for BK

Fri Jun 19, 2020 10:21 pm

If they collapse, it will probably go like this for the hubs:

DFW - DL returns
MIA - B6 and maybe UA jumps in to gain a foothold in an area of the country they are lacking.
ORD - all United all day. Bad for fares, good for health of market.
PHX - Gone
CLT - Gone
LAX - Spread around to everyone. Will get absorbed overnight. AS will probably jump in with both feet running.
JFK - DL and B6, then again United see this as an opportunity to dump EWR rather than play second fiddle in NY at a dump airport
LGA - spread the slot love.
DCA - More United presence. WN, B6 and DL suck up the rest.

One world? Holy hell. Talk about a free for all. Would be an interesting shape up with DL no doubt doing their best to grab the links with BA, QF with the Virgin mess. Them and JL given UA has NH. UA would no doubt go after CX could be a dogfight. Iberia too. Both will pounce all over the Middle East carriers poaching whoever they can. All the doors with these carriers will be wide open trying to find a new partner. Probably see the likes of B6 and even AS epget into the mix.
Funny. It only took one pandemic for those who argue endlessly about natural selection to stop believing in natural selection.
 
NWADTWE16
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Re: FT: Investors bet AA will file for BK

Sat Jun 20, 2020 2:13 am

The Fed buying JUNK Bonds and printing what 10x the amount of Trillions it every has, should seriously concern everyone. Actually, the fact that we rely on a private Central banking system worldwide should concern everyone, but it doesnt. People dont like reality, if its bad news, so onward we trudge, to income inequalities unimaginable and a dollar circling the bowl. The insiders (major banks, elite and their "friends") know when to hop out, and didnt Icaan just sell ALL of his Hertz position? Follow the signs not the guy in front of you. AA is an LCC in disguise and they have been since the merger. Things dont look good for them, and they are playing the riskiest hand out of the gate here. That said, as long as the system hasnt collapsed the FED and their large bank partners will float AA whatever they need. That is, afterall why the FED is printing a Trillion a week.
I haven't been everywhere, but it's on my list!
 
flyby519
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Re: FT: Investors bet AA will file for BK

Sat Jun 20, 2020 2:19 am

DL717 wrote:
If they collapse, it will probably go like this for the hubs:

DFW - DL returns
MIA - B6 and maybe UA jumps in to gain a foothold in an area of the country they are lacking.
ORD - all United all day. Bad for fares, good for health of market.
PHX - Gone
CLT - Gone
LAX - Spread around to everyone. Will get absorbed overnight. AS will probably jump in with both feet running.
JFK - DL and B6, then again United see this as an opportunity to dump EWR rather than play second fiddle in NY at a dump airport
LGA - spread the slot love.
DCA - More United presence. WN, B6 and DL suck up the rest.

One world? Holy hell. Talk about a free for all. Would be an interesting shape up with DL no doubt doing their best to grab the links with BA, QF with the Virgin mess. Them and JL given UA has NH. UA would no doubt go after CX could be a dogfight. Iberia too. Both will pounce all over the Middle East carriers poaching whoever they can. All the doors with these carriers will be wide open trying to find a new partner. Probably see the likes of B6 and even AS epget into the mix.


There's no way AA goes Ch 7, thats just crazy. Chapter 11? Sure, re-structure and be lean/mean forcing UA/DL to do the same.
 
dfwking
Posts: 65
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Re: FT: Investors bet AA will file for BK

Sat Jun 20, 2020 10:12 am

dfw88 wrote:
With the caveat that this article is a month old, here's a counter perspective from someone who thinks (or at least thought) that AA is unlikely to file for bankruptcy:

https://www.forbes.com/sites/tedreed/2020/05/24/why-chatter-about-an-american-airlines-bankruptcy-is-nonsense/#197e54b85b7e

As someone who's not a finance expert I'm not certain about any of this, but it sure seems like AA is betting the farm on demand returning more quickly than expected. Their schedule is bigger in a clear play for market share. If people really do want to travel, domestically at least, in July then AA stands to profit and could pull out of this in good shape. If those planes all leave empty then it won't work as well.

I do also have to wonder about all of the reporting on this, from both sides. A lot of journalists are paid to write articles and articles with a lot of wishy-washy "maybe, maybe not" rhetoric probably don't get read. A lot of the definite statements may be coming from gross interpolations of data in an attempt to get readers as opposed to sound financial analyses. One of the downsides of the 24-hour news cycle. Or maybe not. I'll happily admit that I don't know the answer here. :D



Whether AA files for bankruptcy or not, depends on if it can get to zero / breakeven cash flow before it runs out of cash. Here, "runs out of cash," means it has enough cash to fund operations during chapter 11 bankruptcy proceedings. So, "runs out of cash" is about ~$1 - $2 Bn in remaining liquidity.

In its most recent SEC filing on June 12th, 2020, AA have said "The Company seeks to reduce its cash burn rate to approximately zero by the end of 2020:"
https://americanairlines.gcs-web.com/static-files/10598693-10e7-455b-9310-0072dd86c913

If the recent improvements in passenger numbers continue, it is realistic to get to zero cash flow by year end.

But, if there is a resurgence in the coronavirus, people could re-trench and avoid flying. In this scenario, it would take longer for airlines to get to break even and we could very well see AA "run out of cash." The recent spikes in the Arizona, Texas, Florida, and the Carolinas do not bode well... All else equal, the resurgence trend points toward AA filing for chapter 11 bankruptcy protection.

In this scenario, AA, being the airline with the weakest balance sheet, could be the first one to run out of cash, but it likely won't be the only one.
 
Detroit313
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Re: FT: Investors bet AA will file for BK

Sat Jun 20, 2020 2:17 pm

The delusion on this forum that somehow AA will file for bankruptcy and give DFW and CLT to Delta and United while DL and UA won't file and be in a position to take over AA's massive hubs makes me laugh. What are you all smoking? Give us some.
 
MIflyer12
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Re: FT: Investors bet AA will file for BK

Sat Jun 20, 2020 2:44 pm

dfwking wrote:
Whether AA files for bankruptcy or not, depends on if it can get to zero / breakeven cash flow before it runs out of cash. Here, "runs out of cash," means it has enough cash to fund operations during chapter 11 bankruptcy proceedings. So, "runs out of cash" is about ~$1 - $2 Bn in remaining liquidity.


No, it's probably quite a bit more than that to remain in compliance with loan covenants on its (now many) borrowings. I'm not going deep into AA's (again, now many) 8-K filings for its borrowings of the last five years but, IIRC, UA stated recently they had a minimum of $3+ Billion. AA, being the riskier borrower (lower credit ratings reflecting more debt, lower unencumbered asset value, and higher rate of cash burn) probably is obligated to keep more.

But, yes, they'll need enough liquidity to operate through Chapter 11 (could be 2+ years) because getting DIP financing would be tough once they've already pledged aircraft, gates, routes, intellectual property and AAdvantage to their limits.

Nobody should be thinking 'Hey, they've got $10 Billion in unencumbered assets. That means they still have $10 Billion in borrowing capacity.' Southwest - still investment grade! - this week announced that they ended $1.8 Billion in borrowing that had tied up $4.5 Billion in aircraft assets. (And 737NGs are still pretty good collateral. Lots of operators worldwide.)

http://otp.investis.com/clients/us/sout ... F&hasPdf=1
 
MIflyer12
Posts: 8239
Joined: Mon Feb 18, 2013 11:58 pm

Re: FT: Investors bet AA will file for BK

Sat Jun 20, 2020 3:01 pm

Detroit313 wrote:
The delusion on this forum that somehow AA will file for bankruptcy and give DFW and CLT to Delta and United while DL and UA won't file and be in a position to take over AA's massive hubs makes me laugh. What are you all smoking? Give us some.


I think DL717's hub assessment is pretty fanciful. Among other reasons there's no reason substantially to duplicate the American (nation, not airline) hub structure, especially in a demand-dimmed environment. (UA leaving EWR? Right after DL abandons Atlanta! Hah hah hah.)

I don't think a Chapter 11 filing by AA is impossible. (AA has said it thinks it can get to zero cash burn by the end of the year but hasn't outlined the market environment necessary to achieve that. If, for example, they need December passenger demand across domestic and international to be 90+% of December '19 demand, avg fares to be 100% of December '19 levels, and their planes to be 80% full, well, that seems very unlikely.) Here's the vague statement that lit the stock on fire. Note the use of the word 'seeks.'

The Company seeks to reduce its cash burn rate to approximately zero by the end of
2020 as expected demand conditions continue to improve and its cost initiatives continue to gain traction. The Company defines cash burn
as the sum of all net cash receipts less all cash disbursements but excluding the effect of new financings and new aircraft purchases.


I don't think a Chapter 7 liquidation is likely but I wouldn't put all my money betting against it, either.
 
Miamiairport
Posts: 693
Joined: Tue Apr 10, 2018 8:14 pm

Re: FT: Investors bet AA will file for BK

Sat Jun 20, 2020 3:07 pm

I think the bigger wildcard for the industry is unemployment not the virus. In some states an unemployed person with the $600 federal kicker in addition to the state unemployment benefits is making more than $1K a week. Give that to a $15 an hour worker and suddenly there's a big raise. I will guarantee 90% of those people are spending every single penny not saving it for what could be a very difficult future. Once all this federal government aid goes away, and if unemployment stays in the double digits with businesses failing or contracting let's see how many leisure flyers are getting on an airplane.

My sense is that if AA entered Chapter 11 the assets broken up and could be sold to other airlines with federal assistance in funding of the asset purchases. A certain level of jobs and a/c would be kept.
 
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Midwestindy
Posts: 5351
Joined: Sun Mar 12, 2017 3:56 am

Re: FT: Investors bet AA will file for BK

Sat Jun 20, 2020 4:39 pm

MIflyer12 wrote:
dfwking wrote:
Whether AA files for bankruptcy or not, depends on if it can get to zero / breakeven cash flow before it runs out of cash. Here, "runs out of cash," means it has enough cash to fund operations during chapter 11 bankruptcy proceedings. So, "runs out of cash" is about ~$1 - $2 Bn in remaining liquidity.


No, it's probably quite a bit more than that to remain in compliance with loan covenants on its (now many) borrowings. I'm not going deep into AA's (again, now many) 8-K filings for its borrowings of the last five years but, IIRC, UA stated recently they had a minimum of $3+ Billion. AA, being the riskier borrower (lower credit ratings reflecting more debt, lower unencumbered asset value, and higher rate of cash burn) probably is obligated to keep more.

But, yes, they'll need enough liquidity to operate through Chapter 11 (could be 2+ years) because getting DIP financing would be tough once they've already pledged aircraft, gates, routes, intellectual property and AAdvantage to their limits.

Nobody should be thinking 'Hey, they've got $10 Billion in unencumbered assets. That means they still have $10 Billion in borrowing capacity.' Southwest - still investment grade! - this week announced that they ended $1.8 Billion in borrowing that had tied up $4.5 Billion in aircraft assets. (And 737NGs are still pretty good collateral. Lots of operators worldwide.)

http://otp.investis.com/clients/us/sout ... F&hasPdf=1


"We don't have any covenants on this airlines debt until that liquidity number is down to $2 billion"
https://seekingalpha.com/article/433092 ... conference

With regards to debt, its next major majority is $750M due in 2022
https://www.barrons.com/articles/airlin ... 1584145003
Status for 2019/2020: AAdvantage Platinum, Delta Gold, Southwest A-List
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