Interesting. He estimated $7B a few months ago, but hey what’s an additional billion.
The key point is that the bottom falls out way before $0. When you see statements like 'AA has 14 months of cash left at current burn rates,' the implication is one can go to zero. And they can't.
However, given their enormous debt, BK will only be able to take care of that to a certain extent.
Why are they limited as to how much debt they will shed? IMHO more interesting in restructuring is the assets they will want to keep and how they argue these will produce sustainable shareholder returns.
The BK process doesn’t wipe out all debt, however, it does allow for the airline to work with creditors to restructure its obligations (ie. recast timing of payments, revisit rates, make debt holders equity holders in the new offering, etc).
Regardless of how it is ultimately restructured, AA only has $3.3B of unencumbered assets remaining, and more than 10X the amount of debt. I can’t help but think they may have to sell something to make it work. The challenge is that the environment is so bad right now that I don’t think there will be anyone willing to pick up the assets, and if so, it would be at a steep discount. As a result, they may have to hide under BK protection for a few years until the environment is better to sell assets.
We already know what they plan on keeping, so if you use that as an indication, you should be able to see what is at risk of sale.