US Airways Sees ‘One Big Deal’ Left for U.S. Airline Mergers

[700UW]

And yet AA showed a loss for 2010 and US showed a profit, I would say US is in better financial shape than AA.

 

[bigbusboy]

And yet AA showed a loss for 2010 and US showed a profit, I would say US is in better financial shape than AA.

Yes, you are right based on 2010 profitablity and projections for 2011. However, based on in-depth financial statement analysis, it's a toss up. AA certainly has a better revenue picture than US, but AA also has huge capital expenditure issues short term coupled with labor costs that are unsustainable. These two issues are the reasons AA needs to go into bankruptcy; make room on the liability side of the balance sheet for new debt financing and also bring down labor costs on the income statement. AA's financial strengths are keeping it out of bankruptcy for now, but for how much longer is the question. I wish the overtones of several posts (not yours 700) would stop insinuating the demise of AA in bankruptcy. It ain't gonna happen. Reorganize yes and they need to do it quickly, but the demise of AA no.

 

[roabilly]

Just out of curiosity...

I saw several previous post regarding the possibility of Virgin America not being a viable player due to the premise that it is a foreign owned carrier. If my memory serves me correctly, it was certified as a US Carrier and is actually owned in majority by Black Canyon Capital LLC, which owns 75% of the capital stock and is responsible for appointing two-thirds of the voting members of the board of directors.

Maybe I'm wrong... but I see no reason why they won't be a player in any future mergers and acquisition's.

Never count Branson out of anything... British airways learned that the hard way!

 

[700UW]

That post said VS which is Virgin Atlantic, VX would be Virgin America.

Branson Is Seeking a Virgin Atlantic Partner?

LINK

 

[FWAAA]

Just out of curiosity...

I saw several previous post regarding the possibility of Virgin America not being a viable player due to the premise that it is a foreign owned carrier. If my memory serves me correctly, it was certified as a US Carrier and is actually owned in majority by Black Canyon Capital LLC, which owns 75% of the capital stock and is responsible for appointing two-thirds of the voting members of the board of directors.

There are posts above in this thread talking about Virgin Atlantic being merger partner - and VS is certainly a foreign carrier.

Virgin America is a domestic carrier but it isn't in any shape to acquire AA or US.

 

[BoeingBoy]

Virgin Atlantic (VS) just reached a deal with B6 to exchange passengers in JFK, IAD and MCO.

Jim

 

[roabilly]

There are posts above in this thread talking about Virgin Atlantic being merger partner - and VS is certainly a foreign carrier.

Virgin America is a domestic carrier but it isn't in any shape to acquire AA or US.

Mergers do not require anyone to acquire anyone... they simply mean that both parties are in agreement on a consolidation model.

 

[700UW]

Actually for SEC and accounting purposes it does, there is always a new company or a surviving company, as in the HP/US merger a new company Barbell Acquisitions, was set up for the merger, see the word acquisition in it?

And in the SEC documents AWA Holdings aquired US Airways and changed their name to US Airways Group once again.

 

[roabilly]

Actually for SEC and accounting purposes it does, there is always a new company or a surviving company, as in the HP/US merger a new company Barbell Acquisitions, was set up for the merger, see the word acquisition in it?

And in the SEC documents AWA Holdings aquired US Airways and changed their name to US Airways Group once again.

I'm speaking more in terms having a total purchase with actual liquidity... remember the KKR acquisition of RJR?

 

[PullUp]

Virgin Atlantic (VS) just reached a deal with B6 to exchange passengers in JFK, IAD and MCO.

Jim

Sounds like a setup for a Virgin America/Jet Blue marriage with a convenient built-in code share with an international called Virgin Atlantic.

 

[700UW]

I'm speaking more in terms having a total purchase with actual liquidity... remember the KKR acquisition of RJR?

They used Junk Bonds which had to be paid sooner or later to investors. And then KKR/RJR had to shed tons of assets to pay down the $31.1 billion in debt because of the LBO and assumed debt. Then they did an IPO which reduced their position in owning RJR.

 

[WorldTraveler]

I don't know which airline is "closer" to Ch 11 right now, but if oil stays at $112/bbl long-term (or moves higher), all remaining legacy airlines are at risk.

That said, AA ended the first quarter with over $6.2 billion of cash and short-term investments, of which nearly $5.8 billion was unrestricted, or equal to about 26% of its total expected revenues for 2011. I haven't checked the Q1 projected cash numbers for US, but I doubt it had 26% of this year's revenues in cash at 3/31/11. As of 12/31/10, US had $1.86 billion of unrestricted cash which represented about 16% of its 2010 total revenues. An airline holding 26% of a year's revenue in cash is in substantially better shape and probably better able to weather high fuel prices or slack demand than one holding just 16%. AA also enjoys the higher revenue potential of NYC, CHI, DFW, MIA and LAX compared to US at PHL, CLT and PHX. AA is also just starting to realize the benefits of its immunized joint ventures with its transatlantic partners and with JAL across the Pacific - while the partners of US haven't even invited US to those parties. But like I said, AA and all other airlines look to be in big trouble, especially if fuel goes higher.

AA has the benefit of fuel hedges which will soften the blow of high jet fuel prices this year; Parker proudly proclaimed in January that US was going to gamble on steady or lower fuel prices this year - and since he made that announcement, jet fuel prices have spiked. I posted in January that Parker was foolish for flying naked without any fuel hedges in place - we'll see in a few weeks just how much money Parker's "no fuel hedges" policy has cost US in the first three months of this year.

Yes, US made a decent profit in 2010 while AA continued its losing ways. Dunno whether US will be profitable this year.

It doesn't really how much cash you have on hand if it is all borrowed. sure, cash is king in a downturn but if you are near the limits of what you can borrow and if you can't pay the bills you have w/ the cash on hand, then you cannot continue to operated.
AMR does have one of the highest ratios of cash to revenues in the industry - but they are using that as an extra measure of insurance against their inability to bring costs down relative to their peers and the higher likelihood they will incur losses at an even greater rate than the rest of the industry in a downturn. Given AA's rate of losses (as well as the actual amounts) are larger than the rest of the industry, there is no reason to think that AA will become any more profitable in a downturn.
Given that demand will have to be removed from the US aviation system or the weakest players will be hurt first, AA is most susceptible. Removing capacity drives up fares; keeping capacity in runs up AA's losses because the excess capacity is not needed and cannot be properly priced.
Either way, AA is in worst shape than other carriers.

Just out of curiosity...

I saw several previous post regarding the possibility of Virgin America not being a viable player due to the premise that it is a foreign owned carrier. If my memory serves me correctly, it was certified as a US Carrier and is actually owned in majority by Black Canyon Capital LLC, which owns 75% of the capital stock and is responsible for appointing two-thirds of the voting members of the board of directors.

Maybe I'm wrong... but I see no reason why they won't be a player in any future mergers and acquisition's.

Never count Branson out of anything... British airways learned that the hard way!

It is possible... but Virgin America is not likely to acquire anyone... they have a unique business model... plus you have to ask why they would want to acquire someone when they can grow internally with fewer problems and lower costs. VX's costs are lower than other carriers so acquiring someone gains them nothing other than if they acquire a carrier that has significant slot holdings or airport access that VX couldn't otherwise obtain.
Branson could acquire AA based on its core business and slot holdings but It is doubtful there would be any attempts to merge VX and AA. And in order to acquire AA, Branson could still hold only 25%... the rest would have to come from Americans.
The conversation regarding DL and AF potentially acquiring VS referred to Virgin Atlantic.... although there are ownership limits in the UK which would limit DL, those do not apply to AF/KL.

They used Junk Bonds which had to be paid sooner or later to investors. And then KKR/RJR had to shed tons of assets to pay down the $31.1 billion in debt because of the LBO and assumed debt. Then they did an IPO which reduced their position in owning RJR.

RJR was a leveraged buyout... the same thing that happened to NWA back in the 90s.... neither were really the result of two companies merging to create a new company - or one being acquired by the other.
And from an accounting and SEC standpoint, there is not such a thing as a merger. One is acquired, the other is the acquirer.
Delta acquired NWA. CO and UA created a new holding company but I am quite certain that before too many moons the name Continental will be removed and it will United Airlines again.

 

[FWAAA]

And yet AA showed a loss for 2010 and US showed a profit, I would say US is in better financial shape than AA.

Well, it's not easy to counter such a persuasive argument as yours. Last year's results are certainly the most reliable indicator of a company's current financial position. Much more reliable than present cash balances or the company's financial prospects for this year.

 

[700UW]

And how much Debt does AA have and has to pay to service that debt?

 

[nycbusdriver]

On a local level, US seems to be downsizing. AA seems to be holding their own.

They may be downsizing in any given city, but overall they have minimum fleet numbers/ minimum hours required by both pilot contracts. Parker and Kirby continually say they are bumping up against those minimums which means there is little room to downsize system wide.

Sorry about your city. Somebody else is enjoying the added flights, though.