AA BK Decision Tues. 20th Sept.?

[commavia]

The Star Telegram Article states AMR has $30 billion in Debt and Long Term Obligations.
Read it again.

I was not responding to the article, but rather your statement, which was that AMR's debt today stood at $30 billion. Respectfully, that is wrong.

AMR's total liabilities as of 2Q11 stood at $29.9 billion, but despite the proclivity of some to use the two terms interchangeably, liabilities are most definitely not the same thing as debt.

AMR‟s Total Debt, which it defines as the aggregate of its long-term debt, capital lease obligations, the principal amount of airport facility tax-exempt bonds, and the present value of aircraft operating lease obligations, was $17.1 billion at the end of the second quarter 2011, compared to $16.1 billion a year earlier.

 

[Frank Szabo]

The Star Telegram Article states AMR has $30 billion in Debt and Long Term Obligations.
Read it again.

Say it often enough and the bullshit becomes fact.

I question anything from the Startlegram as it seems the articles re: AA are bought and paid for.

 

[eolesen]

The amount of the debt isn't the issue, Dave. It's how much of it is coming due, and how much free cash the company has to make the payments. Having $10B in debt with $2B due in 2012 is no better or worse than $40B with only $2B due.

Most of that $8m or so in pensions is future obligations, not impending payments. Since that number WILL shrink when the stock markets improve, it isn't worth panicking over just yet, and since it is a moving target, it doesn't get treated the same as the $17B.

When AA flirted with Ch11 in 2003, it was because of available cash nearing a "safety-stop" in the lending agreements.

I don't know what the various loan covenants call for today, but it will no doubt be higher than the $1B it was in 2003, since just about every refinancing of debt coming due has come at a time when banks have had just cause to be more risk averse than they were prior to ten years ago.

Frank, I think you're barking at the wrong shadow. Startlegram and DMN hate AA. That comes from people who write and have written for them. CorpComm past and present have done no favors in that regard...

 

[TWU informer]

Just file it already and dispense with the drama.

 

[Bob Owens]

AMR's total debt at present is around $17 billion, not $30 billion.

Give it a few weeks and the International will be running around saying its $30 billion just like in 2003 when Bobby Gless was running around saying it was $22 billion.

Once again it depends on how you define debt.

When I bought my home I borrowed $100k, however my Total liability when calculating how much I had to pay the banks back over the term of the loan was $266,000. In reality at anytime I could pay the loan off and clear my debt for far less than $266,000.

If I recall correctly one of the covenants back in 2003 was for a loan of $800 million the company had to have $1billion in cash or the loan was considered to be in default and that could trigger a BK. Well if you had $999 million you could clear the loan and still have $199 million left over.

Lets go back to my $266,000 debt, that was around 5 times my annual gross earnings at the time, AA will bring in around $24 billion this year, so even if it was $30 billion thats still only one fifth the debt vs annual earnings of what a typical homeowner carries. Its not what you owe its what you have to pay, when and ability to pay that amount that matters.

So lets say that we are told the company has $2billion in debt due in 2012, and they have $4billion in cash, what does that mean? Nothing, what are their revenues and will the revenues after covering direct operating expenses cover the debt thats due? If so then there is no problem. $2 billion is less than 10% of what the company will bring in over the year if they bring in what they likely will this year.If not then they may have to dip into the cash. What percentage of your annual income is directed towards servicing your debt? Probably a lot more than 10%. Back when I got my mortgage it was over 15% of my annual revenues (not including taxes and insurance -a covenant to the mortagage) and I was approved for much more.

Lets also not forget that there were members of our union running around a while ago claiming that there was a $1billion pension payment coming due that January, it turned out to be $500 million and it was only that high because the company didnt contribute anything the year prior.

When some of these guys run around talking about the debt they include everything, all the debt and liabilities. Just signed a 30 year lease for $10 million a year? Well you just added $300 million in liabilities. Is that bad? maybe, if five years down the road you could lease the place for $5 million a year if you were not stuck in that contract, but normally lease rates go up over time so generally long term leases are at favorable rates, even if it inflates the Total Debt (inclusive of liabilities). So these numbers, no matter what they add and how big they get mean nothing by themselves, what matters is what is due when. $30 Billion in liabilities spread out over a period of 30 years is nothing to get excited about when you consider that even if AAs revenues were flat over the next 30 years they still could expect $720 Billion in revenues over that time span.

 

[commavia]

So lets say that we are told the company has $2billion in debt due in 2012, and they have $4billion in cash, what does that mean? Nothing, what are their revenues and will the revenues after covering direct operating expenses cover the debt thats due

Well, actually, the "revenues" also mean "nothing" in your hypothetical scenario. Debt, liquidity and solvency are ultimately based on cash flow, not revenue, which is a 'paper' accounting number.

When some of these guys run around talking about the debt they include everything, all the debt and liabilities.

And, again, just to be clear: I never used the $30 billion number.

So these numbers, no matter what they add and how big they get mean nothing by themselves, what matters is what is due when. $30 Billion in liabilities spread out over a period of 30 years is nothing to get excited about when you consider that even if AAs revenues were flat over the next 30 years they still could expect $720 Billion in revenues over that time span.

Absolutely - I couldn't agree more. Not to mention that, as others have already noted, a large portion of AMR's future liabilities - particularly the current liabilities (those "maturing," or coming due, in the next 12 months) - are "doing-business" sorts of liabilities. A classic case in point typical of airline companies: roughly 1/3 of AMR's total liabilities maturing in the next year is "Air Traffic Liability" - the accrued value of revenue already booked, but not yet fulled earned, from tickets booked but not yet flown, or AAdvantage miles unclaimed. In other words: if AA just keeps existing and flying, that liability will naturally cycle through the books. So yes, that $30 billion number sounds more dramatic that it is in reality.

But, that being said, that total liability does still reflect some important numbers: AMR's pension liability is at $8 billion but, yes, thankfully for AMR and its pensioners a large portion of that liability is not necessarily due in the very near-term, and even more thankfully, that liability is sure to change once the stock market eventually improves. That liability number also reflects another $8 billion in long-term debt, but thankfully AMR has worked hard to reduce that in the last decade. And, it also does reflect hundreds of millions in capital leases - a number that is sure to rise, but I'm not sure how much (it will depend on how the new aircraft leases are structured as to whether they will be capital or operating leases).

 

[Hopeful]

Then, what the hell is AA waiting for to file Chapter 11?
Hasn't everyone here grown tired of debating it?
AA should file and stop negotiating and complaing about labor costs!

 

[jimntx]

AMR's total debt at present is around $17 billion, not $30 billion.

From the linked article...

"But it's also facing some large debt payments. AMR said that as of June 30, it had $1.3 billion in debt payments due by the end of 2011 and $1.8 billion due by the end of 2012. The total debt at the end of the second quarter was $11.8 billion. And when $7.9 billion in underfunded pension benefits and $2.5 billion in other long term liabilities are added, the company has over $30 billion in debt and other long-term obligations."

 

[Frank Szabo]

... snip

Frank, I think you're barking at the wrong shadow. Startlegram and DMN hate AA. That comes from people who write and have written for them. CorpComm past and present have done no favors in that regard...

I'd gotten a completely different feel than that from Sky Talk. Andrea seems, many times, to have ignored news not in AA's favor and there some butthole that loves to correct her on there.

I don't remember the other fellow's name that Andrea replaced on the blog but he definitely didn't care for AA, AMR, etc. and et al.

 

[commavia]

From the linked article...

"But it's also facing some large debt payments. AMR said that as of June 30, it had $1.3 billion in debt payments due by the end of 2011 and $1.8 billion due by the end of 2012. The total debt at the end of the second quarter was $11.8 billion. And when $7.9 billion in underfunded pension benefits and $2.5 billion in other long term liabilities are added, the company has over $30 billion in debt and other long-term obligations."

Right, and from higher up on this thread:

Now debt is reported to be $30 Billion.

For the second time, I was not referring to the article - which was (relatively) correct - but rather the statement made in the thread, which was incorrect.

Although even the article was not entirely accurate - of AMR's current total liabilities (again, not the same thing as debt) of $29.9 billion, over $12 billion of that is current (i.e., maturing in the next year), not "long-term" as the article states/implies.

 

[WorldTraveler]

AA/AMR COULD WELL hobble along for another year before breaking the logjam and restructuring the company but it doesn't change the fact that dramatic change must come and the longer it takes to come, the deeper the hole the company must climb out of - and invariably that means the higher price airline employees have to pay and the longer they have to wait to begin to accrue the benefits of the restructuring.
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Given that relatively little of AMR's debt will mature in the next 5-7 years but AMR is set to take on well over $25 billion of new debt even at discounted rates with its fleet restructurning, Wall Street is justifiably concerned about having a company that has debt levels that will be 3 times larger than its peers at DAL and UAL for an airline that is smaller - and for right now is not generating revenues commensurate with its network.
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Compound that with the fact that AA has some unique competitive challenges facing it and the outlook becomes even more cloudy... completion of the DL/US slot swap will disadvantage AA more than any other airline, ending of the Wright Amendment will provide WN with growth opportunities at the expense of AA (despite how big the DFW metroplex is, adding a new hub domestic carrier is going to impact AA), and completion of Open Skies in Brazil, the largest market in the only global region where AA is current #1 - and the competitive challenges facing AA in the next few years are far greater than they are for any other carrier.
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Anyone who intends to be at AA for five or more years better hope the restructuring happens sooner than later... a longer wait to get started means a bigger share of the "pie" that has to be shared with employees and a longer wait for restructuring to bear "fruit" for the employees.
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Given that the focus of AMR's current common stockholders is minimizing pain now (forestalling the BK process which will wipe out their interests) , the burden becomes on mgmt to decide what is more valuable longer term.

 

[Hopeful]

AA/AMR COULD WELL hobble along for another year before breaking the logjam and restructuring the company but it doesn't change the fact that dramatic change must come and the longer it takes to come, the deeper the hole the company must climb out of - and invariably that means the higher price airline employees have to pay and the longer they have to wait to begin to accrue the benefits of the restructuring.

I must say I agree! Then AA should file NOW and not wait until 2012 because, as you say, they will be in a deeper hole.
FILE ALREADY AND BE DONE WITH IT!

They can force feed us new working conditions and compensation, but they will never dig themsleves out of the morale hole!

 

[Flying low]

Then, what the hell is AA waiting for to file Chapter 11?
Hasn't everyone here grown tired of debating it?
AA should file and stop negotiating and complaing about labor costs!

Evidently not. If everyone has grown tired of it, then this thread would be dead.

 

[jimntx]

Right, and from higher up on this thread:



For the second time, I was not referring to the article - which was (relatively) correct - but rather the statement made in the thread, which was incorrect.

Although even the article was not entirely accurate - of AMR's current total liabilities (again, not the same thing as debt) of $29.9 billion, over $12 billion of that is current (i.e., maturing in the next year), not "long-term" as the article states/implies.

And, fortunately for the company and the company cheerleaders, underfunded pension liabilities are not "real" debt. No future commitment to employees is counted as actual debt under generally accepted accounting principles--it's a liability. And, one can always dump those commitments (excuse me, liabilities) on the government or just walk away from them in BK court. I bet if they can walk away without even having to give the current funds to the PBGC, the execs will get an additional bonus for "saving the company money."

If you are an employee, your pension is a commitment from the company. If you are the company, it's just an annoying (and minor) liability. See the difference, boys and girls?

 

[WorldTraveler]

It is not much easier to get rid of pension liabilities than it is is to get rid of debt. Outside of BK, pension obligations are practically speaking as "solid" as leases - whether it be aircraft or facility related. The vast majority of AMR's debt falls in one of these three categories - or those assets (specifically aircraft) provide security to other debt (such as operational losses) which have been accrued.
AMR could reject most of the leases in BK as easy as it could get rid of pension obligations.
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Whatever debt AMR chooses to keep will be what it believes it needs to maintain to run the business going forward.