AA Borrowing To Meet Payroll

Hopeful

Veteran
Dec 21, 2002
5,998
347
CEO: Airline borrowing money to make payroll
Associated Press


DALLAS - American Airlines Inc., which is borrowing money to make payroll, needs to cut additional costs and is turning to labor unions, the carrier's chief executive says.

With American losing several million dollars a day, CEO Donald Carty says managers need faster cooperation from unions representing airline employees to get out of the cash crunch.

The world's largest carrier, which says it has already cut $2 billion a year in structural costs, wants to extract another $2 billion in labor-related savings to reach its $4 billion annual goal.

Fort Worth-based American last August announced 7,000 layoffs and the mothballing of jets. In December, the airline announced it limit flight attendant layoffs to 400 by allowing almost 500 workers to take unpaid leave and letting others share jobs in an agreement reached with a union.

The airline's Securities and Exchange Commission filings show it has $2.8 billion in cash and liquid assets. Analysts say parent AMR Corp. is in no immediate danger of bankruptcy. Carty has said American doesn't plan to go down the road of United, the world's second-biggest airline, which has filed for Chapter 11 bankruptcy protection.

Instead, American wants to make work rules more favorable for managers and rewrite language in labor contracts. Consultants say pilot cooperation remains essential for any restructuring to succeed.

"Never ask for a small giveback," industry consultant and academic Darryl Jenkins of the Aviation Institute at George Washington University told The Dallas Morning News in Tuesday's editions. "It's so difficult that if you're going to do it, you might as well ask for a lot."

The Allied Pilots Association, the most powerful of the three major labor groups, has been in on-and-off contract talks with American since last year. But two members of the union's negotiating committee unexpectedly resigned last week.

The APA board of directors meets Tuesday to elect replacements to the negotiating committee.
 

WingNaPrayer

Veteran
Aug 20, 2002
1,742
0
EYW
Visit site
Why is an airline that purportedly has $2.8 billion in cash and liquid assets, borrowning to meet payroll?[BR][BR]Kind of looks like that mis-information machine at AMR is loosing track of it's own continuity.
 

AA191

Advanced
Sep 17, 2002
218
0
It was reported this morning that AA borrowed to meet this weeks payroll. Can anyone confirm?
 

Connected1

Senior
Aug 20, 2002
332
0
[blockquote]
----------------
On 1/21/2003 9:11:52 AM AA191 wrote:

It was reported this morning that AA borrowed to meet this weeks payroll. Can anyone confirm?
----------------
[/blockquote]
This is a classic "quote taken out of context" example. I think Carty's point was that if we hadn't borrowed extra money after 9/11, we wouldn't be making payroll right now. We will continue borrowing money to support the operation until the credit markets prohibit it.

You shouldn't read into this statement that AA is on its last legs. We're still several months away from that. Save the panic for later in the summer.
 

Connected1

Senior
Aug 20, 2002
332
0
[blockquote]
----------------
On 1/21/2003 11:32:16 AM UnitedChicago wrote:

As we learned at UA...another big question and factor is what debt repayments are on the horizon. That's what accelerated UA's CH11 filing. Anyone have any info on that?
----------------
[/blockquote]
Stay tuned for tomorrow's conference call...
 

AAquila

Senior
Sep 22, 2002
357
0
[blockquote]
----------------
On 1/21/2003 10:03:03 AM WingNaPrayer wrote:

Why is an airline that purportedly has $2.8 billion in cash and liquid assets, borrowning to meet payroll?

----------------
[/blockquote]


Hey Wings;

Liquid Assets = Aircraft+Property

I guess we could just sell the aircraft to someone like Carl Icahn and lease them back from him.

Get real.
 
B

bagsmasher

Guest
They say "borrowing to meet payroll" instead of "borrowing to pay bills" to get employee sympathy, as if the sole purpose of borrowing is to give it to the employees.
 

WingNaPrayer

Veteran
Aug 20, 2002
1,742
0
EYW
Visit site
[P]
[BLOCKQUOTE][BR]----------------[BR]On 1/21/2003 10:18:55 AM AAquila wrote:
[P]
[BLOCKQUOTE]Hey Wings;[BR][BR]Liquid Assets = Aircraft+Property[BR][BR]I guess we could just sell the aircraft to someone like Carl Icahn and lease them back from him.[BR][BR]Get real.[/BLOCKQUOTE]
[P][/P]----------------[/BLOCKQUOTE]
[P]and cash still equals cash. But of course, AA is not about to say how much of that 2.8 billion is cash and how much of it is liquid assets.[/P]
 

twaokc

Senior
Aug 19, 2002
336
0
OKC
Bagsmasher says:

They say "borrowing to meet payroll" instead of "borrowing to pay bills" to get employee sympathy, as if the sole purpose of borrowing is to give it to the employees.



That right Bags, get ready to hit your back pocket to help AMR and Carty out of this bad period.
 
Dec 5, 2002
66
0
www.usaviation.com
Usually, the term liquid assets means an asset can be converted into cash within a short-period of time at or near its fair value. Otherwise, it would not be liquid. So if they have X in liquid assets...they probably have X in cash equivalents.

Having said that, airlines have assets with off-seting liabilities (e.g. when you buy your ticket 2 months in advance). Hence, its not "really" liquid. In addition, financial debt covenants usually limit how low your liquid assets can get before they can force an acceleration in debt payments (prevents airlines from engaging in value destroying activities). Finally, the variability of cash flows places a cushion on how low you can operate an airline, or any company, with a given level of cash and cash equivalents. So, I don't really know how much AA has, but I imagine that using its liquid asset measurement as a surrogate for bankruptcy probability would be ill-advised. Once the rumour of insolvency hits, it pretty much becomes a self-fulling proecy as other stakeholders (suppliers, customers, management employees) begin to bail on the company and/or require payment on delivery.

And looking at the UAL and US insolvency's, AA will likely seek protection with a higher cash cushion to avoid the liquidation threat that hit (and still exists) at the other two carriers.
 

Guest
may I ask wing and a prayer who do you work for I truly hope it is not AA
 
[blockquote]
----------------
On 1/21/2003 11:32:16 AM UnitedChicago wrote:

As we learned at UA...another big question and factor is what debt repayments are on the horizon. That's what accelerated UA's CH11 filing. Anyone have any info on that?
----------------
[/blockquote]

As a matter of fact, yes...

Adjusted for revenues, CAL has the most debt due in 2003 ($516M) , followed by DAL ($624), AMR ($562), and NWAC ($250M). So, AMR needs to keep at least $562M in cash available to pay debt during 2003, in addition to cash needed to pay the bills and meet payroll.

BTW, this is publicly available information from filings with the SEC. Look under "long term debt" in the 10-K filings.
 

iflyjetz

Senior
Oct 2, 2002
422
0
[blockquote]
----------------
On 1/21/2003 5:04:47 PM eolesen wrote:

As a matter of fact, yes...

Adjusted for revenues, CAL has the most debt due in 2003 ($516M) , followed by DAL ($624), AMR ($562), and NWAC ($250M). So, AMR needs to keep at least $562M in cash available to pay debt during 2003, in addition to cash needed to pay the bills and meet payroll.

BTW, this is publicly available information from filings with the SEC. Look under "long term debt" in the 10-K filings.
----------------
[/blockquote]

Oeleson, interesting info. However, you forgot to include the amount of cash that a company needs on hand just to enter bankruptcy. U needed around $700 mil in cash, and UAL needed something north of $1 bil. That's due to the fact that no one's going to extend a company credit once the chap 11 filing occurs; no 60 day grace period.
With the info that you cite, I will stick with my expectation of CAL and AMR filing within the next 12 months unless the revenue situation improves in the airline industry.