AA loses $10.7 million in second quarter
- Thread starter FWAAA
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AMR had $5.5 billion in cash and short-term investments on June 30, up from $3.3 billion a year ago.
They're losing money, but they increased cash by 2.2 billion. Where does this money come from?
It's possible to post an accounting loss yet have an in flow of cash. I haven't carefully reviewed AMRs cashflows, but I presume it's due to depreciation/amortization, changes in liquity, accounts receivable/accounts payable. A good example of this would be a company like Ford who until recently was posting large accounting losses yet was seeing cash inflows due to depreciation of property, plant, equipment.
Josh
Josh
In addition to Josh's excellent reply, in AA's case the cash grew substantially because last fall (after June 30, 2009), AA borrowed more than $2 billion plus sold new stock which will be summarized below.
On Sept 29, 2009, AA announced a huge package of borrowing and cash received from the sale of new shares of stock:
$830 million from the sale of new stock;
$450 million from the sale of senior secured notes;
$282 million borrowed from GE Capital and secured by aircraft;
$1 billion borrowed from Citi (and secured by AAdvantage miles Citi buys from AA). Essentially, Citi agreed to buy miles earlier than it needs them and the parties treated it as a loan. These loans and stock sales are discussed in the press release below:
http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-newsArticle&ID=1336408&highlight=
That's more than $2.5 billion right there, added to the cash balance no matter what the profit and loss numbers showed. On top of that, AA is borrowing more on each new 738 than it is paying Boeing (AA gets a very good price), which makes each delivery a cash-positive event.
Additionally, AA sold a lot of tickets in the second quarter (which ended June 30) for travel in July and August. The money from the ticket sales shows up in the cash balance right away but the revenue isn't recognized until their flight takes off (same with every other airline). So in this part of the year, the cash balance grows. The reverse will happen in the fourth and first quarters as fewer advance tickets are sold.
All in all, AA's cash is growing because managment doesn't want to run out of cash. You can muddle along with no profits (or even losses) for a long time but if you run out of cash (and nobody will loan you more), then Game Over. Liquidation is what happens if the cash well dries up. Hasn't happened in a while to a big airline, but execs fear it nonetheless.
Getting back to Josh's post: AA could break even (which today it basically did) and yet show a big increase in cash becauase depreciation is subtracted when figuring the profit or loss but doesn't represent cash spent by AA in that quarter. It represents a fraction of the cash spent in prior periods/years on planes and real estate improvements. For the second quarter, AA took depreciation/amortization expense of $267 million, meaning that represents $267 million of cash not spent (yet counted when figuring AA's profit or loss). For a full year, breakeven would add about $1 billion to the cash balance from depreciation/amortization.
On Sept 29, 2009, AA announced a huge package of borrowing and cash received from the sale of new shares of stock:
$830 million from the sale of new stock;
$450 million from the sale of senior secured notes;
$282 million borrowed from GE Capital and secured by aircraft;
$1 billion borrowed from Citi (and secured by AAdvantage miles Citi buys from AA). Essentially, Citi agreed to buy miles earlier than it needs them and the parties treated it as a loan. These loans and stock sales are discussed in the press release below:
http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-newsArticle&ID=1336408&highlight=
That's more than $2.5 billion right there, added to the cash balance no matter what the profit and loss numbers showed. On top of that, AA is borrowing more on each new 738 than it is paying Boeing (AA gets a very good price), which makes each delivery a cash-positive event.
Additionally, AA sold a lot of tickets in the second quarter (which ended June 30) for travel in July and August. The money from the ticket sales shows up in the cash balance right away but the revenue isn't recognized until their flight takes off (same with every other airline). So in this part of the year, the cash balance grows. The reverse will happen in the fourth and first quarters as fewer advance tickets are sold.
All in all, AA's cash is growing because managment doesn't want to run out of cash. You can muddle along with no profits (or even losses) for a long time but if you run out of cash (and nobody will loan you more), then Game Over. Liquidation is what happens if the cash well dries up. Hasn't happened in a while to a big airline, but execs fear it nonetheless.
Getting back to Josh's post: AA could break even (which today it basically did) and yet show a big increase in cash becauase depreciation is subtracted when figuring the profit or loss but doesn't represent cash spent by AA in that quarter. It represents a fraction of the cash spent in prior periods/years on planes and real estate improvements. For the second quarter, AA took depreciation/amortization expense of $267 million, meaning that represents $267 million of cash not spent (yet counted when figuring AA's profit or loss). For a full year, breakeven would add about $1 billion to the cash balance from depreciation/amortization.
AMR CEO Gerard Arpey said Wednesday that his airline pays $600 million a year more than it would if it had the same labor contracts as airlines that cut wages during bankruptcy proceedings in the last decade.
Take 600 million off the 5.5 billion they have in cash and they still have 4.9 billion. In another year they can add another 2.2 billion to the cash like they did this year and your up to 7.1 billion. What's the problem?
It's always a labor problem!!
Take 600 million off the 5.5 billion they have in cash and they still have 4.9 billion. In another year they can add another 2.2 billion to the cash like they did this year and your up to 7.1 billion. What's the problem?
It's always a labor problem!!
We should just work for free.
All the other airlines reporting have turned a substantial profit.
Something is wrong here folks. Mismanagement or fuzzy math.
Which is it? This is ridiculous, all the airlines pretty much fly the same equipment and routes all over the world and yet AMR can not turn a profit while the competition did. Time to change the thought process and the people with the thoughts.
All the other airlines reporting have turned a substantial profit.
Something is wrong here folks. Mismanagement or fuzzy math.
Which is it? This is ridiculous, all the airlines pretty much fly the same equipment and routes all over the world and yet AMR can not turn a profit while the competition did. Time to change the thought process and the people with the thoughts.
Using the argument, "oh the company is sitting on $5.5billion cash, labor can easily get $600 million" does not make business sense. As FWAAA said, a company files bankruptcy when it runs out of cash-not necessarily after sustained quarterly and annual losses. Cash is the life blood of business. Labor is a sensitive issue at AA because employees want pay increases while the company is seeking further concessions to become (remain) profitable. Tapping AA's cash position would weaken your job security-it's inevitable that oil prices will increase again in the near future. AA is pursuing a capital intensive fleet renewal, while they have all been financed, if AAs cash position weakens it only makes them a less desirable borrower resulting in higher interest rates on their new deliveries.
Josh
Josh
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So most of the employees here think that AA should use borrowed money in order to give big raises that will turn out to be unsustainable. How would that benefit anyone in the end, except for maybe a year or less of bigger paychecks before you kill your own jobs?
No most of the employees here think that a portion of the additional $100k a year in revenue we bring in should be given to us before they go and build more taj mahals, redo the interiors on the plane , dump $30 million into cosmetic improvements in NY and buy new airplanes.
That $100k of extra revenue per employee you're so fond of talking about doesn't really exist. Increased fuel prices since 2003 absorbed most of it and the remainder was absorbed by the huge net loss of 2003 - on a per employee basis, there isn't any of that mythical $100k per employee to spend on anything.
Ted Reed on THESTREET states:
"American's labor picture is an apparent handicap. American claims a $600 million labor cost disadvantage, computed by modeling other airline contracts on American's work, and then weighing the benefits by the airline's size. With US Airways' contract, American would save $1 billion annually, CEO Arpey said Wednesday. But US Airways filed twice in bankruptcy court and each of the other competitors filed at least once. American never did."
"Apparent handicap", "American claims". I suppose the AA pundits on this board will use this article as further proof that all of AA's woes are labors fault. I need hard numbers. Breakdowns of specific labor cost comparisons including wages, benefits, and retirement. O wait, I believe the compAAny has already provided those numbers on their negotiations website. http://www.aanegotiations.com/MechanicsBenefits.asp
I can hardly see even a fraction of the $600,000,000 disparity AA suffers from, based on their own submissions. I guess I should not believe my lying eyes.
"American's labor picture is an apparent handicap. American claims a $600 million labor cost disadvantage, computed by modeling other airline contracts on American's work, and then weighing the benefits by the airline's size. With US Airways' contract, American would save $1 billion annually, CEO Arpey said Wednesday. But US Airways filed twice in bankruptcy court and each of the other competitors filed at least once. American never did."
"Apparent handicap", "American claims". I suppose the AA pundits on this board will use this article as further proof that all of AA's woes are labors fault. I need hard numbers. Breakdowns of specific labor cost comparisons including wages, benefits, and retirement. O wait, I believe the compAAny has already provided those numbers on their negotiations website. http://www.aanegotiations.com/MechanicsBenefits.asp
I can hardly see even a fraction of the $600,000,000 disparity AA suffers from, based on their own submissions. I guess I should not believe my lying eyes.
Hopeful
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I suppose the BILLIONS employees gave back since 2003 weren't enough.
Time for management change, and not the usual shell game we are accustomed to seeing.
Imjustsayin
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Birdman, hey I want to get a handle on this. Do you read the American Chairman's comments to be an indicment of American's union costs? Or is it a statement to the financial community about how other arlines cut employee pay and benefits and shed creditor debt through bankruptcy. I read it to be the latter, but I can see how that might not
be your view. The cost of labor at AA can't be labor's fault.
