AAL Downgrades and 1Q20 Earnings

[eolesen]

Earnings will be be released in a few days...

Two comments from industry analysts directly address bankruptcy risk.

JP Morgan Chase, downgraded both AAL stock and AAL's credit:

"In our opinion, the margin for error for American management to navigate this crisis outside of the courts is growing uncomfortably thin (and dependent on factors outside of management control, i.e. duration of the virus, traffic recovery cadence, further government support) that we really don’t think we’re left with a choice but to downgrade our credit opinion on American as well, to Underweight (from our prior Neutral on the credit side)."

Wolfe Research, downgraded AAL stock:

"... We believe AAL can manage through this crisis without triggering a BK scenario, but we wonder if ongoing losses simply become too exhausting to bear. We also believe further federal assistance shouldn’t be assumed even if the government gets an equity stake in the near-term. UAL, in December 2002, failed after receiving a grant, returning to the government for help, and seeing its request denied (they filed for Ch. 11 one week later). Cabotage laws mean the U.S. government can let major U.S. airlines fail knowing the lost capacity can’t be filled by foreign airlines (unlike, say, jobs at an auto manufacturer, by contrast) and that those jobs and assets will likely wind up at competitor airlines in relatively short order."

The concern that's being echoed by several others isn't that AAL will leave this crisis with a lot of debt, but whether or not they'll be able to pay it off with an airline that's 20-30% smaller and generating less revenue.

More on earnings when they're released.

 

[jimntx]

Earnings will be be released in a few days...

Two comments from industry analysts directly address bankruptcy risk.
(Be sure to "click to expand")
JP Morgan Chase, downgraded both AAL stock and AAL's credit:

Wolfe Research, downgraded AAL stock:
Click the click to expand link to see the rest of the post.
"... We believe AAL can manage through this crisis without triggering a BK scenario, but we wonder if ongoing losses simply become too exhausting to bear. We also believe further federal assistance shouldn’t be assumed even if the government gets an equity stake in the near-term. UAL, in December 2002, failed after receiving a grant, returning to the government for help, and seeing its request denied (they filed for Ch. 11 one week later). Cabotage laws mean the U.S. government can let major U.S. airlines fail knowing the lost capacity can’t be filled by foreign airlines (unlike, say, jobs at an auto manufacturer, by contrast) and that those jobs and assets will likely wind up at competitor airlines in relatively short order."


The concern that's being echoed by several others isn't that AAL will leave this crisis with a lot of debt, but whether or not they'll be able to pay it off with an airline that's 20-30% smaller and generating less revenue.

More on earnings when they're released.

For those of you who have been insisting that the government will not allow AA to go under, read these analysis statements from people who make a living at evaluating corporate health for investment purposes. The bolding of the quotes is from me. (be sure to "click to expand)

 

[CremaDiLimone]

sorry, that's not what was argued.

nice try but you guys can run your imaginary airline in a distant universe as imaginary CEO and as the imaginary head of flight service.

the argument was aa and other legacy carriers - aided by the govt., forging on until oct. sorry guys, in case you haven't heard - it's a done deal. you guys were wrong, take your premature bk analysis elsewhere.

the govt. stepped in and the airlines accepted. sorry, no aa bk in may 2020, june 2020, july 2020, august 2020, set. 2020. keep cheering for it..if you ever have debt, now's the time to have it.

you guys were wrong. keep moving the goal posts, but the game is over.

 

[2ndGENAMT]

Didn’t see any timeframes mentioned Lemoncream!

 

[1AA]

Opinions are like.......
Well you know the rest.
Here is another interesting article.
Remember what DP said.
We will never lose money again.
He also put out a video on jetnet to talk team members. His message was we will pull through this.

Now we will see if his words of encouragement from a leader will have any credibility.

https://seekingalpha.com/article/4340519-american-airlines-stock-only-option-value-left

 

[Talos]

Opinions are like.......
Well you know the rest.
Here is another interesting article.
Remember what DP said.
We will never lose money again.
He also put out a video on jetnet to talk team members. His message was we will pull through this.

Now we will see if his words of encouragement from a leader will have any credibility.

https://seekingalpha.com/article/4340519-american-airlines-stock-only-option-value-left

Parker and his team have been humbled and forced to eat their words. They look foolish when looking at what they've done since taking over. If the medical situation has not improved quite a bit by the end of the summer or at least has some answers AA is in trouble. Parker and team will not survive a bankruptcy and will be replaced and I'm sure they know that. I heard an interview with Crandall who berated without using names the people responsible for all the stock buy backs. If AA is forced into bankruptcy all the creditors will want Parker and team gone. Hopefully the medical stuff improves soon.

 

[1AA]

You referring to this interview?
Good interview.

https://www.cnbc.com/video/2020/03/...-50-billion-bailout-for-airline-industry.html

 

[Talos]

You referring to this interview?
Good interview.

https://www.cnbc.com/video/2020/03/...-50-billion-bailout-for-airline-industry.html

It was a different interview 1AA, although very similar. They mentioned AA buying back over 13 billion in stock the past 5 years and Crandall just ranted about how it just makes no sense. It was kind of funny as he was trying to hold himself back from being more critical. I wish I had the link, but very similar as in making airlines like utilities.

 

[jimntx]

Opinions are like.......
Well you know the rest.
Here is another interesting article.
Remember what DP said.
We will never lose money again.
He also put out a video on jetnet to talk team members. His message was we will pull through this.

Now we will see if his words of encouragement from a leader will have any credibility.

https://seekingalpha.com/article/4340519-american-airlines-stock-only-option-value-left

Thanks for the seekingalpha link. Maybe some of the Pollyannas will read it. The outlook is not even rosy enough to say that the govt. loads and grants will do much for very long to save failing airlines. There are some scary statements in that link.

"Stock has only options value" meaning that the corporate debt is now greater than the total stock value.

Lemon you are incredibly wrong if you think I am cheering for another AA bankruptcy. I love AA and loved every day of working there for 15 years. I'm not cheering for a BK. I'm dealing with facts. The govt loans and grants are one off events. The almost total loss of customers is going to be more long-term than a single govt giveaway. AA is now dealing with 2 passenger problems--getting them to fly on MAXES and fly on any airplane that could potentially be packed with possibly infected customers. The thing that a scares me the most about problem 2 is the fact that a number of asymptomatic victims won't even know that they are one of the people spreading the disease.

I just watched a video of a single customer and 2 flight attendants on an AE flight from Boston to D.C. Consider that there are also 2 very expensive pilots on that flight. How long do you realistically expect AA/AE to continue operating with such loads? At some point the revenue number needs to get above the current expenses level. A single passenger didn't provide enough income to get that plane off the ground or even get it from the gate to the takeoff point; much less fly it all the way from BOS to DCA.

 

[CremaDiLimone]

you guys are arguing in generalities, me and a few others were musing in the month march, about the immediate SHORT TERM.

when it was presented that the govt. is/was on record as saying the airline industry won't be allowed to fail....your counter to that was pan am.

naturally, under normal economic conditions...the govt. won't step in to 'save' one failing airline. that was NOT the debate in march under today's special economic condition.

we even said, all bets will be off in late sept. what does that mean?

one can speculate further..if aa's revenues fall 40%, so will everyone else's and there's a good chance the govt. could intervene again for all. now that is fair game for debate...positive or negative, going forward.

the debate at work, and not on this board is the issue of people taking voluntary leaves AND getting unemployment. the company has failed again, by saying they will not contest unemployment.

there is something inherently wrong about workers coming to work and potentially exposing themselves and others to the virus - while those who took a leave, get to stay home for 1 or 3 or 6 months and get nearly full pay along with full benefits.

maybe the state(s) will make them pay it back, once the company eventually tells the state(s) their status as someone who took a voluntary leave. maybe the state(s) won't?

on the clock, off the clock..the scams continue.

 

[Kev3188]

when it was presented that the govt. is/was on record as saying the airline industry won't be allowed to fail....your counter to that was pan am.

I noted it somewhere else, but saying "the industry won't be allowed to fail" is very different than "AA won't be allowed to fail" (or DL, or UA, etc.).

The debate at my work-and not on this board- is whether or not VLOA's and Early Outs will go far enough to mitigate massive layoffs come 10/1.

Hope for the best, prepare for the worst. I think a lot of people in our industry are still in denial about just how grave this crisis is.

 

[CremaDiLimone]

I noted it somewhere else, but saying "the industry won't be allowed to fail" is very different than "AA won't be allowed to fail" (or DL, or UA, etc.).

no. it got to that because the argument of generality compels you to pick one individual airline to prove your point.

your point was proven in 1990 and maybe in 2027. not in march-april of 2020. that is what we (my side) debated and as it turned out, the airline industry forges on as a whole, for the immediate short term.


as far as the rest, i'm thinking there will be lay-offs..even if the govt. comes through again. just like the low guy is worried about their job, so are parker and isom and i'm guessing that they will play nice with the govt. to keep rolling until this issue clears up.

the issue here is either-or. most with my seniority do not want lay-offs and concessions. a few are very vocal - let them swing the ax. prior to the cares act, i had heard lay-offs up to 1997 seniority. i can say this now because that crisis has passed.

yes, no one argues another crisis will have to be faced come oct. if things get better, may not be as bad as 1997.

 

[Kev3188]

no. it got to that because the argument of generality compels you to pick one individual airline to prove your point.

I went out of my way not to single AA out- did you miss my parenthetical note about UA, DL, etc.?

The people calling for the axe to drop can pound sand, but the truth is, it's coming. The only question is, how deep will it go? You mention '97. Maybe. Hopefully, a lot of people that have just been running out the clock decide 2020 is a good time to leave on their own terms.

 

[Buck]

The interesting issue in articles and Bob Crandall's interview is that the subject of some form of re-regulation is being spoken of.

 

[eolesen]

Bob always though deregulation was going to be a short-term experiment and continued to say it was a mistake even in his retirement.