Amr Debt And Bankruptcy

[Bob Owens]

There's one additional subtle effect of buying back shares. When issuing new shares, the company has to jump through a number of hoops. When a company buys back shares, the company owns them in the same way that any investor owns them. The company can then sell those shares on the open market at a later date without jumping through those hoops.

[post="255347"][/post]​

So when the company needs an infusion of cash they can sell the stocks they bought back without the hassle of issueing new stock?

In other words it could help to show an even greater loss of equity for the company because if they sell them when they need the money the price will likely be lower than what they paid for it. Wouldnt this be relfected as a loss of equity for the corporation?

 

[mweiss]

If something is appreciating in value and you are not desperate for cash why get rid of it?

First of all, who said that AA wasn't desperate for cash? Secondly, unlike houses, futures contracts are not especially predictable in value fluctuations.

No [, I don't know how much AA got or how much they pay].

Then what on earth makes you qualified to say that selling Sabre was a mistake??? :huh:

So when the company needs an infusion of cash they can sell the stocks they bought back without the hassle of issueing new stock?

Yes.

In other words it could help to show an even greater loss of equity for the company because if they sell them when they need the money the price will likely be lower than what they paid for it.

No. Buying the stock doesn't change shareholder equity. It converts cash (an asset) into stock (another asset). In that respect, it makes no difference whether they bought AMR or UAL.

 

[Bob Owens]

mweiss,Mar 14 2005, 10:41 PM]
First of all, who said that AA wasn't desperate for cash?

Were they desperate for cash when they sold Sabre?

Secondly, unlike houses, futures contracts are not especially predictable in value fluctuations.

Fair enough but you said reverse mortagages were a similar concept, the question is do reverse mortagages increase your worth or reduce it?

Then what on earth makes you qualified to say that selling Sabre was a mistake??? :huh:

Now you are changing the subject. I'll repeat the original questions:QUOTE
How much did AA net from the spin off? How much do they now pay for the service they used to own?


No. Buying the stock doesn't change shareholder equity. It converts cash (an asset) into stock (another asset). In that respect, it makes no difference whether they bought AMR or UAL.

I was talking about the effect of selling the stock when they need cash, not buying it. How would the equity of the company be affected if they bought back their own stock at lets say $35/share then sold it at lets say $6/share?

I think the answer is obvious, it would be reflected as a loss of equity just as if you or I did the same thing.

Even though inflation can eat away at the value of cash it certainly would not have lost that much value would it? And if AA had the $2 billion still in cash, instead of stock that went down in value, then their covenants would not have been placed at risk would it? If they had that cash in the bank they would not have faced bankruptcy at that time.

 

[Boomer]

Just so I get this right:

1) AMR uses cash to buy back shares on the open market, (increasing the value of the remaining shares); and,

2) AMR then splits the existing shares reducing their value?

Would any of this have anything to do with the RUMORED agreement by AMR with a certain Union to issue 5 Million shares of stock as options to that group and then committ to repurchasing 2 for 1 on the open market those same shares?

To the unsophisticated, it sounds like a certain Union and AMR agreed to manipulate the value of the stock market and direct the proceeds to a particular beneficiary.

edited for clarity.

 

[mweiss]

Were they desperate for cash when they sold Sabre?

I don't know. Do you?

...you said reverse mortagages were a similar concept, the question is do reverse mortagages increase your worth or reduce it?

You're taking the analogy too far. While the concepts are similar, the motivations are different.

Now you are changing the subject.

No, I'm not. You said that selling Sabre was a bad idea

Because it consistantly generated profits.

What makes you qualified to call it a bad idea when you don't know how much they got for the sale, how much Sabre has made in profits, and how much AA has paid Sabre for services?

I was talking about the effect of selling the stock when they need cash, not buying it. How would the equity of the company be affected if they bought back their own stock at lets say $35/share then sold it at lets say $6/share?

You think the answer is obvious, but again you don't understand how accounting works. The asset changes occur when the fair market value of the stock changes. It's an unrealized loss until the shares are sold, at which time it becomes a realized loss. At that time, the loss becomes tax deductable.

Even though inflation can eat away at the value of cash it certainly would not have lost that much value would it?

So what's your point? That you can Monday morning quarterback with the best of them? I've got one for you...if you had put a few thousand into Microsoft in 1988, you'd have sufficient net worth to not be worried about how much AA pays you. Why didn't you do that?

 

[mweiss]

Would any of this have anything to do with the agreement by AMR with a certain Union to issue 5 Million shares of stock as options to that group and then committ to repurchasing 2 for 1 on the open market those same shares?

[post="255607"][/post]​

I don't know, and the details you have provided are insufficient to determine the answer. Do you have more info you can provide?

 

[mjk]

Then what on earth makes you qualified to say that selling Sabre was a mistake??? :huh:

[post="255502"][/post]​

The same thing that makes him qualified to play that little violin of his.

 

[Bob Owens]

mweiss,Mar 15 2005, 02:44 AM]

I don't know. Do you?

To the best of my recollection they were not .

You're taking the analogy too far. While the concepts are similar, the motivations are different.

Too far? The question was pretty simple, while the motivations may be different werent the results similar in that worth was reduced?

No, I'm not. You said that selling Sabre was a bad ideaWhat makes you qualified to call it a bad idea when you don't know how much they got for the sale, how much Sabre has made in profits, and how much AA has paid Sabre for services?

Sure you are, thats why I asked the questions:How much did AA net from the spin off? How much do they now pay for the service they used to own?

The reason why I ask is because Lorenzo made similar moves as he systematically gutted EAL, one such move was to sell off their res system for a pittance then charge EAL a fortune for the services of the system they once owned.

You think the answer is obvious, but again you don't understand how accounting works. The asset changes occur when the fair market value of the stock changes. It's an unrealized loss until the shares are sold, at which time it becomes a realized loss. At that time, the loss becomes tax deductable.

The key word here is "loss". And when was that loss realized? Couldn't the timing of realizing such a loss be used in order to scare employees into drastic concessions?

So what's your point? That you can Monday morning quarterback with the best of them?

Not at all. First of all anyone in the industry knew that after the screwing that the employees took in the 90s that they would be demanding restoration of their wages after several years of record breaking profits. I have no doubt that the airlines were preparing to strike back. They had S-1327 in order to keep the unions at bay and all they needed was a crisis, 9-11 did that for them, so they didnt have to bother.

Now before you go jumping off on a tangent let me say that I'm not claiming that they had anything to do with 9-11 but they certainly did make the most of the opportunity it provided.

The fact is that 9-11 was not the sole cause of a decline in Air travel. We saw the empty airplanes for the 9 months preceeding 9-11 and the total passenger list of the four aircraft used was only around 200, or on average 50 passengers per aircraft on aircraft that could carry 200 passengers each. A 25% load factor. The airlines were already bleeding cash way before 9-11.

As we saw the empty airplanes we also saw the company continue to spend like crazy. Hiring unneeded extra workers, (Local 562s headcount went to its highest ever in 2001)engaging in silly capital improvement projects, buying more and more new aircraft, we were all stunned by the actions of the company, to us it seemed like they were on a cash burn. Many of us had already witnessed other downturns in the economy and we were used to how the companies dealt with it, we were stunned when instead of cutting back they spent more.

I've got one for you...if you had put a few thousand into Microsoft in 1988, you'd have sufficient net worth to not be worried about how much AA pays you. Why didn't you do that?

Well I could have done the same with a single dollar if I had known the winning lottery numbers too.

 

[WorldTraveler]

There are very good reasons why AMR no longer should own Sabre, including changes in CRS rules which allow airlines to exert leverage on other distribution channels by not owning CRSs.

I don't believe AMR will end up in bankruptcy for the same reason I believe DL will not - because creditors are far more willing to work w/ airlines outside of bankruptcy now so that there is very little need to go into bankruptcy. A bankruptcy filing is a loss of control for everyone - and an opportunity for creditors to lose far more than they would if they worked w/ the airlines. The reason DL is screaming so loud about its financial condition is because they want to get the benefits of bankruptcy without the costs. AA will do the same thing if they have to - they just have alot more cash on hand which makes the screaming considerably less effective.

 

[FWAAA]

There are very good reasons why AMR no longer should own Sabre, including changes in CRS rules which allow airlines to exert leverage on other distribution channels by not owning CRSs.

I don't believe AMR will end up in bankruptcy for the same reason I believe DL will not - because creditors are far more willing to work w/ airlines outside of bankruptcy now so that there is very little need to go into bankruptcy. A bankruptcy filing is a loss of control for everyone - and an opportunity for creditors to lose far more than they would if they worked w/ the airlines. The reason DL is screaming so loud about its financial condition is because they want to get the benefits of bankruptcy without the costs. AA will do the same thing if they have to - they just have alot more cash on hand which makes the screaming considerably less effective.

[post="255945"][/post]​

Exactly. I agree completely.

Many here think that airlines file Ch 11 primarily to reduce their costs, when the reality is that they tend to file Ch 11 primarily because their cash balances run out (or fall so low that staying in business is threatened). IMO, DL and AMR will not allow their cash to fall low enough to cause a Ch 11 filing. Both will wring the savings out of their employees, lessors and creditors without having to endure all the pain of a bankruptcy filing.

 

[mweiss]

The question was pretty simple, while the motivations may be different werent the results similar in that worth was reduced?

Neither of us know the answer to that. Do you want to?

How much did AA net from the spin off? How much do they now pay for the service they used to own?

I don't know, which makes me unqualified to answer whether or not it was a good move to sell Sabre. You don't know, either, which makes you equally unqualified to answer the question. You probably have easier access to the answers to those two questions than I do.

The reason why I ask is because Lorenzo made similar moves as he systematically gutted EAL, one such move was to sell off their res system for a pittance then charge EAL a fortune for the services of the system they once owned.

The difference is that the CEO of AA didn't own the company to whom Sabre was sold...because Sabre wasn't sold to a company. Lorenzo sold EA's reservations system to Texas Air, another company that he owned.

The key word here is "loss". And when was that loss realized?

The answer is in the annual reports. It's quite possible that the loss hasn't been realized at all.

Couldn't the timing of realizing such a loss be used in order to scare employees into drastic concessions?

Sure, but why bother? Since it appears, based on your previous statements, that the union leadership cannot read a financial report, apparently they can say whatever they want and it won't have to match anything the SEC ever sees.

The fact is that 9-11 was not the sole cause of a decline in Air travel. We saw the empty airplanes for the 9 months preceeding 9-11 and the total passenger list of the four aircraft used was only around 200, or on average 50 passengers per aircraft on aircraft that could carry 200 passengers each. A 25% load factor. The airlines were already bleeding cash way before 9-11.

Yes, indeed. And I'm sure you're ready to claim that airline management was deliberately depressing load factors in order to reduce your wage.

 

[jimntx]

The selling of Sabre was advantageous to AMR for several reasons....

1. A wad of cash. A BIG wad of cash.
2. Elimination of benefit costs for the SABRE employees--health, vacation, pension, etc.
3. Direct deduction as a business expense of every dime they pay to SABRE for services.
4. Elimination of a non-core business. A lot of conglomerates got into trouble over the years because they were trying to do too many disparate things. Though SABRE was held up by university Computer and Business departments for many years as one of the most innovative marketing tools of the 1960's, computer programming is not really AMR's core competence, now is it?
5. Avoidance of certain anti-trust issues that were being raised by the Justice Department regarding ALL the airline-owned reservation systems.

 

[Bob Owens]

There are very good reasons why AMR no longer should own Sabre, including changes in CRS rules which allow airlines to exert leverage on other distribution channels by not owning CRSs.

I don't believe AMR will end up in bankruptcy for the same reason I believe DL will not - because creditors are far more willing to work w/ airlines outside of bankruptcy now so that there is very little need to go into bankruptcy. A bankruptcy filing is a loss of control for everyone - and an opportunity for creditors to lose far more than they would if they worked w/ the airlines. The reason DL is screaming so loud about its financial condition is because they want to get the benefits of bankruptcy without the costs. AA will do the same thing if they have to - they just have alot more cash on hand which makes the screaming considerably less effective.

[post="255945"][/post]​

Well AA already did the same thing, and that was why I said we should have rejected the concessions. The $1billion cash on hand, which has now reportedly been raised to $2 billion, was rediculous, and to think that the creditor who imposed that stipulation would have allowed AA to go into Chapter 11 before renegotiating is rediculous. My guess is they would have demanded a higher rate in exchange for the additional risk.

 

[Bob Owens]

mweiss,Mar 16 2005, 04:26 AM]
You probably have easier access to the answers to those two questions than I do.

Well at least you are finally admitting that I'm in a better position to see what is going on than you are.

The difference is that the CEO of AA didn't own the company to whom Sabre was sold...because Sabre wasn't sold to a company. Lorenzo sold EA's reservations system to Texas Air, another company that he owned.

So? From the position of AAs balance sheet whats the difference? They still no longer own the assett and now pay for the service.

Sure, but why bother? Since it appears, based on your previous statements, that the union leadership cannot read a financial report, apparently they can say whatever they want and it won't have to match anything the SEC ever sees.

Because the members can read the papers and as in the case of all the Executive bonuses some savy reporter could break the news. The $3.5 billion loss and the threat of BK were the main scare tactics of the company/union push for concessions.

Yes, indeed. And I'm sure you're ready to claim that airline management was deliberately depressing load factors in order to reduce your wage.

No, they dont need to depress load factors if they are giving away tickets. However if you see the way things were being run, even if you simply read the news about USAIR in Phil, you can see that management appears to be trying to drive away customers. Several employees have written letters to top management asking them what is going on. One such letter from a pilot got wide circulation which landed him in the hot seat with the Chief pilot. I was forwarded another yesterday from a mechanic.

Dear Mr Arpey,
>
> I hope you enjoyed your trip from JFK once you were airborne. I bet the
> people who tend to your needs were petrified when the DFW trip was
> delayed. After all, they arranged to have a cabin service crew & baggage
> handlers pulled from the headcount specifically to standby for your
> aircraft. Welcome to JFK, where mismanagement is plentiful.
>
> It was good that you personally experienced the foolhardy money-saving
> endeavors at JFK. Our passengers have to cope with it on a daily basis,
> but it's probably kept from you. Shakespeare's Henry V intermingled with
> his men in disguise to gain the valuable insight of hardship that would
> otherwise be sanitized to please the king. Last week you involuntarily
> played the role of Henry V as circumstances allowed you to witness a
> typical delay at JFK.
>
> On this day, aircraft maintenance had 14 A&P mechanics on afternoon
> shift to cover 33 trips, of which 9 required ETOPS inspections for
> Atlantic crossings. Local management won't raise the headcount nor call
> overtime. Instead, they tolerate the delays. Even though other
> departments plucked people out of the headcount to service your
> aircraft, maintenance didn't. When the Brussel trip departed at 6:30 pm,
> my partner & I were assigned to work the inbound items on your 757.
>
> I'm sure the pilot explained to you that the cabin interphone, a medical
> kit, & 2 portable oxygen cylinders were squawked on the prior leg. The
> cabin interphone was being addressed by 2 avionic technicians when I
> arrived. My partner tried to defer the medical kit only to be placed on
> hold for more than 15 minutes with Tulsa Tech. You see, there was only 1
> guy working the 757 desk in Tulsa & I'm sure there were delays
> throughout the system as a result. During this time, I was replacing the
> oxygen cylinders in the back of the cabin only to find that 1 of the
> mounting brackets was broken. Hence, I was also placed on hold when I
> called Tulsa for a deferral.
>
> Perhaps it would have been faster to replace the bracket??? No, since it
> wasn't in stock at JFK. Even the DFW hub didn't stock the bracket, but
> our big maintenance base in Honolulu had 1.
>
> I haven't even mentioned that the MEL manuals onboard the 757 fleet was
> expired or that this particular airplane didn't have blank MEL cards in
> the logbook. As we scurried to sign the logbook on the jetbridge, we
> were pestered by supervisors, pilots, gate agents, & flight attendants
> with incessant inquiries on "how much longer?" This question wouldn't be
> asked on other delays because the JFK community has become numb to
> disruptions. Yet, this trip had an impetus for a timely departure. It
> was all about catering & coddling to your needs. This is reprehensible
> to me. Every trip & every passenger should get the same diligence as you
> when you're traveling!!!
>
> In a couple of months our new terminal will open at JFK. We'll have
> fewer gates, fewer mechanics, but more trips. The chaos will undoubtedly
> be intensified. Planes hold for gates now due to manpower shortages in
> all the departments. Management doesn't care that the AA treasury is
> being incinerated in the combustion chamber of these running engines.
> The summer schedule will increase the # of trips at JFK, but the recent
> bid will cut the number of mechanics on afternoon shift yet again. Don't
> misconstrue this as a plea to save my job on afternoons. My seniority
> affords me any shift I want. It, however, is revolting to me the quality
> of service we are providing to our passengers. EITHER CUT THE # OF
> TRIPS, OR INCREASE THE HEADCOUNT!!!
>
> AA is our livelihood, & we depend on sensible corporate decisions to
> guarantee our futures. When Henry V was disguised amongst his men, the
> most telling words he heard were: "if these men do not die well, it will
> be a black matter for the king that led them to it."
>
> X XXXXXX
> mechanic, JFK
>
>


As the company lays off workers, increases trips and has aircraft wait out on the tarmac for gates they continue to spend money on new aircraft and a host of other frivalties. They laid off fleet service clerks but had the money to buy more high speed tractors. Great, now we have more tractors but with nobody to operate them the planes still wait. Recently they installed a Peter Pan suspension system throughout the hangar, rumored to have cost $1 million. TCCs were given these special laptop computers that are absolutely useless. Yesterday a TCC walked in with some new device for measuring dents that nobody knew how to use, nor did they care to learn. We never asked for that crap nor did we need it. New expensive toys are always showing up but the basic things we need, such as ladders and a decent pay check are missing. As you admitted, I am in a better position to see things as they really are than you are.

 

[jimntx]

So? From the position of AAs balance sheet whats the difference? They still no longer own the assett and now pay for the service.

[post="256035"][/post]​

And, what leads you to believe that the service was free when it was in-house? Not only did the sale produce a lot of cash for the company, but there are distinct tax advantages to paying for a service vs. providing it in-house.