AMR files first monthly financial report for December

[FWAAA]

Big net loss, driven by aircraft writedowns:

http://www.amrcaseinfo.com/pdflib/960_15463.pdf

Cash still at $4 billion, which is good news and better than I expected.

http://www.bloomberg.com/news/2012-01-31/amr-posts-904m-loss-in-first-bankruptcy-report.html?cmpid=yhoo

 

[damajagua]

Three million lost in a month is not that bad. Everything else was write off.

 

[767 mechanic]

Three million lost in a month is not that bad. Everything else was write off.

I have to agree when historically this is one of the worst quarters.

 

[FWAAA]

Three million lost in a month is not that bad. Everything else was write off.

True, the $3 million operating loss wasn't terrible (and better than I expected) but that doesn't count interest expense of $58 million, for a total monthly loss of $61 million. It's going to take a lot of cutting to bring expenses down by $150 million or $200 million per month.

And, of course, the loss does not include the special items or the reorg expenses like lawyers, bankers, consultants, etc.

 

[paul1]

how do you lose almost 1billion and still have 4 billion is cash?

 

[Frank Szabo]

how do you lose almost 1billion and still have 4 billion is cash?

These are "paper" losses - most of this is due to aircraft writedowns and various asset value losses and revaluations.

If regular people could use the same tricks a corporation does to determine its taxable income, we'd all be sitting pretty for a while 'til our "friends" in Congress figured a way to extract what they needed for their benefit.

Use an owned home as an example - if that were taxed yearly on its value as with corporate assets, your homes fluctuation in value could be written off (deducted from gross income if it lost value) or added to income (if the property gained in value).

 

[FWAAA]

how do you lose almost 1billion and still have 4 billion is cash?

The short answer is "very good credit" and, in previous years, lots of collateral (valuable airplanes) to support billions of dollars of debt.

It's a fair question, and despite the fact that it's been asked and answered numerous times in this forum over the past decade, it deserves a couple more paragraphs.

The net losses are the difference between revenue and expenses. Over the past decade, they total well over $10 billion. How does AA have $4 billion in the bank?

Immediately after September 11, 2001, and continuing thru 2002, AA borrowed several billion dollars to support its huge losses due to high expenses and the crash in revenues. After the concessions were signed, AA borrowed more money (as creditors were willing to loan once AA cut its expenses). Between 2003 and 2010, AA sold various assets like its interests in Orbitz, Hotwire, ARINC, etc. and raised a couple billion dollars from that "furniture burning." As debts matured and had to be repaid, AA was able to refinance those debts (essentially, roll them over).

Think about it this way. Say you and your family begin living beyond your means - your annual expenses begin to exceed your income by 5% or 10% of your total income. Not to worry - you have excellent credit and the ability to borrow. Citi and Cap One and HSBC and others have provided you with credit cards with a total credit limit of, say, $100k or $150k. You begin using those cards to fund the shortfall in your income. Can you do that for one year? Probably. Do it for a decade, however, and eventually you won't be able to cover the min payments and you'll reach your credit limits, making further borrowing impossible. Unless you have a rich relative leave you a pile of dough or you win the lotto, eventually you'll be faced with bankruptcy. When you file, you might have a few thousand dollars - maybe even $10k in the bank, but if you owe ten times that much, you're bankrupt.

Every dime of cash that AA has in the bank is borrowed. That cash has nothing to do with the annual net losses.

 

[WorldTraveler]

and let's be honest... whenever you leave beyond your means, something has got to give eventually. In AA's case, the possibility of BK was always there. Sure Arpey had moral objections to it but he apparently didn't have moral objections to running up billions of dollars in additional debt... or else he truly thought he AA could pull out of its tailspin. Either way, AMR is now using BK to wipe out big chunks of that debt because it was secured by aircraft that AA knew were not worth the value of the debt behind them. So, like or not, but there is no moral superiority in continuing to losing money because eventually someone has to pay.

 

[FWAAA]

These are "paper" losses - most of this is due to aircraft writedowns and various asset value losses and revaluations.

If regular people could use the same tricks a corporation does to determine its taxable income, we'd all be sitting pretty for a while 'til our "friends" in Congress figured a way to extract what they needed for their benefit.

Any self-employed individuals in your family or circle of friends? Depreciation of income producing assets is nothing new and isn't a "trick." Of course, Congress has, over the years, loosened the rules on depreciation for sole proprietors and small businesses so that they can often write off the entire purchase price of an asset the year they buy it. Airlines still have to write off their airplanes over a period of years, but when it becomes obvious that the airplanes have depreciated faster than the depreciation schedule, the rules permit (and actually mandate) a writeoff of the worthless value. That's what AA and the accountants recently admitted as to 757s, MD-80s and some 763s.

Use an owned home as an example - if that were taxed yearly on its value as with corporate assets, your homes fluctuation in value could be written off (deducted from gross income if it lost value) or added to income (if the property gained in value).

A lot of liberal tax professors (including the old fart mentor of mine) believe that people should be taxed each year on the rental value of their owner-occupied home. Not only do we get to write off the mortgage interest plus the real estate taxes (making ownership much less costly than renting due to the tax breaks) but we don't have to include in our income the rental value of the property. And when we sell our appreciated home, we get to shelter much of (in some cases all) of the capital gain from tax. Liberal tax professors think that's evil.

A lot of average individuals in this country are landlords, owning and renting out a house or two, and they get to write off the value of that home they're renting.

 

[Frank Szabo]

Any self-employed individuals in your family or circle of friends?

Yup - I've got an on again/off again business I toy with (and have since the early 80s) to keep my toes in the water. The tax benefits of adding equipment are rather nice and I'm planning on making use of it again this year.

A lot of liberal tax professors (including the old fart mentor of mine) believe that people should be taxed each year on the rental value of their owner-occupied home. Not only do we get to write off the mortgage interest plus the real estate taxes (making ownership much less costly than renting due to the tax breaks) but we don't have to include in our income the rental value of the property. And when we sell our appreciated home, we get to shelter much of (in some cases all) of the capital gain from tax. Liberal tax professors think that's evil.

A lot of average individuals in this country are landlords, owning and renting out a house or two, and they get to write off the value of that home they're renting.

"Trick" probably wasn't the correct word to use, that is, referring to the normal stuff re: corporate taxes vs: individual taxation as a "trick". "SOP" probably would have been a better choice.

No tricks at all, just the difference in methodology, all legit and per book but not understood by the majority of people.