AMR selling debt

[Hopeful]

http://www.bloomberg.com/news/2011-01-20/american-airlines-may-sell-657-million-of-debt-backed-by-planes.html?cmpid=yhoo

 

[Frank Szabo]

http://www.bloomberg.com/news/2011-01-20/american-airlines-may-sell-657-million-of-debt-backed-by-planes.html?cmpid=yhoo

Goodness - I and others have been led to believe AMR was mortgaged up to its proverbial tonsils and couldn't borrow any more against aircraft. Is this not the case? Has more debt been paid down that we rabble were led to believe?

If the company is so bad off, I can't imagine why any entity would want to buy this debt issue - is this not the case?

 

[FWAAA]

Goodness - I and others have been led to believe AMR was mortgaged up to its proverbial tonsils and couldn't borrow any more against aircraft. Is this not the case? Has more debt been paid down that we rabble were led to believe?

If the company is so bad off, I can't imagine why any entity would want to buy this debt issue - is this not the case?

Nothing out of the ordinary, Frank. You just haven't been paying attention.

From the third quarter conference call in October:

Bill Greene - Morgan Stanley

Okay, that’s great. Just one quick question on – I guess I’ll describe it as sort of assets that you still have. There has been some news on selling Eagle again. Can you just give us a rundown of kind of what the assets are that you have – if we think about kind of whether you want to think about them as unencumbered or what-nots sort of what assets you got there that still could be monetized?

Bella Goren

You mean in terms of what we have at American?

Bill Greene - Morgan Stanley

Yeah, I think you just have Eagle at this point but maybe there is more assets there that I am not thinking of that you could modify.

Gerard Arpey

We could just – of course Eagle. Most of our competitors have done slot and root financings. We have not done that, so all of our slots at Heathrow or in Narita engaged and that kind of a deal is not one that we have done but certainly other carriers have done. As we paid off debt this year we are going to pay off debt next year we are going to free up a lot of airplanes. In most – many of those airplanes are good aircrafts in terms of their ability to be refinanced and then you got things like spare parts. Other guys I believe have done spare parts deals; we haven’t done that. So there is quite a number of things on the shelf.

http://seekingalpha.com/article/231219-amr-corporation-ceo-discusses-q3-2010-results-earnings-call-transcript?part=qanda

Every year, AMR has at least a billion dollars of aircraft-secured debt come due, and AMR typically refinances it, just like this news item.

Who "led you to believe" that AMR was mortgaged to the hilt? Your idiot union leaders? The Worthless Union? If so, then I'm not surprised.

 

[eolesen]

To be fair, the 10-Q does lead one to believe otherwise:

The Company’s possible remaining financing sources primarily include: (i) a very limited amount of additional secured aircraft debt or sale leaseback transactions involving owned aircraft; (ii) debt secured by other assets; (iii) securitization of future operating receipts; (iv) the sale or monetization of certain assets; (v) unsecured debt; and (vi) issuance of equity or equity-like securities. Besides unencumbered aircraft, the Company’s most likely sources of liquidity include the financing of route authorities, takeoff and landing slots, spare parts, and the sale or financing of certain of AMR’s business units and subsidiaries, such as AMR Eagle.

The Company’s ability to obtain future financing is limited by the value of its unencumbered assets. Almost all of the Company’s aircraft assets (including aircraft eligible for the benefits of Section 1110 of the U.S. Bankruptcy Code) are encumbered. Also, the market value of these aircraft assets has declined in recent years, and may continue to decline. The Company believes it has approximately $2 billion in assets that could be used as possible financing sources as of the date of this filing. However, many of these assets may be difficult to finance, and the availability and level of the financing sources described above cannot be assured.

 

[BoeingBoy]

It's also become pretty standard to finance new aircraft deliveries by issuing debt (EETC's generally) prior to the aircraft delivery with the new aircraft becoming the collateral for the debt when delivered. That's what US did for most of the Airbus deliveries in late 2009 - 1st half of 2010. Those new aircraft were about all the assets that US possessed that weren't already encumbered.

Jim

 

[Frank Szabo]

It's also become pretty standard to finance new aircraft deliveries by issuing debt (EETC's generally) prior to the aircraft delivery with the new aircraft becoming the collateral for the debt when delivered. That's what US did for most of the Airbus deliveries in late 2009 - 1st half of 2010. Those new aircraft were about all the assets that US possessed that weren't already encumbered.

Jim

THAT makes plenty of sense - thanks.

 

[FWAAA]

It's also become pretty standard to finance new aircraft deliveries by issuing debt (EETC's generally) prior to the aircraft delivery with the new aircraft becoming the collateral for the debt when delivered. That's what US did for most of the Airbus deliveries in late 2009 - 1st half of 2010. Those new aircraft were about all the assets that US possessed that weren't already encumbered.

Good point, but in this case, the collateral for these pass-thru trusts consists of used late model airplanes on which the debt has recently been (or will soon be) paid off:

The equipment notes expected to be held by each pass through trust will be issued for each of (a) 15 Boeing 737-823 aircraft delivered new to American from 1999 to 2001, (B) six Boeing 757-223 aircraft delivered new to American in 1999 and 2001, (c) two Boeing 767-323ER aircraft delivered new to American in 1999 and (d) seven Boeing 777-223ER aircraft delivered new to American from 1999 to 2000.

This year, AA has over $2 billion of maturing debt, so look for a lot more of these financings in the coming months.