AMR/USair combined cash $$$$

[mistified]

Article from Terry Reed contributer 8/17/2012
Analyst: Could AMR Acquire US Airways in Bankruptcy?

A veteran airline analyst says the scenario for a US Airway/American Airlines merger could develop in an unanticipated way, with bankrupt American making a tender offer for its rival during its reorganization.
While speculation has focused largely on an acquisition by US Airways, Imperial Capital analyst Bob McAdoo maintains that an acquisition by AMR is “a clear possibility that should not be overlooked.
The cash needed to do a deal is readily available, McAdoo said, because American has $5.5 billion and US Airways has $2.5 billion. Additionally, International Airlines Group, the holding company for British Airways, has said it could invest in a deal that keeps AMR in the Oneworld alliance and adds US Airways as well. McAdoo said more than $8.3 billion could be available.

I think this point is lost on most people here.
The combined entity would have slightly more cash than UAL and waaaaayyy more than DAL.
Makes for a very interesting scenario.
In any case, the question of who would run the new American is an intriguing one.
It seems clear that AMR CEO Tom Horton wants to retain control. “AMR’s wariness towards US Airways has more to do with who is controlling the combined entity than disagreement on the merits of merging in the first place,” McAdoo wrote. Given that American is twice the size of US Airways, Horton has a strong case to make.
On the other hand, since 2004, CEO Doug Parker’s management team, then working together at America West, has pursued mergers. It succeeded with US Airways, then failed with Delta and United. In every case, the intent has been that Parker and the team would run the merged airline.
“US Airways’ management team has already demonstrated the ability to execute a successful merger followed by a turnaround,” McAdoo wrote. Also, American’s 50,000 unionized employees have made it clear that they prefer Parker. All three of the carrier’s biggest unions have signed tentative contracts with US Airways, but continue to battle over contract deals with American...................



The daily drama is compelling, but McAdoo says it should not detract investors from a focus on the ultimate outcome, which is likely to be a merger that would benefit both carriers, giving American an East Coast presence while US Airways gains international heft. McAdoo thinks US Airways would benefit in any scenario, and has a target price of $19 on the shares, which traded at $10.5 shortly after noon on Friday.

 

[FWAAA]

It would help the readers if you would use the quote tags to separate Ted Reed's words from yours.

Here's a link to the article to help others:

http://www.forbes.com/sites/tedreed/2012/08/17/analyst-could-amr-acquire-us-airways-in-bankruptcy/

IMO, Bob McAdoo is out to lunch. Not a chance in hell would the UCC approve spending the estate's cash to make a tender offer for US stock. That doesn't make any sense at all.

When AA emerges from Ch 11, the market value of AMR (the aggregate of the new stock) could easily be $7 billion or more. That would represent annual earnings of $1.0 billion at a PE ratio of just 7. New AMR stock would have value as currency in an acquisition, so if Horton does decide to acquire US, a merger using AMR stock would be a much better way to gain control of US. If US stockholders want to cash out, they'd be free to sell their newly-acquired AMR stock on the open market. Airlines have been in the cash-conservation mode lately, not the "buy other airlines for cash" mode. DL did not pay cash for NW nor did UA pay cash for CO. Both were stock transactions, as was WN's purchase of FL.

 

[700UW]

And Doug wants to be in charge, he wont play second fiddle.

 

[FWAAA]

After the Duke Energy/Progress Energy CEO saga, I won't be predicting who would run a combined US-AA.

http://online.wsj.com/article/SB10001424052702304299704577504480290901026.html

Everyone was led to believe that one guy would be the CEO after the merger, but within hours, he had resigned and was replaced by the other guy (who wasn't going to be CEO).

 

[WorldTraveler]

All of AMR's cash is borrowed anyway; use of AMR's cash will be factored into the creditor's recovery and the ongoing basis plan of AMR should it emerge.

Acquiring another company while you are in BK is highly risky and it is highly doubtful the creditors would take that risk- again because there are other options that involve less risk and potentially offer better recovery.

Creditors want whatever option maximizes their recovery. period.

 

[700UW]

I know Jim Rogers the CEO of Duke, he wont be stepping down or taking the fall for the firing of Johnson, the BOD did that, not Jim.

And dont all airlines have more debt than cash on hand anyhow?

 

[WorldTraveler]

And dont all airlines have more debt than cash on hand anyhow?

at least among the network carriers, yes.

Which is why the UCC will be lookiing at who can best service the debt they inherit and generate profits.

Given that DL has been paying down about $1.5 billion in debt for the past several years - more than other carriers - , that clearly would have to be a factor the UCC would consider.

Remember, they want as much cash now, for the buyer or AA if a standalone, to take as much debt as possible, and for them to gain as much equity as possible. Equity in a company other than the one being reorganized will be more valuable if the other company has a business plan that is as successful or better than what AA proposes.

 

[700UW]

The DOT and DOJ would never let AA and DL merge, get off the kick all ready, AA didnt even send DL a non-disclosure agreement.

The DOT and DOJ wouldnt let US and UA merge twice and that is a smaller presence than AA and DL would ever create.

The creditors normally get stock in the new company, not cash.

 

[WorldTraveler]

NO other company so far as we know has expressed an interest in merging with AA as a whole.

You continue to not want to accept that the only options are not AA standalone or AA-US merger.

The simple reality is that there are other options that will pass regulatory muster and will result in better return for the creditors - and perhaps better outcome for AA employees.

In an asset sale, creditors would very much be interested in cash from an outside company. AA's cash levels are part of the calculation as to the value of the company and the amount of recovery.

It is entirely possible that the creditors will say AMR does not need as much cash coming out of BK as they have now - it's all borrowed and AMR pays interest for keeping it in the back.

If they decide less cash is needed, they will determine what debt AMR needs to pay back.

 

[700UW]

Glad to see you ignored what I posted.

And I would bet money DL owes more than it has on hand.

And AA hasnt borrowed any money in chapter 11 yet they have raised almost $2 billion, explain that one.

So I can say all of DL's money is borrowed as they owe more than they have on hand.

AA gets ticket revenue every day, so how is that borrowing money?

 

[BoeingBoy]

And dont all airlines have more debt than cash on hand anyhow?

Absolutely. Debt is the total owed, not just monthly but all future depts. Cash, which includes money in short term investments per GAAP, is but a small fraction of assets. The difference between debt and assets is cash so cash is always much less than dept for airlines. Take a leased airplane - it isn't even an asset much less cash since it's not owned, but it can be hundreds of millions in debt.

Cash is only borrowed in the sense that it is an asset and when total assets are less than total debt it can be argued that cash is "borrowed". But GAAP considers cash to be an asset or what one has, not debt which is what one owes. So for GAAP purposes cash is not considered borrowed.

Jim

 

[mistified]

It would help the readers if you would use the quote tags to separate Ted Reed's words from yours.

FWAAA
It was not intentional please forgive me.

The reason for posting this was not because I believe a take over of USair is likely while AMR is in BK. Instead it was to point out the enormous amount of cash on hand the combined entity would have compared to it's competitors.

Who would have the healtiest balance sheet? I don't know off hand. But it does appear that DAL does not have as much cash on hand as one would expect for as big they are.

mistified

 

[FWAAA]

I think that DL has focused on paying down debt with its cash, not keeping the same cash hoard on hand that AA and UA have done. Doing so has probably given DL some free and clear aircraft and/or other assets against which it could borrow if necessary. But you're right - DL's cash and short term investments on hand is a smaller percentage of its annual revenue than UA or AA, and perhaps even smaller than the cash held by WN and B6, measured as a percentage of revenue. DL appears to place a lot of emphasis on reducing debt.

If I'm mistaken, WT will no doubt correct that.

 

[WorldTraveler]

DL has a $1.5 billion plus line of credit.... it doesn't need to keep the cash on hand and pay interest as long as it knows it meets the terms under which the money could be borrowed.

Yes, DL is making paying down debt and not incurring as much debt as other airlines a priority - undoubtedly because in an industry which has historically weak finances, any improvement you have over you competitors can make a difference, esp. if key strategic decisions will be made.

 

[BoeingBoy]

The difference between debt and assets is cash so cash is always much less than dept for airlines.

Jim

My mistake. "Cash" (generally cash plus short term investments) is not the difference between assets and debt since "cash" is itself an asset. "Cash" is the combination of money in the bank plus that invested short term (no company is going to have hundreds of millions of dollars or more of cash sitting in the bank - they invest it in things that can be readily converted to actual cash if needed). In other words, "cash" is what's available to spend, just as with an individual except most people don't have enough cash to put most of it into short term investments.

Jim