can someone explain this?

[dfw gen]

AMR Corp., American Airlines' parent company, posted a $619 million net loss in February, according to a court filing Thursday. The Fort Worth-based carrier said its revenue for the month was $1.8 billion.
American spent $375 million in February on reorganization items, including $339 million to reject facility bond obligations related to Dallas/Fort Worth Airport and Fort Worth Alliance Airport. The company also reported that its unrestricted cash and short-term investments rose to $4.65 billion, up from $4.14 billion on Jan. 31.
The carrier is required to file monthly financial reports while it is in Chapter 11 bankruptcy. In the first three months of bankruptcy, AMR has lost $1.76 billion.

ok how does this work they LOST 619 million dollars but their cash reserves go up by 510 million? i thought they were leveraged out the ass and had nothing left to borrow? they pay lawers and snake oil salesman 375 million and they still raise their cash reserves!

can i balance my checkbook like this? and would my wife beleive it?

 

[TWU informer]

"They can do that, Brother"

 

[Deleted member 14439]

Yep, left us scratching our heads too. I`m sure they will have some "accounting" excuse!

 

[Veritas]

AMR Corp., American Airlines' parent company, posted a $619 million net loss in February, according to a court filing Thursday. The Fort Worth-based carrier said its revenue for the month was $1.8 billion.
American spent $375 million in February on reorganization items, including $339 million to reject facility bond obligations related to Dallas/Fort Worth Airport and Fort Worth Alliance Airport. The company also reported that its unrestricted cash and short-term investments rose to $4.65 billion, up from $4.14 billion on Jan. 31.
The carrier is required to file monthly financial reports while it is in Chapter 11 bankruptcy. In the first three months of bankruptcy, AMR has lost $1.76 billion.

ok how does this work they LOST 619 million dollars but their cash reserves go up by 510 million? i thought they were leveraged out the ass and had nothing left to borrow? they pay lawers and snake oil salesman 375 million and they still raise their cash reserves!

can i balance my checkbook like this? and would my wife beleive it?

I was as puzzled just as you are, but the answer is simple and logical.

They took in cash for tickets sold for future travel. That increased the cash on hand, but also increased future liabilities.

In addition, there were sale leaseback transactions related to newly delivered aircraft. I read somewhere that AA sells the planes to the leasing companies for more than they pay Boeing for them.

 

[737823]

AA records cash upon receipt for future ticket sales but can't recognize the revenue until the flight is complete or service is provided, according to GAAP.

Josh

 

[dfw gen]

I was as puzzled just as you are, but the answer is simple and logical.

They took in cash for tickets sold for future travel. That increased the cash on hand, but also increased future liabilities.

In addition, there were sale leaseback transactions related to newly delivered aircraft. I read somewhere that AA sells the planes to the leasing companies for more than they pay Boeing for them.


ok same deal last month lost money cash balance goes up. so if every month cash goes up your intake exceeds your cost. the cycle goes on common sense says if your future sales exceed your lay out for

the month you should make money. or are the future sales all for like one month? say April of 2036?

 

[signals]

Full Article

This says it all- AMR, American Airlines and other subsidiaries filed for bankruptcy protection in November. American plans to cut 13,000 jobs and get labor-cost concessions from its unions.

 

[WorldTraveler]

Airlines generate enormous amounts of cash that go to "pay the bills" some of which are not paid in BK.
But there are indeed many accurate and reasonable accounting entries and they are legal... and to the extent that consumer law allows you to reject contracts in the same way companies do, you could record it the same.
.
What is noteworthy is that AA's labor expense was about 32% of revenue... in line with where most of the industry is right now.
.
If you reduce labor expenses by 20% - in the neighborhood of what AA is proposing, AA's labor expenses fall to about 26% of revenue, which is in the same range as other carriers if you adjust for the increased amount of revenue that other carriers get from contract carrier arrangements which are not reported as salaries.
.
It is also noteworthy that fuel is pushing to a level comparable to 40% of total operating revenues....

 

[Kellerguy]

Money collected for future travel is not recognized revenue, and does not get classified as unrestricted cash as far as I know. The offset dollar value is also booked on the liabilities side of the ledger as an account payable, in the sense that AA owes --is liable to provide--that travel to those customers.

 

[FWAAA]

Money collected for future travel is not recognized revenue, and does not get classified as unrestricted cash as far as I know. The offset dollar value is also booked on the liabilities side of the ledger as an account payable, in the sense that AA owes --is liable to provide--that travel to those customers.

Close, but you have an extra "not" in there (bolded) that shouldn't be there.

Money collected in February for future travel (primarily spring and summer vacation travel) is not recognized as revenue until the travel is provided, as you and others correctly note.

The cash, however, IS added to unrestricted cash right away and the same amount is added to Air Travel Liability (the value of travel paid for but not yet provided). When the passenger takes the flight (or misses the flight and doesn't cancel, causing the ticket to expire worthless), then AA recognizes the revenue.

February's revenue was about 10% less than January's revenue, which is normal. February is a shorter month (usually 10% shorter than January) and this year was 7% shorter than January thanks to leap year. Fewer days = fewer flights plus February is usually a lighter travel month.

Most of the "loss" for February consisted of the writedown of the AFW improvement bonds - that doesn't represent cash out the door. AA did have a larger operating loss in February than it did for December or January, but that's normal in the winter (and with fuel spiking the past few weeks).

 

[BoeingBoy]

Most of the "loss" for February consisted of the writedown of the AFW improvement bonds - that doesn't represent cash out the door. AA did have a larger operating loss in February than it did for December or January, but that's normal in the winter (and with fuel spiking the past few weeks).

That's the gist of it - bankruptcy accounting. During the course of the bankruptcy AA will record "expenses" for contracts, leases, etc that are rejected. Then, when AA exits bankruptcy those "expenses" turn into "income" and AA will report a very large "profit". However, on the balance sheet there are no "expenses" or "income" - just assets and liabilities. So the "cash" balance, normally defined as cash plus short-term investments, doesn't reflect the big swings caused by "expenses" and "income".

During bankruptcy, the "cash" balance is a lot better indicator of how the company is doing than the P&L statement.

Jim

 

[dfw gen]

If cash is the indicater than bankruptcy is profitable

 

[FWAAA]

If cash is the indicater than bankruptcy is profitable

Perhaps, if the cash balance were to grow all 12 months of the year. But what you will see in the summer months is a reversal as those people who bought their tickets in late winter and spring for their summer travel finally travel. Less cash will come in during those months as the customers fly on those already-purchased tickets. Some months cash grows (when more tickets are sold than the number of people actually flying) and some months cash shrinks (when more people fly than buy tickets).

 

[WorldTraveler]

It is still true that some cash costs are not paid during certain parts of BK, esp. early in the process when the company is renegotiating contracts.
Some of those "missed payments" will become claims that will be converted into equity in the new company.

 

[BoeingBoy]

It is still true that some cash costs are not paid during certain parts of BK, esp. early in the process when the company is renegotiating contracts.

True, although I would characterize it as being due to not paying pre-petition bills which generally become unsecured claims. Post-petition bills generally get paid - the court can't force vendors to continue to abide by the requirements of a contract during bankruptcy without getting paid - so are expenses as they normally are.

But what I'm referring to is the accounting treatment of those bills plus decreases in ongoing expenses from rejecting or reducing costs associated with leases, equipment, facilities, etc. Accounting rules abhor the vacuum created by liabilities that just disappear. So first those liabilities that won't be paid are transferred from liabilities to expenses, then upon bankruptcy exit are treated as income (reflecting the money saved).

That's why I said that "cash" is a better indicator of how the debtor is doing than net profit (loss). The accounting rules exaggerate expenses during bankruptcy, making the net profit (loss) look much worse than it really is during bankruptcy then reversing that upon bankruptcy exit when those "losses" come flowing back as "income". Operating income (loss) is the second best, although that can be influenced by bankruptcy accounting rules though not as much as net profit (loss).

Jim