Can The Financial Wizards Explain?

[Bob Owens]

Last, he asks the accountant "what's 1 + 2?"

The accountant thinks about it, and responds "what do you want it to be?"

[post="265971"][/post]​

Exactly!

And while AMRs debt may have increased so has mine and many of my coworkers, however unlike the corporation we are not immortal and must prepare for the time that we are no longer fit to produce. And unlike the corporation my increased debt is not the result of the continutation of huge capital improvement projects and new equipement purchases, my 1989 car with 290,000 miles on it cant quit yet. Thanks to these paycuts we may have to keep our equipement in use beyond its originally intended period.

 

[Connected1]

OK so how does AMR reduce the debt from $22 Billon to $19 Billion and increase cash on hand by $2 Billion all the while claiming record losses quarter by quarter?

[post="265952"][/post]​

Debt was never $22B. That was FM's errant number. Debt increased dramatically after 9/11 and has leveled off now that the operation is cash flow positive.

Cash is increasing because net income is not the same cash flow. Net income includes things like depreciation which are non cash expenses. In the first quarter, depreciation was $290M and our loss was $162M. Ex-depreciation, AA makes money.

 

[WorldTraveler]

nice discussion.... so I have a few comments.

Liabilities and stockholder equity on a balance sheet are not the same. Debt is part of the liabilities but is not the whole thing. Other components include pension liabilities etc.

Airlines generate lots of cash but they have to use it to build their businesses or they rather quickly die. It is possible to be cash positive if debt is not paid or assets are not acquired. It is impossible to run an airline without incurring debt because of the huge costs of the assets necessary to provide airline service (leases are often viewed as a type of debt so they cannot be excluded).

There is no need for AA, DL, CO, or NW to file bankruptcy. UA and US have scared industry creditors enough that they do not want the solvent four to file for bankruptcy. Bankruptcy laws are devastating for everyone involved but allow alot of downside for creditors. They will negotiate w/ the solvent four rather than push them into bankruptcy. UA and US are in BK because they didn't manage their businesses and their cash to stay out of bankruptcy. Pension expenses are the only thing that will push the solvent four into bankruptcy but once again the solvent four know that bankruptcy laws favor them by allowing them to dump pensions in bankruptcy. Thus, airlines (solvent four) will get pension funding relief or the gov't will inherit billions more in pension liabilities. Industry instability only increases the leverage the solvent four have in restructuring their finances.

Sentiment in the industry is that some of the more irrational players like Independence will have to be sacrificed in order to turn the industry around. While relatively small, FlyI is inflicting a disproportionately large amount of damage on other airlines - esp. those on the east coast. as soon as someone is willing to take responsibility for about 60 RJs and some A319s, FlyI will be gone. While UA and US may be annoying to some people, they still have considerable value as operating entities which will ensure they will continue to be funded unless employees decide they have had enough...which could very well happen.

 

[flydcoop]

No, thank-you, Connected1.

This explains far more outside of my "scope".

I was an agent and I understand that "full-loads" do not necessarily make money, or generate "Full-Fare" for F/C.

I am hard-core union, but I am not stupid. Others can think I'm stupid because I'm a F/A, that's fine.

I am ignorant regarding Upper Management's actions but I want to understand why they do what they do.

This post explains quite a bit.

Thanks!

Coop

These are all good explanations.

I would also add that $1.3B in cash is not very much because our insurance policies require a portion of that cash to be set aside and left untouched ("restricted cash" in insurance lingo). The rest of the cash is used to try to pay the bills - most importantly, payroll and debt service obligations.

That said, bankruptcy is declared both because of the raw level of cash and the rate of cash burn. Pre-concessions, our cash burn rate would have necessitated bankruptcy. We would not have had enough cash to repay our creditors and that would have put us into default.

BTW, thanks for asking these types of questions. I would love to see more discussion of issues that are more closely related to business strategy and management. Seniority lists, layoffs, work rules, pay rates, and union representation all have their place in the puzzle, but they aren't the only thing that matters.

[post="264771"][/post]​

 

[Bob Owens]

Debt was never $22B.  That was FM's errant number.  Debt increased dramatically after 9/11 and has leveled off now that the operation is cash flow positive.

Cash is increasing because net income is not the same cash flow.  Net income includes things like depreciation which are non cash expenses.  In the first quarter, depreciation was $290M and our loss was $162M.  Ex-depreciation, AA makes money.

[post="266023"][/post]​

And isnt it true that since the 90s that depreciation can be written off differently than prior to that in a way that allows the airlines and other businesses to better manipulate their numbers?

Prior to that depreciation was done by a choice of formulas in which the value declined at a certain rate, over a period of years, but in the 90s the rule was changed which would allow them to vary the percentage of depreciation they wanted in a given year.

This would allow the airline or any other company to use depreciation as a tool to vary their reported earnings in any particular year. If the airlines wanted to inflate their losses in a given year in order to scare off their unions they would write off more depreciation and make things look worse than they are.


For those who remember in the early 90s the airlines claimed that the industry "lost" more money in that time than they made in the previos 50 years. While they were not good years, what had happened was that much of those "losses" were from non-cash accounting tricks like accellerated depreciation.

During that short period in the 90s the airlines were able to use those reported losses to gain massive long term concessionary contracts. In a very short period of time they went from massive losses to massive profits. The workers however could only sit back and watch the airlines rake in the money as they were locked into these concessionary deals.

The airlines accelerated depreciation and made things look worse than they were. If you also recall the company at one time was complaining about the amount of taxes they paid and how it was eating into profits, part of the reason why the taxes appeared high is because the write off for depreciation was already used and could not be used to offset taxes in later years.

Perhaps the depreciation tool is one of the reasons why the company continues to embark on huge unneccissary capital improvement projects like the massive terminals they are building. No doubt that JFK and MIA had exhausted their depreciation years ago. By being able to swing numbers back and forth it gives the company a valuable tool in keeping labor costs down.

 

[Busdrvr]

Gosh, Fly, I've never wished for YOUR destruction, either.

I only want to see your employer (and USAir) go out of business so that AA, DL, NW and CO have a chance to avoid the same fate as UAL and USAir. So my friends at AA might get to keep what little they still have left, that's all.

It's nothing personal, Fly. Don't know why you take it so personally. Perhaps you should get professional help.

I understand your frustration and the pain you must feel working for such a lousy employer. But its problems aren't my fault or your fault. May you find suitable and satisfactory employment once the inevitable occurs. But don't apply at AA, please. I can just tell from your posts that I don't want to be sitting in your cabin, ever. B)

[post="265002"][/post]​

nothing personal, but if you really want to consider who's "bringing down the industry" look in the mirror. We've got Bob and 'princess' (undoubtedly one of your more burley mechs) begging some other group to strike because they haven't even one complete set among their group to make a stand. The pilots invented "B-scale" and undercut UAL by about half a billion a year for the 2 plus years prior to BK. I wonder who would have gone first had AMR not been "dragging down the industry"? And finally, it would be nice if we could get your ill trained crews and poor equipment out of the sky. there's nearly nothing as frustrating as working your arses off to get loads and yields up only to have AMR once again run a perfectly good airplane into the ground due to incompetance and poor training (or just bad employees), scaring an already jittery public away from airline travel once again.

 

[Fly]

You are cracking me up FWAAA! Guess what? We aren't going out of business (at least not until we take our turn to destroy the industry....your company did it first, we learned from you)

Fyi - my identical twin sister is a f/a at AA....so I could feasibly put on her uniform and ID and work in your cabin. Of course I wouldn't, but just knowing it would bother you makes it almost seem worth it.

 

[Bob Owens]

Busdrvr,May 6 2005, 01:34 PM]
nothing personal, but if you really want to consider who's "bringing down the industry" look in the mirror. We've got Bob and 'princess' (undoubtedly one of your more burley mechs) begging some other group to strike because they haven't even one complete set among their group to make a stand.



??? Begging? In the past, despite resistance from the TWU the members of my local have taken a stand, or perhaps you do not read the papers. By the way our Local voted NO by well over 90%. We used a big chunk of our treasury trying to get the message out to other Locals to vote no and because of our criticism, and the lawsuit that we initiated against the TWU International Chuck Schalk and myself were removed from office. I'll do what I have to do, and I think that I've proven that. So take your false accusations elsewhere you POS.

The pilots invented "B-scale" and undercut UAL by about half a billion a year for the 2 plus years prior to BK. I wonder who would have gone first had AMR not been "dragging down the industry"?

I wont dispute that. Without a doubt the TWU certainly has been an industry leader in concessions but thanks to the RLA we are in a situation where the company union simply coddles 6000 people in Tulsa OK in order to push concessions through.

And finally, it would be nice if we could get your ill trained crews and poor equipment out of the sky. there's nearly nothing as frustrating as working your arses off to get loads and yields up only to have AMR once again run a perfectly good airplane into the ground due to incompetance and poor training (or just bad employees), scaring an already jittery public away from airline travel once again.


Guess you havent seen the load factors. Doesnt seem like fear is preventing people from flying when the airplanes are full, or are you saying that people dont mind dying on a cheap fare?

 

[Bob Owens]

You are cracking me up FWAAA! Guess what? We aren't going out of business (at least not until we take our turn to destroy the industry....your company did it first, we learned from you)

Fyi - my identical twin sister is a f/a at AA....so I could feasibly put on her uniform and ID and work in your cabin. Of course I wouldn't, but just knowing it would bother you makes it almost seem worth it.

[post="267068"][/post]​

Would you be able to get by the hand scanner?

 

[Fly]

Probably

 

[ZMAN777]

nothing personal........  And finally, it would be nice if we could get your ill trained crews and poor equipment out of the sky.  there's nearly nothing as frustrating as working your arses off to get loads and yields up only to have AMR once again run a perfectly good airplane into the ground due to incompetance and poor training (or just bad employees), scaring an already jittery public away from airline travel once again.

[post="267055"][/post]​

BusDriver,

Normally I'm in agreement with many of your postings but I feel you've gone over the line here. To call into question the professional abilities of fellow aviators is at best, unprofessional. To be sure, there have been a few more "incidents" there than here but like the saying goes....."there but for the grace of God go I". Be careful what you fling!

Cheers,
Z B)

 

[LGA Fleet Service]

And finally, it would be nice if we could get your ill trained crews and poor equipment out of the sky. there's nearly nothing as frustrating as working your arses off to get loads and yields up only to have AMR once again run a perfectly good airplane into the ground due to incompetance and poor training (or just bad employees), scaring an already jittery public away from airline travel once again.

[post="267055"][/post]​

Opinions are like assholes...everybody's got one and some stink.


Between your drivel and Fly wishing someone would crash competitors planes I can see the desperation meter is redlining over there.

Good Luck with that.

 

[FWAAA]

nothing personal, but if you really want to consider who's "bringing down the industry" look in the mirror. We've got Bob and 'princess' (undoubtedly one of your more burley mechs) begging some other group to strike because they haven't even one complete set among their group to make a stand. The pilots invented "B-scale" and undercut UAL by about half a billion a year for the 2 plus years prior to BK. I wonder who would have gone first had AMR not been "dragging down the industry"? And finally, it would be nice if we could get your ill trained crews and poor equipment out of the sky. there's nearly nothing as frustrating as working your arses off to get loads and yields up only to have AMR once again run a perfectly good airplane into the ground due to incompetance and poor training (or just bad employees), scaring an already jittery public away from airline travel once again.

[post="267055"][/post]​

I'm not gonna play the blame game - I couldn't care less who was first at drastic wage concessions.

My concern is the future. And the sooner UAL and USAir shut down, the sooner the management of the remaining legacy airlines can concentrate on fighting the LCCs. Instead, now, the nonbankrupt airlines have to contend with desperate high-cost airlines slashing fares to bring in cash at any cost. Slashing expenses just won't work - it's time to increase revenue. Revenue will go up when some of the capacity is shut down. As I have posted dozens of times, I don't want to see people lose their jobs. But if you and Fly don't, then everyone in the industry will continue to endure ridiculous concession demands.

 

[Fly]

Too bad, so sad.
Who knows which airline will leave (maybe AA at this rate) but I can assure you this......no one is going to leave the industry soon enough to save your checkbook.

Bendova FWAAA, we got something for you.

 

[Bob Owens]

I'm not gonna play the blame game - I couldn't care less who was first at drastic wage concessions.

Thats because you were not adversely affected.As you said before you dont work for an airline right?

My concern is the future. And the sooner UAL and USAir shut down, the sooner the management of the remaining legacy airlines can concentrate on fighting the LCCs.

Why would you care?

Instead, now, the nonbankrupt airlines have to contend with desperate high-cost airlines slashing fares to bring in cash at any cost. Slashing expenses just won't work - it's time to increase revenue. Revenue will go up when some of the capacity is shut down. As I have posted dozens of times, I don't want to see people lose their jobs. But if you and Fly don't, then everyone in the industry will continue to endure ridiculous concession demands.

[post="267126"][/post]​

Well AA had the most rediculous demands of all, and the TWU gave in to them. So they are right, we are to blame.

I hope that UAL and USAIR DONT go out of business. The other LLCCs (AA is a Low Labor Cost Carrier, SWA is not) are already starting to implode. While I dont think USAIR will make it, I think UAL will. Look at the past. The government blocked the UAL/USAIR merger based upon the fact that it would have an adverse effect on competition. Well what would having both of them dissapear do? Both are considerably larger than JetBlue. If combining the two into one was intolerable then how could having both dissapear be tolerated? Now you would have a much larger AA and what ever the Delta, NWA and Continental merger creates. (They would have to merge in order to compete with the dispropoirtionately larger AMR.)