Yeah, too bad the US Government cannot reduce it's debt by half, like AA did over the last 9 years. Amazing, with only two profitable quarters in that same time frame. It's just PFM.
Could US Airways Take Over American?
- Thread starter Hatu
- Start date
Yeah, too bad the US Government cannot reduce it's debt by half, like AA did over the last 9 years. Amazing, with only two profitable quarters in that same time frame. It's just PFM.
You have posted this info repeatedly, as though it's news to anyone. All cash currently held by AMR, DL, UA/CO and US is borrowed. When one is discussing the probability of a Ch 11 filing, however, cash is key. Doesn't matter where that cash came from - only that you have enough cash or that someone is willing to loan you more. When you have enough cash (even borrowed), a Ch 11 filing is not mandatory nor inevitable. When you run low on cash and nobody will loan you any more, a Ch 11 filing is certain to occur.
All true. With $6 billion of total cash, AA isn't looking for DIP financing right now, so it's sorta moot.
Nope, WT, I haven't forgotten. But I don't feel the need to repeat it over and over and over again as you do. It's become apparent that you are the leading Cheeleader on this website for an AA bankruptcy and your posts are betraying your emotions on that subject. Same thing on Flyertalk.
Airlines constantly trumpet their ex-fuel costs in quarterly releases, yet all airplanes require fuel to fly. There's nothing illegitimate in pointing out that AA's CASM (excluding wages) is competitive with its legacy peers.
The fact is that AA's non-wage CASM is equal to or better than most of the legacy airlines, leading to the inescapable conclusion that AA's current problems are primarily because of a combination of wage rates and inefficient use of labor. Both management and labor share blame for that.
AA did not reduce its debt by half over the last 9 years. Whomever led you to believe that was lying to you. If you concluded on your own that AA reduced its debt by half, you misinterpreted the data. AA's total debt is relatively unchanged from 2002-03. AA's net debt has fallen substantially, because AA's cash balance has climbed since the concessions. Net debt is calculated by subtracting cash from total debt. Cash has increased by additional borrowing, sale of non-core assets, sale of lots of new common stock and cash generated from operations.
As an aside, AMR had two profitable years (not just quarters) in that timeframe, with quite a few profitable quarters in those nine years.
A mind is a terrible thing to waste.
WorldTraveler
Corn Field
- Dec 5, 2003
- 21,709
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If you think that what is said on Flyertalk is of my doing... then you will be SHOCKED to know I don't participate on that forum.
So, perhaps, the reality is that there are a whole lot more people who recognize that AA is in deep troubles than just me.
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You continue to tout the $6B in cash as it if is some security blanket.
but let's be clear here. It is all borrowed - yes, all US airlines, and most companies in general have more debt than cash. But the BIG difference is that other airlines aren't adding to their debt year after year.
And, far more importantly, other carriers have not used up all of their borrowing ability. When companies say they have virtually no unencumbered assets, they usually are dead serious.
Which means that if AA has $6B in the bank and they continue to lose money and has obligations to pay, that $6B will dry up very quickly.
And it also means that the time for AA to get itself turned around is YESTERDAY.
When you have no more ability to borrow money and you have all the money in the bank that you can borrow, then pretending that you have another 8 years to get things straightened out is a virtual death sentence.
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Sure, as the basis of comparison you can quote any statistic you want - but the airline doesn't operate w/o all of those cost elements working together. So, yes, you can tout that AA generally does as good of a job at managing the rest of its costs as its peers. But when labor costs and debt service are two very large items in which AA is at a huge disadvantage, then touting those statistics in isolation is simply inaccurate.
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No I am not arguing for an AA BK.... but I am saying that if AA mgmt and labor doesn't get moving very quickly, there may be no other alternative. The time for AA people to control their own destiny may well have already passed.
Which is why the whole "net debt" calculation is accurate only if cash remains somewhat constant. Accumulating cash by borrowing and then touting that you are better off than if you just had debt but not cash belies the fact that you will have to repay that cash at some point.
And when you combine that cash you now hold with losses that will only accelerate during the coming months, the comfort zone gets smaller and smaller.
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jersey777
Veteran
- May 24, 2006
- 627
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Ok, so lets agree that all the graphs and charts that AA posts on AA negotiations are misleading because they lead the average layman to think that AA flight attendants are SO lazy when you readily admit that DL flight attendants fly only 3.2 more hours a month and CO fly 8.7 hours more a month. Of coarse, I would challenge ANY number that AA throws out because they just plain distort the figures ...or if I am not polite...they LIE! So if the APFA were to agree to allow AA to schedule the flight attendants..lets just 5 more hours....would they be willing to give us that 3% raise.....? Time will tell.
signals
Veteran
Funny, awhile back US thought it was AA that would take them over. A merger with US? Just what the industry needs, an airline with 3 pilot unions under one roof :blink:
Semantics
It depends on which debt he was referring to. Net Debt or Total debt which often includes Total Liabilities.
I think we both know that he was referrring to Net Debt.
Outside of BK it would be nearly impossible for an extablished company to wipe out half their total debt, especially if inclusive ot total liabilities, in a short period of time.
When we look at Total Liabilities we have to consider that its long term, otherwise its alarmist but should not really be given much weight as far as we are concerned, it's not expected that these things will be paid off within a year or even several years. I recalll certain members from the International running around in 2003 saying that the company owes $22 billion. Total liabilites include things such as leases and the total payments to service a loan.
Lets say AA signs a 20 year lease to rent a terminal for $5million a year, they just added $100 million in liabilities. A 20 year lease on 50 aircraft at $2million a year (20 X 50 x 2) $200million, or they borrowed $100 million for 15 years and will pay back a total of $1 billion, they just added another $1 billion that could be cleared with a $100 million payment.
When we hear about how all those carriers that went BK were able to clear debt we assume that they got out of loans they owed, but more importantly they got out of lease obligations, which more than likely accounted for most of the debt. That could be a good thing or a bad thing. It doesnt automatically translate to a better more competative position.
Here's a few hypothical examples.
Lets say delta had $20 billion in liabilities for leases going out 20 years. They wipe that out but now only get two year leases from those same lessors. Well for the first two years they pay less, then they emerge from BK and the next round the lessor increase their rates to match what they were paying before the BK, then two years later jack them up to much more than they were paying before the BK (landing fees are an example, they've gone up over 30% since 2003). On paper Delta would still be carrying much less Total debt but they would be paying more than before for everything except their workers who are still working under concessions.
Lets say that AA had a 99 year lease on all their operations at LGA. Lets say they have an advantageous arrangement there, of $100,000/year. They still have 30 years on the lease so their long term liability at LGA is $3million. Lets say Delta declared BK, had their old lease obligations wiped clean and now has a year to year lease for the same amount of space for $1million a year. Who has the better position? Delta only has a $1 million liability but they pay $900,000 more each year than AA does and the rate could go higher. To me the $3 million liability with 30 years remaining on the lease is really a cost saving assett, AA will save a ton of money over the next 30 years at LGA even ithough that obligation curently shows up as a $3million liability. However management and their lackeys will cite this and other similar debt as some huge unbearable burden that we must help them carry by agreeing to work for less. Now admittedly there are probably many cases where Delta ended up with lower costs than AA through BK but we really dont have access to that data. But I suspect that all the major creditors will and have found ways to more than recoup whatever they lost (like the airports) through the BK process.
Lets say you are a bank, two carriers come to you for a loan, one went BK, the other didnt. Which company would you be more inclined to lend money to at a favorable rate? What happens to people who declare BK and go for a loan? They pay more to borrow money.
Another example as far as how increasing total debt may not be a bad thing ,AA has been recieving a lot of new aircraft, some were bought, some are leased, but all of them add to AA's Total Debt whether bought or leased. Proponents of this cite that these additions which replace aircraft that add little to no debt to the balance sheet will save the company money. They claim that we cant expect increased compensation because of the increased debt.
So Total Debt is really an irrelevant figure. It tells you nothing about the competative position of a company unless you make ill founded assumptions. If I ran a company and paid premium prices on short term leases I may run with very low total Debt but very high costs. Normally you get better rates with longer leases. When we look at how the revenues have rebounded all that money is going somewhere, its not all going for fuel, and its not been going to us either.
At negotiations I brought up how much their revenues have increased and the company claimed that vendors, such as parts suppliers were charging a lot more. They really didnt want to talk about it and soon meandered off the point. The money is coming in, the question is who gets it, so far its been a feast for everyone except labor.
Of coarse they lie. I got a hold of the cost out for the M&R proposal and saw how they padded their figures by at least $10 million a year. Now they will only give the cost outs to people who agree to sign confidentiality agreements, which I refuse to do.
The first lie I spoted was the Profit Sharing, they padded the total figure by $25.5 million right there, I figure they are assuming at least $250million a year in profits for the next five years starting in 2011 in order to pay out $5.1 million a year to the M&R group. Thats a very rough figure assuming that we are median pay for the company, it's probably more. Funny how the company doesnt cite analysts predictions when they do their cost outs.
Next was the MRT. The company added $24 million to the cost out and left out the fact that they changed the language that would allow them to have 24 hour coverage and not pay anybody the MRT, this language could save the company $36 million off their cost out but they chose not to include it, $12 million for current MRT(.50) and $24 million for the proposed increase to MRT(1.00).
Just excluding those two frauds the company's offer comes out to just $37 million a year over the seven years the offer would cover, we gave them roughly $340 million a year in concessions in 2003 and all they want to offer us, eight years later is around 10% of what they got from us back. It doesnt even make up for the first three years of inflationary losses to our real compensation. Here's their offer on Base pay Jan 1 of each year.(Agreement became amendabble in May of 2008, when we got our last 1.5% increase from the 2003 concessions.
2009-0%
2010-0%
2011-0% (3% DOS no retro)
2012-3%
2013- 1.5% (less than half the rate of inflation)
2014-1.5%
2015-2%
So according to the cost out they are predicting $1.25 billion in profits over the next five years and they expect us to settle for $37 million a year.
More like an inescapable assumption.
Once again I'll focus on Maintenance.
Since AA outsources very little and peers like UAL claim that as much as 13% of their total operating costs are for paying for outsourced maintenence services(2007 figure) then AAs non wage CASM should be much, much better than most of the legacy carriers who are structured more like UAL than AA. The fact that AA insources instead of outsourcing makes it inevitable that their Wage CASMs must be higher, that is inescapable unless AAs hourly wages were a fraction of what competitors pay and where your assumption goes astray because AA should in theory have a huge non-wage CASM advantage over competitors, the inescapable question is "why dont they?" The contest should be does the higher wage component of doing it in house make up for the higher non-wage CASM resulting from outsourcing? Instead of focusing on labor you should be focusing on why AA does not enjoy a huge non-wage CASM in light of UALs claims as to how much they spend on outsourcing. Since outsourcing doesnt consume 13% of AA total operating costs and that is a non-wage compent of CASMs then where are those non-wage savings, why despite insourcing are our non-wage CASMS so high?
WorldTraveler
Corn Field
- Dec 5, 2003
- 21,709
- 10,721
Hi Bob,
You understand the concept of net vs total debt as well as the changes in liabilities that can happen in bankruptcy.
Changing your hypothetical examples to real life based on what happened during the last four network/legacy carrier bankruptcies:
1. The easiest debt to get rid of in BK is unsecured debt. DL had $4B of it when it entered. UA had $1.5 (+/-) and other carriers less. Part of the reason why DL continued to operate in the red as long as it did was because it was racking up losses on an unsecured basis that would be wiped out in BK. Some would call it immoral but it was legal. AA has very little unsecured debt which is partly a reflection of its ungoing financial decline and the fact that creditors want security for anything which is loaned to AA. AA would therefore not see much benefit from BK regarding unsecured debt.
2. Pension expense is huge and was dealt with in BK. Even if carriers were reasonably current before BK on their payments to their pension plans, Wall Street looks at the total obligations that must be paid in the future. It is an obligation that must be eventually paid. Given that AMR owes about $8B more than the current value of the plan assets, it is very likely those obligations have to be removed or restructured. DL and NW both were able to largely not terminate their pension plans (DL pilot plan being the exception because of the lump sum payout provision) and they have to catch up on the remaining balance over a period of years. All of those carriers replaced their frozen (DL and NW) or terminated plans (DL pilot, UA, US) with defined contribution plans which provide for the expense to be realized NOW – without the potential for a large payment later.
3. Airport facility costs are rarely reduced but it is possible they could be renegotiated. Given that airport facilities are publicly owned (in the US) and backed by tax dollars, there is little appetite for stiffing the taxpayer (note that the PBGC lost nothing in these airline bankruptcies because they obtained stock for their “efforts.” The airlines also paid insurance to the PBGC on their plans. You can reject airport leases in BK and DL and NW clearly reworked a lot of leases in BK to allow them to reduce airport space as necessary when the merger was announced.
4. Reworking aircraft leases can reduce costs considerably, esp. for older aircraft. Given that AA is actively adding newer generation aircraft, it could terminate leases on older M80s, 757s, and 767s – if they are leased. DL was able to considerably reduce leases on its M80s in BK because there was no market for those aircraft if DL had rejected the leases. If AA decides to keep any M80s during a bankruptcy, they could probably lease them for next to nothing. Most of DL’s renegotiated leases have 7 year terms which is part of why they are talking about replacement aircraft in the 2014 time frame when those leases end. AA could dramatically reduce aircraft costs on its older fleet but there is little chance that leases on the 738 which are still current production aircraft could be reduced much. Perhaps some of the older 772s could be reduced some….
Yes, you are right, Bob, that BK is a way to restate costs based on the current market.
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It is also true that the company will overstate the value of variable compensation such as profit sharing…. It is up to you to properly value it based on reality… and then put in place checks later on to say that if profit sharing is less than X, then they have to change something else to make up for it. Godo luck… but you need to do so.
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I doubt seriously that AA is even thinking anymore about replacing what they “got” from labor years ago… which is all the more why for you and AA labor to go after it is not going to work.
The fact that they won’t reveal costs to you is a reflection of how broken the relationship between labor and mgmt is and that there is no reasonable chance you two are going to come to any meaningful agreement. Not sure where you sit w/ regards to negotiations (how many others negotiate for the TWU), but I would presume you have to buy-in for a deal to go forward.
You understand the concept of net vs total debt as well as the changes in liabilities that can happen in bankruptcy.
Changing your hypothetical examples to real life based on what happened during the last four network/legacy carrier bankruptcies:
1. The easiest debt to get rid of in BK is unsecured debt. DL had $4B of it when it entered. UA had $1.5 (+/-) and other carriers less. Part of the reason why DL continued to operate in the red as long as it did was because it was racking up losses on an unsecured basis that would be wiped out in BK. Some would call it immoral but it was legal. AA has very little unsecured debt which is partly a reflection of its ungoing financial decline and the fact that creditors want security for anything which is loaned to AA. AA would therefore not see much benefit from BK regarding unsecured debt.
2. Pension expense is huge and was dealt with in BK. Even if carriers were reasonably current before BK on their payments to their pension plans, Wall Street looks at the total obligations that must be paid in the future. It is an obligation that must be eventually paid. Given that AMR owes about $8B more than the current value of the plan assets, it is very likely those obligations have to be removed or restructured. DL and NW both were able to largely not terminate their pension plans (DL pilot plan being the exception because of the lump sum payout provision) and they have to catch up on the remaining balance over a period of years. All of those carriers replaced their frozen (DL and NW) or terminated plans (DL pilot, UA, US) with defined contribution plans which provide for the expense to be realized NOW – without the potential for a large payment later.
3. Airport facility costs are rarely reduced but it is possible they could be renegotiated. Given that airport facilities are publicly owned (in the US) and backed by tax dollars, there is little appetite for stiffing the taxpayer (note that the PBGC lost nothing in these airline bankruptcies because they obtained stock for their “efforts.” The airlines also paid insurance to the PBGC on their plans. You can reject airport leases in BK and DL and NW clearly reworked a lot of leases in BK to allow them to reduce airport space as necessary when the merger was announced.
4. Reworking aircraft leases can reduce costs considerably, esp. for older aircraft. Given that AA is actively adding newer generation aircraft, it could terminate leases on older M80s, 757s, and 767s – if they are leased. DL was able to considerably reduce leases on its M80s in BK because there was no market for those aircraft if DL had rejected the leases. If AA decides to keep any M80s during a bankruptcy, they could probably lease them for next to nothing. Most of DL’s renegotiated leases have 7 year terms which is part of why they are talking about replacement aircraft in the 2014 time frame when those leases end. AA could dramatically reduce aircraft costs on its older fleet but there is little chance that leases on the 738 which are still current production aircraft could be reduced much. Perhaps some of the older 772s could be reduced some….
Yes, you are right, Bob, that BK is a way to restate costs based on the current market.
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It is also true that the company will overstate the value of variable compensation such as profit sharing…. It is up to you to properly value it based on reality… and then put in place checks later on to say that if profit sharing is less than X, then they have to change something else to make up for it. Godo luck… but you need to do so.
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I doubt seriously that AA is even thinking anymore about replacing what they “got” from labor years ago… which is all the more why for you and AA labor to go after it is not going to work.
The fact that they won’t reveal costs to you is a reflection of how broken the relationship between labor and mgmt is and that there is no reasonable chance you two are going to come to any meaningful agreement. Not sure where you sit w/ regards to negotiations (how many others negotiate for the TWU), but I would presume you have to buy-in for a deal to go forward.
TWU informer
Veteran
- Nov 4, 2003
- 7,550
- 3,767
Bob
Exactly when do you think all of your "facts and figures" along with your willingness to continue arguements with those you can never convince will lead to a contract?
I really can't afford to keep going backwards much longer while You, AA, and the NMB keep this crap up. It is all good reading and very educational but I would rather get an education in something that can satisfy my own interest rather get an education daily in how unethical, worthless, and inept AA Management is. I've been convinced of those facts for quite sometime now, so this is like reading the same novel over and over.
Exactly when do you think all of your "facts and figures" along with your willingness to continue arguements with those you can never convince will lead to a contract?
I really can't afford to keep going backwards much longer while You, AA, and the NMB keep this crap up. It is all good reading and very educational but I would rather get an education in something that can satisfy my own interest rather get an education daily in how unethical, worthless, and inept AA Management is. I've been convinced of those facts for quite sometime now, so this is like reading the same novel over and over.
We need to be released and get the clock ticking.
The company has no reason to bargain and the NMB has not pressured them to do so. They take $20 million off the rejected TA and agrees to move the furniture around and the NMB calls it moving towards us. We have complied with all the NMBs requests to date, they've streched this process out a year since the TA, with ALPA in 1997 they released the parties after the TA was rejected, they had their PEB recommendation less than 60 days after they rejected the TA IIRC.
Clearly the plan is to wait us out till we are so far behind we will accept whatever the company offers, it would be good if the membership approached their assignments with the same vigor and committment to get it done as the company approached negotiations but that would probably be considered an illegal job action. Themis has clearly lost her blindfold and likes what she sees in Corporate America.
We've recieved managements counter proposal which despite the fact that they moved to industry standard as far as 10 Holidays (like management has had all along) is not progressive, its clearly regressive and the company claimed that their intent is to take something from somewhere else in the proposal to pay for it.
We need to get released.
Don't hold your breath if you're waiting for something tangible from the TWU in June.
I've said it before.....It doesn't cost AA for stalling, and it doesn't cost the TWU either. So, keep reading the same book!
Frank Szabo
Veteran
One of our 4 main "business boys/girls" told where the money is "going" a while ago (AMR will probably never have to pay income taxes again" and all jumped and said it had nothing to do with the problem even though the yearly deduction of these charges from previous years allows AMR to plead poverty during "negotiations" [sic].
The business apologists will be back in short order trying to convince all that 2+2=5.
TWU informer
Veteran
- Nov 4, 2003
- 7,550
- 3,767
Ok So at what point do we stop licking the Government Boot, and being compliant? Most of the Succesful Labor History I read has nothing to do with governmental and/or legal compliance and pandering. In fact, non-compliance was more the norm when gains were made. Have you read the same history I have?
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