Isn't too much debt what bankrupted AA?
Not really. AA didn't have very much unsecured debt (the kind of debt you can unload in Ch 11). AA did have a fair amount of secured debt (secured by airplanes) and most of that debt remains. Some of it has been reduced to reflect the lower value of the airplanes, but most of it remains.
AA filed for Ch 11 so that it could use the hammer of 1113 to force more efficient contracts on the employees, primarily thru work rule concessions. In Ch11, you either agree to concessions or the judge permits the company to impose them. The pilots resisted and were the first group of pilots among the legacy carriers to have their contract abrogated.
In ten years we have have 20+ year old 737's,777's and debt on 500 new airplanes.Delta on the other hand is buying used airplanes at 1/4 of the cost, something don't don't add up? Bankruptcy every 10 years? Unprecedented airplane order = huge debt.Explain the logic? The big fancy house mentality seldom prevails.
AA's earliest 738s and 777s will be 14 years old next month, and by ten years from now, some of them may be due for retirement.
The new airplanes are all about fuel cost. Right now, with fuel at $3.20/gal, the fuel savings of a new 738 (compared to the MD-80 it replaces) more than pays the lease payments on the new 738. Add in the maintenance savings (at least for the first 5-6 years) and the new 738 adds to profits. Unless, and this is a big one, unless fuel prices decline. If fuel prices drop, then AA's massive gamble will backfire and it will end up with higher costs than the competitors who have moved more slowly to replace their fuel hogs.
Yes, DL is buying every available MD-90 and is taking the FL 717s off WN's hands (at great expense to WN). Great deal for DL. Of course, DL has also ordered 100 739ERs which Anderson (DL CEO) said would add to DL's profits in their first year. How? Lower fuel burn plus maintenance savings. It's not just me who's been saying that fuel efficient planes pay for themselves, even the Anderson the Great of Almighty Delta has said the same thing. And DL has a lot of older fuel inefficient planes that will eventually need replacement, like its huge fleet of 763s and 757s plus its 747s and a fairly large pile of MD-88s. Delta is going to order more new planes - the supply of used 717s and MD-90s is not very large. UA is in the same boat - an aging fleet (the CO side was young, the UA side was old and getting older by the day).
If fuel costs drop, AA's gamble doesn't look so good. But if fuel costs climb, you don't want to be the airline left holding the old fleet bag, and that's where AA was in 2005 with over 300 MD-80s, 34 AB6s, 15 762s and over 100 757s. Fuel costs spiked and AA handed the oil companies many multiples of your concessions.
Fuel is very expensive, but have you noticed the cost of money? Interest rates are very, very low. It's impossible to hedge fuel 20 years into the future, but if you lock in favorable lease terms on new fuel efficient planes for 20 years, that's sort of similar to hedging fuel for the long term. Basically, you can burn fuel or you can burn money buying/leasing new planes so that you don't burn as much fuel. Neither choice is all that ideal, but that's the reality facing airline management. Fuel cost AA $0.55/gal in 1998 and 1999 and yet it cost AA $3.20/gal last year. That's an increase that's almost six-fold. Fuel went from being a pesky annoyance like airport rent to being the largest single expense at AA. I'm not smart enough to know if the 500-new-plane plan will succeed, but what other realistic choice is there? If fuel costs double (let alone grow by six times) in the next 14-15 years, efficient planes are a necessity.
AA was going to file for bankruptcy protection no matter what. It was only a matter of time. But having done so, is it better to muddle along with its old fuel inefficient fleet and hope that fuel prices drop or is it better to implement a plan to deal with high fuel prices? The re-fleeting plan may not work, but not buying new planes would be a plan certain to fail.