Is financing for AA's 320s locked in?

[WorldTraveler]

As the Euro debt crisis deepens and the potential losses to French and German banks increase, will AA's Airbus orders be affected?

"French banks play a key role in the global aircraft financing market and represented about 31 percent of transactions in 2010 followed by Germany, Ryanair finance director Howard Millar said. French banks provide the majority of aircraft financing in Europe followed by Germany.

"The French banks have scaled back significantly. There will be less finance available and any finance will be more expensive," he told an ISTAT aircraft financing conference."

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"In the past few months things have got worse. French banks are effectively closed for new clients," Millar said. "We are in an ivory tower -- we are heading for a little bit of a car crash in terms of financing."

The shortage of bank financing has created uncertainty over 2012 deliveries but so far there is no serious evidence of a funding gap, several lessors and bankers said.

"It is more difficult from a pricing and availability standpoint. Banks are willing to do business but are reluctant to lock in for the long term," said Madhu Vijay, senior vice president of U.S. lessor Aviation Capital Group (ACG), part of mutual insurer Pacific Life.

 

[FWAAA]

As the Euro debt crisis deepens and the potential losses to French and German banks increase, will AA's Airbus orders be affected?

According to AA, 100% of the Boeing and Airbus orders are financed through 2016 and 80% of 2017 deliveries are financed:

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDE1OTcyOHxDaGlsZElEPTQzMzI0MXxUeXBlPTI=&t=1 (page 16 of .pdf)

Of course, things do change and perhaps the lenders will back out. I'm guessing that would subject the lenders to significant damage claims.

 

[eolesen]

Maybe the SEC's website isn't available in your part of the world, but this was all spelled out in the 8K filing last month:

In addition to other financing previously arranged by American, the manufacturers have committed financing to American of $13 billion through lease transactions, which covers the first 100 Boeing deliveries and first 130 Airbus deliveries.

This covers just about everything thru 2017. Who knows what will happen from 2018 onward.

 

[WorldTraveler]

Since the article states that it is possible that some 2012 deliveries are in jeopardy, it is indeed possible that terms could change... given that so far as we know, AA cannot operate the 320 series aircraft under its current pilot agreement, perhaps it is possible that Airbus inserted some of its own "qualifiers".... we'll see... but if the AA deal was won by very aggressive financing that Airbus expected to obtain elsewhere, it isn't at all impossible to think the AA deal and likely alot of others could be changed.

Even with the SEC disclosure, the financed aircraft still amount to just half of the total deal - and probably only enough to retire the M80 and some of the oldest 757s.

 

[eolesen]

The conference only ended about a half hour ago, and a few snippets out of the financing panel isn't something I'd get all worked up over just yet.

 

[WorldTraveler]

except that there is NO certainty that ANY deal will move forward. And the European debt crisis IS deepening... and Airbus' growth is highly dependent on financing in the very same way that the US housing industry was dependent on cheap financing in the US. The US housing industry is nowhere near a turnaround and US banks even though US banks are holding lots of cash that they will not release for lending - with clear implications on the US economy.
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Just like w/ the TWA acquisition - or DL's investment in the reorganized Pan Am in Latin America - there are caveats that exist in every contract.
If Airbus decides they are on the hook for too much money and banks expect Airbus to pony up the cash, then the deal might not be as certain as alot of people thought it was.
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And then of course we still have the reality that AA has pushed its reorganization out as long as it possibly can and is now making this aircraft deal and the associated cost savings that will come with it - even if they come at the expense of the balance sheet - the cornerstone of AA's hoped-for turnaround.
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But then we're seeing as AA further reduces its presence in ORD that AA's network cornerstone strategy is not quite as solid as mgmt tried to make us all think it was either. According to DOT data, VX is now carrying about 75% of the traffic between DFW and ORD to both LAX and SFO that AA carries and since VX carries a whole lot less connecting traffic, it is highly possible that their percentage of the the local market is a whole lot larger. ON the other coast, B6 is now carrying about 60% of the traffic between ORD and BOS that AA does - and again B6 carries alot less connecting traffic.
The end of the Wright Amendment, new Open Skies in Latin America, potential alliance changes, and continued growth of low fare carriers in AA's key markets make the job AA has of turning the company around even higher - and it also makes it all the more unlikely that AA can wait to start the turnaround for 2 more years as the new aircraft arrive.
Any hiccup such as reduced aircraft deliveries or higher cost financing only makes a very difficult job even harder.


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but we know that this is the "home" where a few in deniAAl shoot any message that assails their hopes for the long awaited turnaround... despite the fact that what was predicted years ago is now becoming very much the reality.

 

[FWAAA]

From the article quoted (but not linked) by the OP:

The shortage of bank financing has created uncertainty over 2012 deliveries but so far there is no serious evidence of a funding gap, several lessors and bankers said.

http://www.reuters.com/article/2011/09/20/aircraft-finance-idUSL5E7KK3MQ20110920

Does this sentence refer to deliveries where the purchaser has already lined up firm financing (like AA) or does this sentence refer to deliveries where the purchaser has not yet secured financing?

If there's a serious banking crisis, of course future aircraft deliveries could be in jeopardy.

 

[FWAAA]

but we know that this is the "home" where a few in deniAAl shoot any message that assails their hopes for the long awaited turnaround... despite the fact that what was predicted years ago is now becoming very much the reality.

Dunno who you're referring to, but I for one welcome AA's inevitable Ch 11 filing. It's worked out reasonably well for AA's legacy competitors, so might as well get it over with. If bankruptcy helps reduce AA's costs and AA is able to turn things around, great. If it doesn't work, who cares?

Besides, if DIP financing is difficult to obtain, might as well file while holding $5 billion in cash, negating the need to seek DIP or exit financing.

What you see in this thread is shooting the speculation-master who appears to be doing handstands in order to advance an agenda - a decidely anti-AA agenda - A Delta will Rule the World agenda.

Who knows how bullet-proof AA's financing deals are? Even better, who cares?

 

[eolesen]

Couldn't have said it better.

Face it -- AA's lawyers ain't stupid. Airbus was a "willing soul" (to paraphrase how Don Carty described the walk-away leases he negotiated with Boeing and McDonnell-Douglas for the first batches of 762s and MD80s). I'm sure AA has more than enough protection in their favor just to let Airbus back on the property.

Now, I'll grant our favorite cheerleader that Europe's banking system isn't looking too good right now. Airbus has a pretty diversified customer base, but if the Euro starts to collapse, it could get ugly if they've had to over-rely on national pride to get financing.

And should Airbus starts to unravel to the point they can't self-finance AA's deliveries because the European Union is in such turmoil they can't secure backstops, you know that Boeing will be more than happy to accommodate with additional orders.

 

[WorldTraveler]

Dunno who you're referring to, but I for one welcome AA's inevitable Ch 11 filing. It's worked out reasonably well for AA's legacy competitors, so might as well get it over with. If bankruptcy helps reduce AA's costs and AA is able to turn things around, great. If it doesn't work, who cares?

Besides, if DIP financing is difficult to obtain, might as well file while holding $5 billion in cash, negating the need to seek DIP or exit financing.

What you see in this thread is shooting the speculation-master who appears to be doing handstands in order to advance an agenda - a decidely anti-AA agenda - A Delta will Rule the World agenda.

Who knows how bullet-proof AA's financing deals are? Even better, who cares?

well since you and the other person jumped on the bandwagon stating the financing is in hand, then I would presume you do.
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But the truth is that AA's turnaround DOES depend on having the financing on hand to purchase these jets.... apparently Boeing and Airbus did both do handstands in order to win their respective parts of the deal - only to have AA split it. and no, there is no reason to believe that Boeing will give AA any more than what Boeing committed to....
And while this next financial crisis will be in Europe, aviation is a global business; if Airbus struggles to finance its jets, lending on this side of the Atlantic will get tougher - as will the potential that Boeing can reclaim some business.
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AA's lawyers could have got the best deal possible - but if even half of it falls apart, AA's abililty to carry out its turnaround takes on a very different shape.
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I have indeed said that it would appear that AMR has no other uncollateralized assets so it is much more risky to continue burning cash only to need it in order to stay alive during BK.
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It also says that AA will have to move very quickly in BK to stem losses and the fastest way to cut costs is via employees - so they should be very concerned whether AMR has DIP financing or not.
AMR could well obtain exit financing - and likely will - even if they don't go in with DIP because their turnaround plan should make it clear that they can survive.
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No, there really isn't a DL will rule the world campaign.... but there is very much a reality that AA by not addressing its problems has provided huge opportunities to its competitors... among the network carriers, it has been DL who has been most aggressive in going after what AA has that DL needs.
But let's also be clear that AA has slipped considerably against UA and on balance DL and UA are now the two megacarriers of US aviation - and barring a major slip from either one (not likely), the game is between them as network carriers while they sit around picking off the revenue that AA continues to drop.
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Among low fare carriers, WN appears to be preoccupied with its FL acquisition and on strengthening themselves for the opportunities that will come with the end of the Wright Amendment... but VX and B6 both continue to chip away at core markets.
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The fact that VX is probably carrying as many local DFW and ORD to SFO and LAX passengers as AA despite AA's mileage efforts shows how quickly the tables can turn when you are not able to defend yourself. Now as AA becomes much more aggressive in matching VX's fares, the impact to AA's bottom line will add up very quickly - but based on history, it is virtually impossible to shrink the presence that VX has already established. Obviously, LAX and SFO are absolutely key markets for AA and VX is now in AA's highest revenue markets with a solid presence.
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All the brand new planes in the world - financed or not - can't undo the damage that has occurred and will continue to occur as other carriers continue to pull the valuable premium revenue that has been the mainstay of AA away from AA and over to themselves.
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Knowing that BK leaves a carrier even more vulnerable to defending its markets and knowing that the reorganization process takes time should make anyone hopeful for AA's turnaround recognize the enormous risks taht are ahead of the company.
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We obviously won't know the impact of these potential financing issues now - and perhaps not for several years.... but it would be naive now not to recognize that AMR's already stretched balance sheet becomes an even less attractive place for either A or B to place jets - and if the European banking system starts melting down, AA might find itself w/ alot fewer jets than it planned and having to pay even more for the ones they can get.
A and B both have smart lawyers too.

 

[IORFA]

Seriously, where is the ignore button?

 

[Hopeful]

Dunno who you're referring to, but I for one welcome AA's inevitable Ch 11 filing. It's worked out reasonably well for AA's legacy competitors, so might as well get it over with. If bankruptcy helps reduce AA's costs and AA is able to turn things around, great. If it doesn't work, who cares?

Of course you and other anti unionists welcome a chapter 11 which screws workers and basically leaves management be.
Remember this, FWAAA.....Chapter 11 CANNOT repair morale. I will do my best to make sure that AA remains at the bottom of the DOT rankings and customer service. I am sure thousands more AAers will do the same.
As far as you seemed to be concerned reducing costs means screwing workers.....SO expect reduced costs to produced reduced morale.

And when if and when they do file, the FAA will show a strong presence of the operation system wide.. I once had an FAA inspector do a walk around and delay an aircaft for 6 screws missing over an entire wing covering multiple panels....

Wait until every mechanic suddenly aquires XRAY vision...

 

[WorldTraveler]

Of course you and other anti unionists welcome a chapter 11 which screws workers and basically leaves management be.
Remember this, FWAAA.....Chapter 11 CANNOT repair morale. I will do my best to make sure that AA remains at the bottom of the DOT rankings and customer service. I am sure thousands more AAers will do the same.
As far as you seemed to be concerned reducing costs means screwing workers.....SO expect reduced costs to produced reduced morale.

And when if and when they do file, the FAA will show a strong presence of the operation system wide.. I once had an FAA inspector do a walk around and delay an aircaft for 6 screws missing over an entire wing covering multiple panels....

Wait until every mechanic suddenly aquires XRAY vision...

while history would agree that your proposed approach is the norm, you would do well to ask how that strategy has worked out for those who have gone before.
It is possible that the "grind the operation to a halt" mindset works for you because you have your exit strategy lined up, but not everyone is ready to watch AA fail and walk away unscathed.
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I believe that Arpey has tried to avoid BK in part because he truly did not want to create an even worse labor environment than exists today.
While I agree that is a good motive, the problem is that as long as AA's problems remain unfixed, the challenge of turning the company around continues to grow.
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While some don't like hearing it, AA's challenges are enormous; having any one group - employees, creditors, or suppliers - who decide they don't want to meaningfully participate in AA's turnaround is tantamount to beginning the process of shutting the place down for good. Whether it be Airbus or Boeing, banks or caterers, or employees - everyone has to be onboard in order for AA's turnaround to work.
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That might sound parochial to some but it is the simple reality.

 

[Hopeful]

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That might sound parochial to some but it is the simple reality.

What is reality is the $20000 a year (and counting) that just I gave back to this company since 2003.
At some point AA needs to stop blaming labor expenses as the major reason for their losses.
Bad management decisons going back the last 25 years have gone unpunished to those who made the decisions to spend millions and millions opening hubs in RDU and BNA only to close them a few years later. How about removing seats for the MRTC campaign?? Only to reinstall those seats and DECREASE pitch for that ever so valuable customer....Getting out of routes so JETBLUE can take over?
These are just a few BAD decisions made by AA....But yet accordng to some on this board, only seem to think that WORST decison was NOT to file bankruptcy to SCREW the workers.

 

[Deleted member 14439]

while history would agree that your proposed approach is the norm, you would do well to ask how that strategy has worked out for those who have gone before.
It is possible that the "grind the operation to a halt" mindset works for you because you have your exit strategy lined up, but not everyone is ready to watch AA fail and walk away unscathed.
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I believe that Arpey has tried to avoid BK in part because he truly did not want to create an even worse labor environment than exists today.
While I agree that is a good motive, the problem is that as long as AA's problems remain unfixed, the challenge of turning the company around continues to grow.
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While some don't like hearing it, AA's challenges are enormous; having any one group - employees, creditors, or suppliers - who decide they don't want to meaningfully participate in AA's turnaround is tantamount to beginning the process of shutting the place down for good. Whether it be Airbus or Boeing, banks or caterers, or employees - everyone has to be onboard in order for AA's turnaround to work.
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That might sound parochial to some but it is the simple reality.

It seems you left out one other group. MANAGEMENT. They have demonstrated that they do not wish to participate either