Hopeful
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Place your bets!
- Thread starter Hopeful
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Interesting article, but it fails to explain why the authors think that AMR is twice as likely to file as UA. My prediction is that both AMR and UAUA will post net losses of at least $1 billion in the second quarter, and that both are equally likely to file by the end of the year.
eolesen
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It looks like they're going off share performance, which makes little sense as it has a serious disconnect with liquidity.
IIRC, CAL is leveraged higher than AMR, and UAL is leveraged higher than CAL is. Yet both show as less of a risk?
IIRC, CAL is leveraged higher than AMR, and UAL is leveraged higher than CAL is. Yet both show as less of a risk?
NewHampshire Black Bears
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I'm with you.."E"
When I know "It's Official"....only then will I know..AA "took the plunge" !!!
T
The Goose
Guest
FW, the answer depends mainly on how cynical one is - the "likely the fail" headline was probably bought. I believe there's some posturing going on.
B
BigBangTheory
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FURP and his puppets want to put AMR in BK. This was they can shred contracts with the union, set their own work rules and pay scales and trim more costs.
I would put the odds at even versus 1-2.
I would put the odds at even versus 1-2.
So why hasn't AMR filed yet? What's Arpey waiting for? Why not in 2003? Or 2004? Or 2005, etc? Why do everything he could do for over five years if he wants to file Ch 11?
If Arpey was in such a rush, why has he waited over five years?
Bankruptcy will probably happen, but wage reductions won't be offered as a way to prevent it. If wages and salaries were cut in half on June 30, AMR would still post a huge loss in 2008 and 2009 unless fuel prices suddenly collapse and return to $2/gal.
This time, of course, there won't be any "give us concessions or we'll file for Ch 11 protection." Concessions won't prevent the bankruptcy.
Instead, you'll wake up one morning this fall and read about the Ch 11 filing.
luv2fly
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There are several reasons why, not just the stock price... First, AMR has a Very large Debt load, Second.. AMR has high labor costs... Third... AMR has a Very old Super 80 fleet that equals half of its aircraft... Fourth... AMR has obligations to take on more debt for new aircraft to replace the old ones they are retiring instead of just parking the old ones in the desert... AMR losses will likely be musch higher than all other airlines this quarter b/c of the S-80 fiasco..
Excellent answer. Unlike the Money magazine fluff piece, you explained why you think AMR will file ahead of UAUA. I don't agree with all of your conclusions, but still, excellent post.
AMR does have higher labor costs, and if fuel were still cheap, that would be a meaningful difference. But with fuel at $4/gal, the difference between AA and UA labor costs are negligible. As I posted above, AMR will still be in deep stuff (as would UA) even if labor costs were halved on June 30. Labor costs are no longer large enough to really matter.
In 2003, AA had to fix a $1.8 billion a year cash shortfall. This year, fuel may cost $3 to $4 billion more than last year, and revenue just ain't keeping up. No amount of labor concessions would fix things, not at AA nor at UA.
AMR has reduced its debt substantially in the past couple of years, so that millstone isn't as large as it used to be.
Another big difference? In the first quarter, UA had negative operating cash flow of $80 million, while AMR had positive operating cash flow of $449 million, a difference of $529 million. Dunno how cash flow looks this quarter, but if the same trend continues, AMR has more breathing room than UA.
PRINCESS KIDAGAKASH
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That's why now is the time for AA to launch the "Mother of all Fare Wars". NWA,UA,DELTA, and USAIR will be in Chapter 7. AA,CO, and SW can then dominate the industry and bring prosperity back to the airline industry.
eolesen
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S80 fiasco aside, the fleet issue may be less of an ongoing concern than you'd think.
NWA's been facing the same issue with their DC9 fleet for years. They've had ample opportunity to put that fleet down, yet they determined a depreciated aircraft with higher maintenance costs and fuel burn is still a better option than a more fuel efficient aircraft with the higher cost off ownerships a A319 or E190 would have.
A friend of mine was doing a cost analysis last week, and considered the impact of selling a pickup truck at a loss just to replace it with a subcompact that got better gas mileage. Even if you are upside down on the loan, he figured it would take a 600% difference in fuel economy to make up for taking on the higher cost of ownership associated with the new subcompact than it would be to continue driving the guzzler before it was paid off. That savings target only goes up as you pay the thing off.
I'm not saying that the economics of a F250 vs. a Prius are a one-to-one comparison, but just having new aircraft which are more efficient doesn't mean that you have a cost advantage over someone flying older aircraft. You've got to look at the total cost of ownership before you can make that assessment accurately.
I guess you don't remember the Cold War and the concept of Mutually Assured Destruction, i.e. only a fool would have believed that we as a nation could have survived a retalitory strike if we fired ICBMs at the USSR first....
Just because AA is the biggest doesn't mean you'd survive the retaliation. If anything, you have more targets to be selectively nuked.
Last week, CO received a payment of $413 million under its credit card agreement with Chase, $235 million of which was advance purchase of frequent flyer miles:
http://biz.yahoo.com/ap/080612/continental...tlook.html?.v=1
If AA could wrangle $2 billion or $2.5 billion from Citi in a similar pre-payment deal, maybe AA would have enough cash to try your let's end this now fare war.
But if AA tries it and doesn't have enough cash to see it to the end, well . . .
Your all-in fare war takes big ones, and I doubt the HDQ staff measures up.
They never did and never will.
