Why Investors Should Avoid American Airlines

[AANOTOK]

let's see - everyone wants new planes, wants very high pay, wants debt paid down, increased benefits and low fares
 
where is all the cash coming from to do everything simultaneously

Not from the trove of cash AA claims they have too much of...obviously!

 

[eolesen]

I'm not a fan of Parker, but isn't he just cashing in what from the compensation package that the unions agreed to in order to have the combined airline you now work for?

He's honoring your contracts, so now it's time to suck it up and honor his.

My pockets?

There's a huge difference between money coming out of your pockets and money not going into them. Unless you took a pay cut, nothing going towards airplanes, CEO stock options or debt paydown was your money to begin with, so exactly how did it come out of your pockets?...


The premise of doing debt paydown and refinancing assume that AA isn't already getting money at lower rates. I suspect they already have fairly low rates given the cash generating power of the airline right now.

And, given how cyclical things have been in the past two decades, I can understand why some airline CFO's would want to hoard cash for a rainy day. It's going to come eventually, and holding onto cash you already have is always a better solution than trying to raise it when it's a lender's market.

 

[AANOTOK]

I'm not a fan of Parker, but isn't he just cashing in what from the compensation package that the unions agreed to in order to have the combined airline you now work for?

He's honoring your contracts, so now it's time to suck it up and honor his.


There's a huge difference between money coming out of your pockets and money not going into them. Unless you took a pay cut, nothing going towards airplanes, CEO stock options or debt paydown was your money to begin with, so exactly how did it come out of your pockets?...


The premise of doing debt paydown and refinancing assume that AA isn't already getting money at lower rates. I suspect they already have fairly low rates given the cash generating power of the airline right now.

And, given how cyclical things have been in the past two decades, I can understand why some airline CFO's would want to hoard cash for a rainy day. It's going to come eventually, and holding onto cash you already have is always a better solution than trying to raise it when it's a lender's market.

Wrong E, I haven't received my prefund match, it's contractual. Time for him to "suck it up" and honor ours!

 

[WeAAsles]

Wrong E, I haven't received my prefund match, it's contractual. Time for him to "suck it up" and honor ours!

Agree 100%. He's looking to play the loophole "upon successful resolution" forced down our throats. And use the excuse "That was an issue before I took over"

So it is hard to wish him well on his contract if he wants to circumvent ours.

Oh and whatever happened to that revenue gain share language as well?

Bet Doug is loving all that vague language handed to him with our airline.

 

[topDawg]

As long as interest on debt is tax deductible as a business expense, why should any company eliminate all debt.   Autofixer, I agree with you.  Let's wait and see.  Either the strategy pays off in the long run or it doesn't.  So far, we seem to be doing pretty well.

I don't think anyone said eliminate all debt, even Delta plans on staying around the 3-4B mark. 
 

let's see - everyone wants new planes, wants very high pay, wants debt paid down, increased benefits and low fares
 
where is all the cash coming from to do everything simultaneously

the large profits the company is still making would be a good start? 
 
 

I'm not a fan of Parker, but isn't he just cashing in what from the compensation package that the unions agreed to in order to have the combined airline you now work for?

He's honoring your contracts, so now it's time to suck it up and honor his.


There's a huge difference between money coming out of your pockets and money not going into them. Unless you took a pay cut, nothing going towards airplanes, CEO stock options or debt paydown was your money to begin with, so exactly how did it come out of your pockets?...


The premise of doing debt paydown and refinancing assume that AA isn't already getting money at lower rates. I suspect they already have fairly low rates given the cash generating power of the airline right now.

And, given how cyclical things have been in the past two decades, I can understand why some airline CFO's would want to hoard cash for a rainy day. It's going to come eventually, and holding onto cash you already have is always a better solution than trying to raise it when it's a lender's market.

I get the saving cash, but at what point is it to much? 
The only reason I haven't jumped on AAL (more than short term) is the balance sheet. I like everything else the company is doing but the balance sheet is keeping me away from buying in right now. (also not a fan of how much of the fleet is leased v owned.)  

 

[FWAAA]

I follow and read Seeking Alpha and many that comment on AAL have a problem with the amount of debt carried.  I can see from an MBA perspective it would be better to refinance debt at historically low interest rates rather retire it.  Most on Seeking Alpha seem to fail to realize AAL is following a different strategy than Delta, the airline with which they love to compare AAL.  AAL's strategy appears to be: 1. Not hedging, but putting more efficient equipment in place.  2. Not retiring debt, but refinancing at record low rates.   3. Not coexisting with low fare carriers but taking advantage of low fuel input costs to match fares on overlapping routes.  Time will tell if this is the correct strategy or that of Delta and United.

Well said. Very well written.

Paying down debt is usually a very good idea, but when interest rates are at record lows, as they have been, it might be a good gamble to refinance higher-rate debt into lower-rate debt. It may not be the winning strategy, but no executive wants to approach banks when they really need to borrow and the rates are high.
 
 

Gee, I thought bankruptcy was to reduce and restructure debt.

Sure, unsecured debts can be eliminated, but secured debt can't be eliminated unless you're willing to give back the collateral. And AA had very little unsecured debt, as lenders learned to not extend much unsecured debt after the US, UA, DL and NW bankruptcies.

AA's primary motivation in filing for Ch 11 was to cram efficient contracts down the pilots' and FAs' throats, not to eliminate debt. The secondary reason was to eliminate the pension, but the government interfered with that plan. AA was able to to refinance high-rate debt with low-rate debt and avoid paying the early-payment penalties (since AA was in bankruptcy).

 

[Overspeed]

700UW,
Parker's old US stock is worth more why? Because the APA, APFA, and TWU snuggled up to him and sold out the membership by backing the merger. Parker's stock is only worth as much as it is because legacy AA employees took pay and benefit cuts to keep AA out of BK all those years. AMR management took the company BK only to force the unions to take more pay and benefit cuts. Parker swooped in a leveraged the weak minded (or opportunity minded) APA, APFA, and TWU leadership in to backing the merger. Did AMR need US to survive? Hell no. US needed to merge with AMR to survive. If the APA, APFA, and TWU not backed the merger the new standalone AA would buying out US and Parker would not be using the new AA as an ATM machine cashing in his old US stock.
 
Why are you defending Parker? He screwed over all HP and US employees and you defend him??? And you want us to listen to you and your pro-IAM rhetoric as in our best interest?

 

[NewHampshire Black Bears]

" UAL did THIS "....." Del-DUH did THAT ",....who gives a  * * * *   what either of them do !
United and thier moronic management team, walk around in a perpetual FOG, while Big DICK Andersen is hailed (by some) as the greatest CEO Ever (Even better the (uncle) BOBBY CRANDALL, some clowns will proclaim)  Andersen  'ain't  sheet '.  He   S T O L E,  with help from Doug Steenland, one of the greatest carriers in US history, to get where he is (DL) today. A move that should have been met with an  ol' BROOKLYN saying, that they both,  'should have caught  two-behind-the-ear'  !!
 
I'm not a Parker fan either,.. B U T, Parker on his worst day is light years ahead of that Red-Neck  DICK  Anderson  !!

 

[Overspeed]

E,
Parker has shown great skill in engineering mergers. He can make deals no doubt but what next? The mergers are done for the foreseeable future and he has yet to show he is an innovator and can grow a company organically. US limped along with labor problems while he was totally focused on mergers with anyone.
 
Since engineering the merger he and his team have done what? Driven the stock price down for sure. Was it trashing the AA loyalty programs? Was it abandoning the premium products we used to offer? Announcing we are going to compete with Spirit not UA or DL? Or those great decisions to buy back stock which was $4B the first time and $2B the second time in 2015. All those buy backs seem to have done is put stock back in the AAL stock compensation fund to pass out to Parker and his cronies to replace all that old US stock he is cashing in. Parker isn't stupid. He is no better than Ichan in that he is extracting the value out of AAL and in to his pocket just like what happened at TWA. He isn't building AAL he's draining it of it's sustainablity.
 
When the next down turn comes I fear that AAL will be saddled with more debt than our competitors, not much leverage in the company, and Parker will have to sell AAL assets or extract wage and benefit concessions, maybe even another BK.
 
The APA, APFA, and TWU made a bad call by jumping in to bed with Parker. As much as I am pissed at Horton and the AMR BOD for taking the company BK, we were better off without merging with US. AAL did not need US, US needed AAL.

 

[Jester]

Parker's tactic of matching ULCCs like Spirit might be working....
 
"Ben Baldanza, who led the industry push for more and more airline fees, is out as CEO of Spirit Airlines....
In the past year, the amount of available seats has grown by 34 percent. But passenger revenues haven't kept up, growing less than 1 percent, as other airlines also created their own structure of fees, which are no longer a novelty."
 
http://news.yahoo.com/brash-fee-happy-ceo-spirit-144259979.html?nf=1
 
I have questioned if Parker is ready to actually run an airline vs. broker Wall Street deals, but I guess we will see how he handles Delta and eventually, United.

 

[nevergiveup]

Fed Ex uses the philosophy that by treating your fellow employees well, they will in turn treat the customers well. This helped them win the Malcolm Baldrige Award. Anyone that has tried to non-rev at American knows that we are the opposite of that philosophy. American is a profitable company. While Delta is Macys, American is Big Lots or Walmart, but that I believe is the company goal. It is nothing more than a numbers game, and Doug knows how to count. They could have reached out to the employee groups with their billions in profits but chose not to. That's just the way it is. A good investment, I'm not sure.  

 

[topDawg]

Well said. Very well written.

Paying down debt is usually a very good idea, but when interest rates are at record lows, as they have been, it might be a good gamble to refinance higher-rate debt into lower-rate debt. It may not be the winning strategy, but no executive wants to approach banks when they really need to borrow and the rates are high.

 
 
It worries me that AA is just ranking on debt while the other two legacies are paying it down. AA could take most of its cash and pay of debt right now and they would still be 10-15 billion more in debt that UA and 15+ more than DL.  So I get why they are refinancing but I would much rather refinance 4B compared to 28B...... 
 
 

Sure, unsecured debts can be eliminated, but secured debt can't be eliminated unless you're willing to give back the collateral. And AA had very little unsecured debt, as lenders learned to not extend much unsecured debt after the US, UA, DL and NW bankruptcies.

AA's primary motivation in filing for Ch 11 was to cram efficient contracts down the pilots' and FAs' throats, not to eliminate debt. The secondary reason was to eliminate the pension, but the government interfered with that plan. AA was able to to refinance high-rate debt with low-rate debt and avoid paying the early-payment penalties (since AA was in bankruptcy).

 and dumping some aircraft leases. 
not sure why everyone thinks BK is a chance to just dump all your debt. 
 

" UAL did THIS "....." Del-DUH did THAT ",....who gives a  * * * *   what either of them do !
United and thier moronic management team, walk around in a perpetual FOG, while Big DICK Andersen is hailed (by some) as the greatest CEO Ever (Even better the (uncle) BOBBY CRANDALL, some clowns will proclaim)  Andersen  'ain't  sheet '.  He   S T O L E,  with help from Doug Steenland, one of the greatest carriers in US history, to get where he is (DL) today. A move that should have been met with an  ol' BROOKLYN saying, that they both,  'should have caught  two-behind-the-ear'  !!
 
I'm not a Parker fan either,.. B U T, Parker on his worst day is light years ahead of that Red-Neck  DICK  Anderson  !!

Do you ever know what you are talking about or do you like to post crap all the time?
 

E,
Parker has shown great skill in engineering mergers. He can make deals no doubt but what next? The mergers are done for the foreseeable future and he has yet to show he is an innovator and can grow a company organically. US limped along with labor problems while he was totally focused on mergers with anyone.
 
Since engineering the merger he and his team have done what? Driven the stock price down for sure. Was it trashing the AA loyalty programs? Was it abandoning the premium products we used to offer? Announcing we are going to compete with Spirit not UA or DL? Or those great decisions to buy back stock which was $4B the first time and $2B the second time in 2015. All those buy backs seem to have done is put stock back in the AAL stock compensation fund to pass out to Parker and his cronies to replace all that old US stock he is cashing in. Parker isn't stupid. He is no better than Ichan in that he is extracting the value out of AAL and in to his pocket just like what happened at TWA. He isn't building AAL he's draining it of it's sustainablity.
 
When the next down turn comes I fear that AAL will be saddled with more debt than our competitors, not much leverage in the company, and Parker will have to sell AAL assets or extract wage and benefit concessions, maybe even another BK.
 
The APA, APFA, and TWU made a bad call by jumping in to bed with Parker. As much as I am pissed at Horton and the AMR BOD for taking the company BK, we were better off without merging with US. AAL did not need US, US needed AAL.

Parker is, IMO, a very good CEO. You just have to give him time.....

 

[commavia]

While Delta is Macys,

 
For the sake of Delta's employees, I hope not!
 

So I get why they are refinancing but I would much rather refinance 4B compared to 28B...... 

 
Just a note: AA's balance of "long-term debt and capital leases" as of 3Q15 was $20.5B, not $28B, and of that a significant portion is capital leases which are certainly liabilities are not exactly "debt" per se.

 

[topDawg]

 
For the sake of Delta's employees, I hope not!
 
 
Just a note: AA's balance of "long-term debt and capital leases" as of 3Q15 was $20.5B, not $28B, and of that a significant portion is capital leases which are certainly liabilities are not exactly "debt" per se.

Whoops I did look at the wrong line, sorry about that. 
 
but still I'll take 4B over 20B. Wall street and banks have, so far, agreed with me. 

 

[commavia]

but still I'll take 4B over 20B.

 
So would I, although Delta's "long-term debt and capital leases" isn't $4B, either, but rather $8.8B (at least as of 3Q15).  Point taken - $8.8B is certainly considerably less than $20.5B.  But then, when looking a debt less cash/near-cash, the gap between the two carriers definitely narrows ($5.0B vs $11.0B).
 

Wall street and banks have, so far, agreed with me. 

 
We'll see.  No question that AA and Delta are pursuing two fundamentally different financial strategies that impact multiple aspects of their business - fleet, balance sheet, etc.  Time will tell how these divergent approaches actually work out.