Why Investors Should Avoid American Airlines
- Thread starter john john
- Start date
The long-term obligations of Delta and AA are not very different if you look at long-term debt plus capital leases plus pension and postretirement benefits. As of 10/31/15, those total $21.0 billion at Delta and $26.3 billion at AA. On these items, AA owes $5.3 billion more than Delta.
At 10/31/15, AA was sitting on $8.2 billion of unrestricted cash and short-term investments (not including the worthless Venezuela currency) and DL was holding $3.8 billion. AA's cash is thus $4.8 billion more than Delta's total.
http://ir.delta.com/files/earnings/2015/3Q/Delta-Announces-September-Quarter-Profit.pdf
http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-newsArticle_print&ID=2100647
While AA has significantly higher long-term debt plus capital leases, its overall picture isn't that much different than Delta's. AA is certainly pursuing a different strategy, and it might not be the winning one. But I believe that focusing solely on the different levels of long-term debt and leases is not the correct analysis.
If an economic slowdown occurs, and that slowdown is accompanied by high oil prices (like most slowdowns are), then AA's fuel bills will be lower than the competition. If the slowdown happens with low oil prices, then AA is screwed.
The periodic purchase of stock by AA (and all other profitable airlines) is the tax-efficient way to return excess cash to the shareholders and to prop up the share price. The fact that Delta is currently valued higher than AA is only really important if you're currently planning to sell. If you're a buyer or intend to hold stock for the long term, then lower stock prices aren't a problem.
At 10/31/15, AA was sitting on $8.2 billion of unrestricted cash and short-term investments (not including the worthless Venezuela currency) and DL was holding $3.8 billion. AA's cash is thus $4.8 billion more than Delta's total.
http://ir.delta.com/files/earnings/2015/3Q/Delta-Announces-September-Quarter-Profit.pdf
http://phx.corporate-ir.net/phoenix.zhtml?c=117098&p=irol-newsArticle_print&ID=2100647
While AA has significantly higher long-term debt plus capital leases, its overall picture isn't that much different than Delta's. AA is certainly pursuing a different strategy, and it might not be the winning one. But I believe that focusing solely on the different levels of long-term debt and leases is not the correct analysis.
If an economic slowdown occurs, and that slowdown is accompanied by high oil prices (like most slowdowns are), then AA's fuel bills will be lower than the competition. If the slowdown happens with low oil prices, then AA is screwed.
The periodic purchase of stock by AA (and all other profitable airlines) is the tax-efficient way to return excess cash to the shareholders and to prop up the share price. The fact that Delta is currently valued higher than AA is only really important if you're currently planning to sell. If you're a buyer or intend to hold stock for the long term, then lower stock prices aren't a problem.
- Thread Starter
- #33
http://www.investopedia.com/articles/investing/011216/how-banning-buybacks-would-help-economy.asp
Buybacks are nothing more than a form of financial engineering. Banning them would force corporations to allocate more capital to organic growth. This would reduce layoffs, lead to more hiring, and even lead to wage growth.
Buybacks are nothing more than a form of financial engineering. Banning them would force corporations to allocate more capital to organic growth. This would reduce layoffs, lead to more hiring, and even lead to wage growth.
john john said:
The problem is that sometimes there are no organic growth investments sufficiently financially attractive to be a responsible use of the shareholders' cash. Thus, when corporations determine that no use of that cash would create more value for the customer than simply giving them their cash back, they can use a variety of means - of which buybacks is just one - to return that cash. If buybacks were banned, companies could return cash via other means, such as dividends.
There is no way to ban corporations from returning cash to their shareholders short of eliminating the entire legal and financial construct of the corporation (which dates back centuries) altogether. The goal of a corporation has never been to "reduce layoffs," do "more hiring" or generate "wage growth" - it is to create value for shareholders. Ultimately, the cash belongs to the shareholders, not the company.
- Thread Starter
- #35
OK I’ll playcommavia said:
The Bottom Line
Unemployment might be low, but many people are underpaid and can’t make ends meet. Don’t fall for the “lower gas prices helps the consumer” narrative. This has been more than offset by skyrocketing health insurance costs. If buybacks were banned and corporations were forced to allocate trillions of dollars into toward organic growth, it would lead to more innovation, more jobs, and higher wages. The only people who wouldn’t want that are those with a biased interest. Fortunately, there are talks taking place in Washington about buybacks and their negative impact on the real economy. Buybacks might help investors, but this is nothing more than legalized stock manipulation.
I would imagine growth for the sake of growth would eventually lead to bankruptcy. I as an employee and stock holder would prefer a dividendjohn john said:
AANOTOK
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I guess some money used for "buybacks" could not be used for some sort of profit sharing. A bonus that would improve the morale of the employee, in return an employee who see's his/her hard work rewarded and appreciated will often be a better and more productive employee. For the shareholder, this means the likely hood of a good product and a longer lasting return on his/her investment.
No, that couldn't possibly be a good idea, especially if it's gonna diminish Doug's monthly multi-million return!
No, that couldn't possibly be a good idea, especially if it's gonna diminish Doug's monthly multi-million return!
john john said:
Maybe in the short run, but not in the long run.
When you force corporations to inefficiently spend OPM ("other peoples' money") - and that is exactly what shareholders' cash is - eventually said shareholders will simply stop giving their cash. And then where is the "growth," jobs and higher wages - "organic" or otherwise - supposed to come from?
As the saying goes, "the problem with socialism is that eventually you run out of other peoples' money to spend."
john john said:
Because those advocating the banning of buybacks to force publicly-traded corporations to allocate their owners' money in economically inefficient ways don't have a "biased interest?" Some are "biased" in the pursuit of profit, while the other are "biased" in the pursuit of jobs - neither is any more or less "biased" than another.
topDawg
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- Nov 23, 2010
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you must not invest in anything or have a 401K or anything.john john said:
Buybacks aren't a bad thing in a time like now and, for me at least with my Delta stock, are making me money. Now I don't think AA offered its frontline stock like Delta did, but i have a feeling that at least some of the 401K at AA has something to do with AA stock.
Remember, its and up and down industry, we want to see the peaks and valleys get lower, we all need this industry to do better.
taking 6B and giving it to employees and giving investors nothing........not how we get there.
sorry, i used Delta's target because they have given one. IIRC AA hasn't. (unless I messed something during a call, completely possible.)commavia said:
but you are right, 2016 number is more fair than the 2017 target. My bad.
4B has just been driven into my head so many times. can't help it.
I agree. I am a in the now investor(but oddly once I am in i prefer the long term) and I don't like what AA is doing. 2 years ago, I was all over it. Fuel is high, they are just going new fleet vs more than likely pissing money away on hedging.commavia said:
but fuel dropped.......and now, man I want Parker to get his union contracts done (err....two reasons for that one) and start cleaning that balance sheet up. (and stop leasing *so* many planes)
Do that then they only thing I wont touche is UAL........and I'm not sure we will ever get to the point where that one happens.
ah.... my kind of guy/girl(?). (no sarcasm, I think everything you listed should be viewed as debt)FWAAA said:
but sadly it isn't. Having said that, Delta has already said the pension is going to be the next big thing. (and have, as of late, been putting extra towards it, but SHOULD have been doing more) I haven't seen anything from AA addressing anything you listed.
I don't even want to see much done by AA,, I just wanna see some kind of commitment to the balance sheet. I feel like now is the time to maybe defer some planes and take that capex and put it to the balance sheet. I don't expect them to Delta it overnight but something would be nice.
Oh wanted to add, while yes, AA's fuel bill will be somewhat lower(remember the only "old" engines in the DL fleet are really the JT8Ds and i guess PW2000s), DL can park airplanes if it has unprofitable routes at the fuel price. AA really can't. saying that, if fuel goes up, I'm sure someone in Atlanta will be willing to lose billions on bad hedges again once it drops down.............
having said that, one thing I have learned is, just like commavia said, not a single one of us numbers people can agree on anything. I just like posting my opinion.
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