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Thread: AA Position and Recovery Analysis

  1. #1
    Registered User Dacuj's Avatar
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    AA Position and Recovery Analysis


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    An absolutely spot on analysis from another forum that shores up everything I've been saying. AA is in a spectacular position and will crush UA and DAL coming out of this. The doom and gloomers here will come back with some very weak arguments and zero facts saying AA IS DOOMED I am sure.


    Debt - this is the one everyone screams about. Yep, we have a lot of it. But the short term isn’t bad at all. Our highest rates are on the CARES act loans at around 4%. Our “big” long term debt is our capital expenditures - mainly airplanes. We have staggered payoffs, some debt will be serviced beginning late next year IIRC, but the large amounts don’t get serviced until 2022 and now 2027 (this is what I’ve been told by some of our APA smart money guys). We have lots of cash and liquidity on hand, which means we are ok with cash burn for now.


    The best analogy I can come up with is that our debt is more akin to a mortgage, why payoff the house at a 2.5% rate when your other investments and cash instruments have a higher rate of return? Sure I can say I’m 500k in debt with my brand new house but in reality if I can make the payments then who cares? Better yet, if I can defer my payments for a year and there’s no penalty, now I get to save cash. Yes, this is obviously a simplistic view but it fits.

    Let’s take DAL as an example for the opposite. The don’t have a huge mortgage staring them in the face as their ‘house’ is older and is closer to being paid off. They have a good revenue stream, and are great with money - when times were good. But they made risky investments with their extra cash - a few airlines here, some there and a refinery to boot. That’s where their cash went. They still have some, but their “investments” aren’t paying off at all, and that cash is likely gone forever - and what’s more devastating is their ability generate revenue from those investments.

    Who’s in the better position for a “short term” downturn? The cash strapped low debt DAL or the accidentally cash ‘rich’ AA?

    I know you all have some large, short term debt debt coming due very quickly as well to some hedge fund sharks. This adds to the liquidity stress and depletes your cash on hand which unfortunately affects your ability to operate. Maybe the play is to use CARES act loans to pay them off next spring, but then you’re still in the same problem, only deferring it for a few months?

    Manning - last summer we were 1000-1500 pilots short and that’s not even counting the staffing requirements for the grounded MAX. We were also looking at the highest retirements of any major. These factors considerably hampered our operation and ability to grow in a sustained manner. We couldn’t reliably sustain the operation while training for retirements (the old rule of thumb was each 777 CA that retired caused 7 additional training events). We wanted to get rid of older fleets, but didn’t have the training bubble to effectively pursue that additional training demand (the S80 retirements caused a 4-6 month backlog alone, and effectively killed new hires from being integrated into the line).

    This crisis has given us the ability to actually have a nice little training bubble - a relief valve for the pressure cooker that was our operation. Now we can not only ditch our old, unreliable and gas guzzler fleets (most also have heavy checks awaiting we didn’t want to spend cash on), but we can offer our most expensive and least productive line employees an early out and retrain their replacements.

    This helps us out because instead of 8-900 retirements a year in the next 5 years, we only have ~500 a year the next three years. This ultimately reduces training going forward. I don’t think we will see any furloughs at AA for this reason. We have ‘right sized’ the airline and will be prepared to accept new hires at some point next year without killing the operation.

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    Quote Originally Posted by Dacuj View Post
    An absolutely spot on analysis from another forum that shores up everything I've been saying. AA is in a spectacular position and will crush UA and DAL coming out of this. The doom and gloomers here will come back with some very weak arguments and zero facts saying AA IS DOOMED I am sure.


    Debt - this is the one everyone screams about. Yep, we have a lot of it. But the short term isn’t bad at all. Our highest rates are on the CARES act loans at around 4%. Our “big” long term debt is our capital expenditures - mainly airplanes. We have staggered payoffs, some debt will be serviced beginning late next year IIRC, but the large amounts don’t get serviced until 2022 and now 2027 (this is what I’ve been told by some of our APA smart money guys). We have lots of cash and liquidity on hand, which means we are ok with cash burn for now.


    The best analogy I can come up with is that our debt is more akin to a mortgage, why payoff the house at a 2.5% rate when your other investments and cash instruments have a higher rate of return? Sure I can say I’m 500k in debt with my brand new house but in reality if I can make the payments then who cares? Better yet, if I can defer my payments for a year and there’s no penalty, now I get to save cash. Yes, this is obviously a simplistic view but it fits.

    Let’s take DAL as an example for the opposite. The don’t have a huge mortgage staring them in the face as their ‘house’ is older and is closer to being paid off. They have a good revenue stream, and are great with money - when times were good. But they made risky investments with their extra cash - a few airlines here, some there and a refinery to boot. That’s where their cash went. They still have some, but their “investments” aren’t paying off at all, and that cash is likely gone forever - and what’s more devastating is their ability generate revenue from those investments.

    Who’s in the better position for a “short term” downturn? The cash strapped low debt DAL or the accidentally cash ‘rich’ AA?

    I know you all have some large, short term debt debt coming due very quickly as well to some hedge fund sharks. This adds to the liquidity stress and depletes your cash on hand which unfortunately affects your ability to operate. Maybe the play is to use CARES act loans to pay them off next spring, but then you’re still in the same problem, only deferring it for a few months?

    Manning - last summer we were 1000-1500 pilots short and that’s not even counting the staffing requirements for the grounded MAX. We were also looking at the highest retirements of any major. These factors considerably hampered our operation and ability to grow in a sustained manner. We couldn’t reliably sustain the operation while training for retirements (the old rule of thumb was each 777 CA that retired caused 7 additional training events). We wanted to get rid of older fleets, but didn’t have the training bubble to effectively pursue that additional training demand (the S80 retirements caused a 4-6 month backlog alone, and effectively killed new hires from being integrated into the line).

    This crisis has given us the ability to actually have a nice little training bubble - a relief valve for the pressure cooker that was our operation. Now we can not only ditch our old, unreliable and gas guzzler fleets (most also have heavy checks awaiting we didn’t want to spend cash on), but we can offer our most expensive and least productive line employees an early out and retrain their replacements.

    This helps us out because instead of 8-900 retirements a year in the next 5 years, we only have ~500 a year the next three years. This ultimately reduces training going forward. I don’t think we will see any furloughs at AA for this reason. We have ‘right sized’ the airline and will be prepared to accept new hires at some point next year without killing the operation.
    Cherry-picking info that you prefer to support your position. Fine, as long as you are confident it is reality and are willing to end up worse off if it turns out not to be. Is AA "doomed". I don't think so, as I don't think it's likely it will disappear like Eastern or TWA. Is there a HUGE amount of risk going forward? You 'betcha. AA's Net Worth as of June 11, 2020 is $6.08 billion and the value of its aircraft leases is 9 billion. It's debt is about 40 billion and that has a good potential to increase unless the Coronavirus situation doesn't impact the airline industry significantly and AA becomes at least as profitable as it was prior to this latest nightmare. A single mortage on a house is never more than the value of the house itself, but in the case of AA, it's like they have second and third mortagages. Fine, if you can make the payments, but if you can't ?

    Look out.

    You can start selling your furniture to buy time, but you just dig a deeper hole in the process. Eventually, nothing more to sell and than you're out of good options. Not a good place to be as a junior pilot no matter how many retirements the airline has. Of course, you are one to count chickens before they hatch and even count chickens that don't exist, so your outlook is of no surprise. You'd have made a good used car salesman though, especially to imbeciles.
    Last edited by Beagleboy; 06-13-2020 at 01:29 PM.

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    Dacuj: The downturn has been declared an official recession and the official unemployment rate has soared into double digits, as furloughs get closer, a second round of stimulus checks are coming and you and another x,xxx are going to need it.

    Check your mailbox August 3rd.
    Last edited by NoOtPilot; 06-13-2020 at 07:18 PM.

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    LMAO’d this A.M. watching the griftmeister getting reamed on APC for trying to sell his B.S. there. Flow to restart this Fall?

    LOL!

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    Quote Originally Posted by NoOtPilot View Post
    Dacuj: The downturn has been declared an official recession and the official unemployment rate has soared into double digits, as furloughs get closer, a second round of stimulus checks are coming and you and another x,xxx are going to need it.

    Check your mailbox August 3rd.
    In one thread you said there "might" be furloughs. Here you say "...ARE going to need it"

    Pick one... Stop hedging your bets.

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    Quote Originally Posted by Meatloaf View Post
    In one thread you said there "might" be furloughs. Here you say "...ARE going to need it"

    Pick one... Stop hedging your bets.
    Parker’s pick...
    https://amp.cnn.com/cnn/2020/06/16/p...uts/index.html

    Any resemblance to actual events is purely coincidental.

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