American Airlines: Gone within 18 months??

  • Thread starter Deleted member 27505
  • Start date

American Airlines dead by Jan-2021??

  • Agree?

    Votes: 13 10.4%
  • Disagree?

    Votes: 93 74.4%
  • I don't give an ass. The aviation industry is a joke.

    Votes: 16 12.8%
  • I agree, but only because the freaking world will end by J-21?

    Votes: 3 2.4%

  • Total voters
    125

chrisreedrules

Master Blaster
Regarding AA, they’re very likely to enter bankruptcy in my opinion. You can’t hide the fact that they would still require a decade or more of profitability to make an appreciable dent in their 34B of debt. Another entire decade. Any takers on if we’re likely to see 10+ more years of wild profitability? I didn’t think so.

The question then becomes what would a bankruptcy for AA look like? I think a few scenarios come to mind...

If they’re successful in restructuring they may attempt to shrink to profitability. This has been tried in the past by many corporations with dubious results and it’s a painful process for all involved. They’d shed hubs (LAX, LGA/JFK, BOS, and PHX would be the most likely in my opinion. Anywhere they can codeshare with partners like Alaska and JetBlue and international partners) and sell aircraft. Their regionals would shrink at best or be sold to a holding company under 5-7 year CPAs at worst.

I also think that while a remote possibility at this point, it is worth considering we could be looking at a “PanAm scenario” here. If passengers aren’t returning it will likely be extremely difficult to secure further funding for AA. And in this scenario the market could easily shed a legacy airline while the remaining airlines pick up the pieces. Of course, the government wouldn’t allow major metropolises go without air service because it would impede economic recovery. So I imagine some manner of controlled sell-off would occur with major airlines buying up large pieces of the operation along with planes/pilots. AA and it’s shareholders would cease to exist but the flying would continue.

If there is no real hope of AA being able to realistically service their debt then they very likely won’t make it out of the bankruptcy process. They won’t exist simply to provide jobs for people. If they can’t make a profit, Wall Street will 100% chew them up and spit them out to wherever can turn a profit. All of this will depend on how quickly people start flying again and how states individually respond to further break outs of CV-19 in regards to shutdowns and stay at home orders. This is an election year so I imagine unfortunately for everyone partisan politics will be on display. The future is uncertain in my opinion but at the end of the day people will still have to fly. The question really though is will the market support so many different carriers on the backside of this...

Regarding regionals, consolidation is a likely outcome of this. SkyWest is a massive entity with piles of cash. They can realistically underbid just about anyone they want to at the moment and to survive, I foresee ALPA carriers consolidating to survive and gain efficiencies.
 
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SlumTodd_Millionaire

Evil Landlord Capitalist
J. Crew entered C-11 Bankruptcy with almost $2B debt.

A couple questions:

1. Who the hell would loan J. Crew 2B dollars, and why?!?!? Fellow country club member? Fellow undergrad frat boys? Fellow never-passed-a-test-without-cheating prep school bro?

2. Who the hell is going to loan J. Crew any more money to try to drag their sorry, consumer-whim-driven, materialist, vacuous ass out of chapter 11 bankruptcy??

American Airlines is somewhat similar. Who are these people who loan these woefully dysfunctionally-mangaged companies more and more and more money???

I know a bunch of folks that have really good ideas and really well laid out planes for really good economic offerings, and they can't get a freaking dime of funding.
It doesn’t surprise me much that someone who uses a word like “materialist” doesn’t understand capital markets. You probably have a Che Guevara t-shirt and bedazzled your iPhone with the words “eat the rich,” too, huh?

Creditors aren’t morons, and believe it or not, they know what they’re doing with their money better than you do. In the case of J. Crew, their bankruptcy plan eliminated $1.7 billion in debt, which came with a $150 million debt servicing cost. The hedge funds providing the DIP financing receive equity in the company, which certainly isn’t as safe as owning debt by any stretch, but it does give them a lot more control. The company will look a lot different and be a lot smaller, but it will also be debt free with much lower costs and a shifted focus to online retail.

In short, it’s not a sure bet by the financiers, but it’s also not a crazy bet.

Now, what about American? The company is in pretty awful financial shape. The balance sheet makes me weep, and the thought of all that money that was wasted on stock buy-backs when it could have been shoring up the balance sheet instead is just plain sad. American will go into chapter 11. I can’t see any way to avoid that, and with their current cash position, I think it will be relatively quickly after the government money is burned. But the idea that American Airlines will simply cease to exist is nonsense. If the lost decade taught us anything, it’s that if USAirways didn’t liquidate, then no legacy airline will ever liquidate again. There will always be someone, whether it’s the government or just an uber-egotistical billionaire who likes the idea of owning an airline for pennies on the dollar, waiting in the wings to save an iconic airline. Airlines are horrible investments. Never put your money in them, because they’ll go in and out of bankruptcy for as long as air travel is a thing. But none of them are going anywhere.
 
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AAPalmTree

Well-Known Member
Regarding AA, they’re very likely to enter bankruptcy in my opinion. You can’t hide the fact that they would still require a decade or more of profitability to make an appreciable dent in their 34B of debt. Another entire decade. Any takers on if we’re likely to see 10+ more years of wild profitability? I didn’t think so.

The question then becomes what would a bankruptcy for AA look like? I think a few scenarios come to mind...

If they’re successful in restructuring they may attempt to shrink to profitability. This has been tried in the past by many corporations with dubious results and it’s a painful process for all involved. They’d shed hubs (LAX, LGA/JFK, BOS, and PHX would be the most likely in my opinion. Anywhere they can codeshare with partners like Alaska and JetBlue and international partners) and sell aircraft. Their regionals would shrink at best or be sold to a holding company under 5-7 year CPAs at worst.

I also think that while a remote possibility at this point, it is worth considering we could be looking at a “PanAm scenario” here. If passengers aren’t returning it will likely be extremely difficult to secure further funding for AA. And in this scenario the market could easily shed a legacy airline while the remaining airlines pick up the pieces. Of course, the government wouldn’t allow major metropolises go without air service because it would impede economic recovery. So I imagine some manner of controlled sell-off would occur with major airlines buying up large pieces of the operation along with planes/pilots. AA and it’s shareholders would cease to exist but the flying would continue.

If there is no real hope of AA being able to realistically service their debt then they very likely won’t make it out of the bankruptcy process. They won’t exist simply to provide jobs for people. If they can’t make a profit, Wall Street will 100% chew them up and spit them out to wherever can turn a profit. All of this will depend on how quickly people start flying again and how states individually respond to further break outs of CV-19 in regards to shutdowns and stay at home orders. This is an election year so I imagine unfortunately for everyone partisan politics will be on display. The future is uncertain in my opinion but at the end of the day people will still have to fly. The question really though is will the market support so many different carriers on the backside of this...

Regarding regionals, consolidation is a likely outcome of this. SkyWest is a massive entity with piles of cash. They can realistically underbid just about anyone they want to at the moment and to survive, I foresee ALPA carriers consolidating to survive and gain efficiencies.
I don’t things will be that bad. AA bankruptcy? Maybe. If we do, it will most likely drag UAL/DL along. What’s up with alpa carriers merging? The unions are going to merge?
 

jtrain609

Uniting the black vote.
I don’t things will be that bad. AA bankruptcy? Maybe. If we do, it will most likely drag UAL/DL along. What’s up with alpa carriers merging? The unions are going to merge?
What causal connection exists that would make Delta and United declare bankruptcy if American does?
 

AAPalmTree

Well-Known Member
What causal connection exists that would make Delta and United declare bankruptcy if American does?
I think it would be to level the playing field. 2002-2005 DL, UAL, NWA, US Airways (twice). AA was the only airline to not declare bankruptcy. That put them at a severe cost structure disadvantage until 2011.
 

chrisreedrules

Master Blaster
I don’t things will be that bad. AA bankruptcy? Maybe. If we do, it will most likely drag UAL/DL along. What’s up with alpa carriers merging? The unions are going to merge?
Consolidation at the regional level will likely be about survival. Hard to compete with contract regionals like SkyWest with massive fleets and economies of scale. So in order to survive and become more efficient consolidation will either have to happen or more likely, be forced.
 

AAPalmTree

Well-Known Member
Consolidation at the regional level will likely be about survival. Hard to compete with contract regionals like SkyWest with massive fleets and economies of scale. So in order to survive and become more efficient consolidation will either have to happen or more likely, be forced.
I get the consolation part. The alpa part? Why just alpa carriers?
 

AAPalmTree

Well-Known Member
I don’t know if I see that so much as I see them offering to take over lease agreements on airplanes and/or simply underbidding flying. Maybe they do maybe they don’t buy a regional. But I think their foray into the whole ExpressJet deal soured them on that.
Ok, I’m sold. Only alpa regional mergers.
 

FloridaLarry

Well-Known Member
Financial investors that specialize in loaning to risky companies do so with higher interest rates on the loans. If it falls right, their extra interest while the loan-ee goes down in flames from paying the vig on the loans, lowers the eventual loss when the company crashes. May even mean no loss if it stretches out.

They also balance their portfolios so they have a dud (ie: losses) to balance out a winner (big profits, particularly when they take it public). All this to lower or eliminate their tax bill.
 
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