AAG's $10,000,000,000 Cash Hoard Problem.

[RJcasualty]

Wall Street seems uncomfortable:  http://aviationblog.dallasnews.com/2014/01/american-airlines-does-it-need-10-billion-in-cash-lying-around.html/  Any ideas on how it could be used?  

 

[700UW]

PMUS has a huge loan to repay, I believe they are trying to refinance it.

 

[1AA]

Maybe they should invest it in their employees? Just a though on my part.

 

[robbedagain]

1aa as much as they should... dont count on it bro esp with dp n gang runnin the show

 

[mike33]

Maybe they should invest it in their employees? Just a though on my part.

I know where 20 mil is going !!  Tom H

 

[MetalMover]

Yes, investing in employees would be a sound and worthwhile practice. But since we all have contracts in place and will receive nothing more than what these contracts mandate, I say pay down debt, which, in turn, would have a positive impact on the stock price.

 

[eolesen]

Paying down debt won't necessarily help the stock price.

Look at WN -- their stock stagnated for years when they had some the lowest levels of debt in the industry.

They could use it to buy ALK for cash. That's something DL would be hard pressed to do...

 

[RJcasualty]

Paying down debt won't necessarily help the stock price.

Look at WN -- their stock stagnated for years when they had some the lowest levels of debt in the industry.

They could use it to buy ALK for cash. That's something DL would be hard pressed to do...

Makes business sense, but ALK has been adamant against a takeover by anyone. Do they have a poison pill that would match their seriousness?

 

[WorldTraveler]

Paying down debt won't necessarily help the stock price.

Look at WN -- their stock stagnated for years when they had some the lowest levels of debt in the industry.

They could use it to buy ALK for cash. That's something DL would be hard pressed to do...

Wall Street - and ALK is very well connected to it - does indeed consider indebtedness as part of the value of a merger.

AAG is heavily indebted and the huge aircraft order books only will magnify that problem. DL is not only reducing debt but is spending far less to upgrade its fleet than AAG or UA. There is a reason why DL's market cap is so much higher and the same goes for DL's profitability.

It also doesn't change that the same reasons why ALK doesn't want to merge with DL very likely apply to AA. It also doesn't change that DL is the largest codeshare partner with AS and the potential for the growth of the partnership is higher than it is with AS.

AAG needs to complete its own merger, resolve its own labor issues, and run a very healthy business before Wall Street and ALK will be interested in another merger.

Large amounts of cash are common in an all-stock merger since it takes more cash to run two independent companies than it does one large company that is equal to the size of the two mergers.

Part of the justifications for a merger is reducing interest costs thru running a more efficient business.

 

[RJcasualty]

So Wall Street's fretting over AAG's cash hoard is merely a reflection of greedy investor fixation on short term gain?

 

[robbedagain]

Dl or no dl alk does not want a merger but on the other hand the quest is does alk truly need a merger to survive? I in my own opin dont really think so given how well their doing

 

[WorldTraveler]

agreed, robbed.

If ALK doesn't want a merger with DL, there is no reason to think they want one with anyone else and if they make the decision to fly alone, they are doing so with the intention of being profitable doing it.

As far as the whole AS-DL spat, I believe the end result is that DL and AS will end up with side by side hubs at SEA with AS being the larger but with DL able to push much of its traffic onto its int'l flights. AS and DL's competitive tussles in the west will hurt other carriers in the west more than each other and thus both will likely end up achieving their goals and both still be profitable.

AA has the ingredients it needs to strengthen its west coast presence, AS or not.

 

[WorldTraveler]

dupe

 

[Jacobin777]

AAL has a lot of debt, twice as much debt as cash (at least according to Yahoo! Finance which ostensibly seems incomplete):
 
http://finance.yahoo.com/q/ks?s=AAL+Key+Statistics
 
Paying down debt would probably be the best way to go. "Cash going back to shareholders" is really "enriching" people/companies which have a lot of shares/stock options.
 
Also, in a recession, that $10+ billion could get drawn down in a hurry.

 

[RJcasualty]

AAL has a lot of debt, twice as much debt as cash (at least according to Yahoo! Finance which ostensibly seems incomplete):
 
http://finance.yahoo.com/q/ks?s=AAL+Key+Statistics
 
Paying down debt would probably be the best way to go. "Cash going back to shareholders" is really "enriching" people/companies which have a lot of shares/stock options.
 
Also, in a recession, that $10+ billion could get drawn down in a hurry.

The merger is still in its infancy, I guess management should be given some space to sort things out, but they must act soon. Segments of AAG are being asked for concessions. The spectacle of a huge cash reserve in the face of onerous demands is bad optics.