Airlines/Liquididity.Strongest..to..Weakest

[FWAAA]

And as for UA's ability to raise capital, besides the FF program and maintenance facility that UA could sell off or borrow against, which was shopped last year and found to be worth betwen $5 and $9 BILLION, UA has about $3BILLION in unencumbered assets to borrow against, and no pension obligations.

The UA MileagePlus valuation grows with each passing day.

Yesterday another poster here said MP was worth $4 to $7 billion. Now it's $5 to $9 billion? Riiiiiight.

If it were worth even $2 billion, Tilton would have already sold it. Bank on that.

UA does have unencumbered assets, just like AMR does. AMR has reduced its net debt to about half of what it was in 2003. The principal amount of the debt is much lower than it was, but that's not the key issue; what really matters is whether the airline can service whatever debt they have, and AMR has no problem paying its interest expense.

About assets? AMR's got plenty of assets it can sell, including the largest regional airline - Eagle, which is larger than jetBlue. Three huge maintenance bases and a growing MRO business. And plenty of unecumbered airplanes, just like UA.

I think the #1 reason AA is at greater risk is their pension liabilities and the the amount of revolving debt that must be serviced in the near term.

You make very good points except for one thing here: AMR has contributed over $2 billion to its pension plans since 2002 and as of 12/31/07, the plans were 96% funded.

UA terminated your pilots' plan because it didn't have the money to make the required catch-up contributions. AMR did have the money and has now just about fully funded its plans. AMR's annual contributions now won't include any "catch-up" amounts, which will make its pension contributions somewhat affordable. Over at UA, you now participate in a defined contribution retirement plan that costs UA lotsa cash each year. No longer will UA benefit from rising equity values the way AMR can. Stock market soars, AMR's plans soar in value, minimizing AMR's current contribution requirements. Not so at UA.

Over the long haul, AMR's DB plans will probably cost more.

But we ain't worried about the long haul right now. Right now, it's about outrunning the other airlines, not the bear. And AMR's pensions don't cost AMR anywhere near what you assume they cost. Advantage AA in the short term. And all that matters right now is surviving the short term.

Best of luck to UA.

 

[767jetz]

The UA MileagePlus valuation grows with each passing day.

Yesterday another poster here said MP was worth $4 to $7 billion. Now it's $5 to $9 billion? Riiiiiight.

If it were worth even $2 billion, Tilton would have already sold it. Bank on that.

UA does have unencumbered assets, just like AMR does. AMR has reduced its net debt to about half of what it was in 2003. The principal amount of the debt is much lower than it was, but that's not the key issue; what really matters is whether the airline can service whatever debt they have, and AMR has no problem paying its interest expense.

About assets? AMR's got plenty of assets it can sell, including the largest regional airline - Eagle, which is larger than jetBlue. Three huge maintenance bases and a growing MRO business. And plenty of unecumbered airplanes, just like UA.



You make very good points except for one thing here: AMR has contributed over $2 billion to its pension plans since 2002 and as of 12/31/07, the plans were 96% funded.

UA terminated your pilots' plan because it didn't have the money to make the required catch-up contributions. AMR did have the money and has now just about fully funded its plans. AMR's annual contributions now won't include any "catch-up" amounts, which will make its pension contributions somewhat affordable. Over at UA, you now participate in a defined contribution retirement plan that costs UA lotsa cash each year. No longer will UA benefit from rising equity values the way AMR can. Stock market soars, AMR's plans soar in value, minimizing AMR's current contribution requirements. Not so at UA.

Over the long haul, AMR's DB plans will probably cost more.

But we ain't worried about the long haul right now. Right now, it's about outrunning the other airlines, not the bear. And AMR's pensions don't cost AMR anywhere near what you assume they cost. Advantage AA in the short term. And all that matters right now is surviving the short term.

Best of luck to UA.

I'm not starting a pi$$ing contest with anyone, nor do I claim UAL is without problems. Just responding to the poster that said UAL was mortgaged to the hilt when in reality UAL has $3Billion in unencumbered assets to borrow against, NOT INCLUDING Mileage Plus or the Maintenance Facility.

I agree that AA has paid down their debt, as has UAL and others. However, since AA did not restructure when others did (and mind you this is not a criticism or an implication that they should have, because I for one think it's great that they didn't) the amount of debt AA needs to service is far greater than it's peers. I guess what I'm saying is that they have much more debt because they didn't screw their investors when they had the chance. (Again... not condoning the practice at all.) But with fuel costs rocketing, it will be more and more difficult to service that debt going forward, and it is this liability that analysts are zeroing in on with regard to AA's financial health. It is not their ability to generate cash, but the ability to service debt as their fuel costs double.

As for the pension I agree with your theory of rising markets mean AA does not have to contribute as much to the plan in rising economic times. Most airline's DB plans were fully funded before the crash after 9/11. This artificially made them instantly underfunded and is why they were able to do a distressed termination in bankruptcy. Believe me, we tried arguing that fact in court to no avail. So with the stock market rapidly declining, I would bet that the funding level has dropped significantly since December of 2007, and will only get worse. This is a carbon copy of what happened to UA/ DL/ US post 9/11.

And to the poster who asked why AA is making payments if they plan to terminate the pension, the answer is that it's required by law. They are obligated to make those payments except under bankruptcy protection. Hence the "distressed termination."

I hope none of this happens since I have many close friends flying for AA. And as a former TWA employee I have many friends still waiting for recall. Perhaps with the efforts to get oil speculators under control, oil will actually come down to a level that is consistent with supply and demand. That would solve many problems for everyone, not just the airlines.

 

[L1011Ret]

Well it is what it is... Your opinion, that b/c they are the "only" boorder crossing canadian carrier makes their FF plan more valuable is just that ... an opinion at best..

At least he offers a reasoned opinion which is a lot more than you do...

 

[L1011Ret]

AA also hedged when oil was at $70. I don't know how big the hedge was but, it has to help.

According to AA's press releases about 30-33% of fuel is hedged for 2008.

 

[FWAAA]

According to AA's press releases about 30-33% of fuel is hedged for 2008.

Yep, AA just released the second quarter Eagle Eye, reporting that it expects to have more than $4.6 billion of unrestricted cash as of June 30, 2008:

http://biz.yahoo.com/prnews/080618/law510.html?.v=13

Looks like the MD-80 disaster didn't destroy the cash balance.

AA hinted that it might have borrowed some money from Citibank thru advance pre-purchase of miles, like CO did last week with Chase, which issues its frequent flyer credit cards:

Arpey noted that AMR recently signed a new multi-year contract with Citibank, its valued AAdvantage program partner, "and we expect to see some of the benefits of this new agreement immediately, with the full benefits being phased in by 2010."

 

[bigdawg52]

Yep, AA just released the second quarter Eagle Eye, reporting that it expects to have more than $4.6 billion of unrestricted cash as of June 30, 2008:

http://biz.yahoo.com/prnews/080618/law510.html?.v=13

Looks like the MD-80 disaster didn't destroy the cash balance.

AA hinted that it might have borrowed some money from Citibank thru advance pre-purchase of miles, like CO did last week with Chase, which issues its frequent flyer credit cards:

Here is a link for info about Arpey's conference with Merril Lynch
http://news.moneycentral.msn.com/ticker/ar...&Symbol=AMR

It looks to me that we have over 5 billion in cash 425 restricted
and over 5billion in unencumbered assets, with the above post of 30%hedged fuel for 2009 at 78 a barrel

 

[BigBangTheory]

Here is a link for info about Arpey's conference with Merril Lynch
http://news.moneycentral.msn.com/ticker/ar...&Symbol=AMR

It looks to me that we have over 5 billion in cash 425 restricted
and over 5billion in unencumbered assets, with the above post of 30%hedged fuel for 2009 at 78 a barrel

Here is Arpey's conference from JetNet:

Highlights: Arpey's Address to Merrill Lynch Investors

Addressing industry analysts and investors at the Merrill Lynch 2008 Global Transportation Conference, CEO Gerard Arpey said American Airlines is moving aggressively to restructure its business to reflect new realities and to better position the company to weather the current crisis created by skyrocketing fuel prices and a soft economy.

--------------------------------------------------------------------------------

The seriousness of today's industry problems, Arpey said, take root in many years of continuous downward pressure on air fares caused by:
Chronic overcapacity
Growth of low-cost carriers
Almost complete price transparency
Instant product spoilage

"In the early part of this decade we were similarly challenged by a disconnect between our revenues and costs that threatened our very future. We did not shy away from the challenge, because we were determined then - as we are now - to retain control of our destiny."

"The industry as it is constituted today was simply not built to withstand oil prices of $125 a barrel or more, and the challenge is made more difficult by the lack of momentum in the U.S. economy. Our customers must ultimately compensate us for the costs we incur flying them around the United States and the world."Since 2002 the airlines annual expenses have been reduced by approximately $6 billion.
The 2008 fuel bill is expected to be about $7.5 billion higher in 2008 than in 2002, negating all progress made during the last several years, and forcing American to once again to take a hard look at all activities and make some tough choices.
Some of those choices involve new fees for things like checking bags and changing reservations, and assistance in making reservations.
Recent fee increases are the latest phase of "unbundling" the product. Customers pay for the services and features they truly value - and, customers who don't need or value a certain service or feature don't have to pay for it.
American has led or matched fare increases both domestically and internationally this year, and have also revised capacity plans to eliminate a lot of unprofitable flying and improve the supply and demand equilibrium. Today, American is 36 percent hedged at $70 per barrel ($2.38 per gallon) for anticipated second quarter fuel consumption and 33 percent hedged at $78 per barrel ($2.55 per gallon) for anticipated full year consumption. American's fourth quarter domestic schedule will be roughly 11 to 12 percent smaller than last year, grounding 40 to 45 American Airlines jets, 35 to 40 regional jets, plus Saab turbo-props, totaling over one hundred aircraft.


--------------------------------------------------------------------------------

"We would much rather grow than shrink. But given the environment we are in, we believe these steps are absolutely necessary if we are going to close the gap between our revenues and our costs."Removing capacity, however, puts upward pressure on unit costs. So it is imperative to continue to lower expenses, which includes:


Replacing the MD80 with more efficient Boeing 7373s. American will take delivery of 70 current generation 737 aircraft over the next two years, and evaluate whether to move at an even brisker pace.
Consider accelerating retirement schedule of A300 fleet.

American expects to end the second quarter with more than $5 billion in cash and short term investments, as well as approximately $5 billion in unencumbered assets and other sources of liquidity."There is a temptation to conclude that our efforts to bring our company back from the brink in 2003 and 2004 have been for naught. The reality is just the opposite, however, as the current crisis - and our ability to navigate our way through it - underscores the importance of the strides we have made to put our company on a sounder financial footing."


--------------------------------------------------------------------------------

"Our stronger financial foundation has both increased our strategic flexibility and enabled us to fulfill the obligations we have to our employees and retirees."


Since 2002 American has contributed more than $2 billion dollars to its employee defined benefit pension plans.
Pension funding status improved from 78 percent in 2003 to approximately 96 percent in 2007.
Front line employees have realized over $400 million dollars in value from the 38 million stock options they received in 2003.

Every other legacy competitor has used bankruptcy - some more than once - to lower their labor costs relative to American, by:
Eliminating or freezing defined benefit pension plans
Eviscerating retiree medical plans
Eliminating restrictive work rules
Outsourcing work to cut costs

On top of that, every new entrant carrier has a built-in labor cost advantage from day one.


--------------------------------------------------------------------------------

"The market eventually dictates what a company can or must pay for all goods and services. That includes jet fuel, as well as wages and benefits. While we cannot expect our employees to absorb the brunt of record fuel prices - our customers must ultimately do that - we are ever mindful that we have to remain competitive to protect everyone's long-term future. Because if we're not competitive, we're really not protecting anybody's interest in the long run. In fact, we are jeopardizing their long-term future and their retirement." "Fuel prices at today's level are a fundamental game changer. But the airline business has always been about change. And for more than 80 years, American Airlines has reflected, adapted to, and helped shape the changes that have transformed the air travel business from a technological oddity, to a luxury for the few, to an indispensible economic catalyst, and a fact of life for millions and millions of people in the United States and around the world.


"As always, we are facing up to our challenges directly, tackling them head on, and we remain confident in our ability to work our way through this difficult period, and toward a brighter future for our company."

---Gerard Arpey, CEO

 

[lpbrian]

About assets? AMR's got plenty of assets it can sell, including the largest regional airline - Eagle, which is larger than jetBlue. Three huge maintenance bases and a growing MRO business. And plenty of unecumbered airplanes, just like UA.

I don't think AAowns any of those bases, or the equipment that's in them.

 

[BigBangTheory]

AMR's got plenty of assets it can sell, including the largest regional airline - Eagle

I don't think AE will be an easy sell. I actually doubt anyone will buy them. With the high cost of fuel and airlines shrinking, I just don't see it happening.

 

[flyhigh]

Interesting times indeed. The Mileage Plus plan value is based on a variety of factors. One of the is current revenue. It's pretty fair to assume that United generates $1 billion annually from the sale of miles to partners. Why would UA sell it for anything less than that? Add to that the fact that it would be a continuing annuity. Also consider that they could become more like the AMEX Membership Rewards program and cater to more than just United making it more valuable. If they do that, they may have new partner opportunities where they previously didn't because United wasn't strong there. I can see the value they provide as viable. As for unencumbered assetts, it's not just about selling them but also using them as collateral for loans. The fact that it's 733's may not be a bad thing. There might be some outfit in Africa or something thinking those are good. It's not just a US market folks.

 

[Maark767]

I'm not starting a pi$$ing contest with anyone, nor do I claim UAL is without problems. Just responding to the poster that said UAL was mortgaged to the hilt when in reality UAL has $3Billion in unencumbered assets to borrow against, NOT INCLUDING Mileage Plus or the Maintenance Facility.

I agree that AA has paid down their debt, as has UAL and others. However, since AA did not restructure when others did (and mind you this is not a criticism or an implication that they should have, because I for one think it's great that they didn't) the amount of debt AA needs to service is far greater than it's peers. I guess what I'm saying is that they have much more debt because they didn't screw their investors when they had the chance. (Again... not condoning the practice at all.) But with fuel costs rocketing, it will be more and more difficult to service that debt going forward, and it is this liability that analysts are zeroing in on with regard to AA's financial health. It is not their ability to generate cash, but the ability to service debt as their fuel costs double.

As for the pension I agree with your theory of rising markets mean AA does not have to contribute as much to the plan in rising economic times. Most airline's DB plans were fully funded before the crash after 9/11. This artificially made them instantly underfunded and is why they were able to do a distressed termination in bankruptcy. Believe me, we tried arguing that fact in court to no avail. So with the stock market rapidly declining, I would bet that the funding level has dropped significantly since December of 2007, and will only get worse. This is a carbon copy of what happened to UA/ DL/ US post 9/11.

And to the poster who asked why AA is making payments if they plan to terminate the pension, the answer is that it's required by law. They are obligated to make those payments except under bankruptcy protection. Hence the "distressed termination."

I hope none of this happens since I have many close friends flying for AA. And as a former TWA employee I have many friends still waiting for recall. Perhaps with the efforts to get oil speculators under control, oil will actually come down to a level that is consistent with supply and demand. That would solve many problems for everyone, not just the airlines.

Looks like that's it for recalls..... I dont see anymore being recalled. I hope AA does not furlough the F/A's they just recalled. I really enjoy working with the former TWA F/As. I cant say enough good things about the recalled F/As.

 

[eolesen]

IIRC, AMR did some debt restructuring during 2003 and beyond -- it just wasn't done in court.

Comparing raw debt numbers is also a little misleading -- UAL is notably smaller than AMR (UAL employees seem not to know this...). They're also likely to be paying higher interest rates to service the debt because of the Ch.11 defaults.

 

[NewHampshire Black Bears]

FWAAA..stated....(in an earlier post),...........Right now is all about ...outrunning the Other airlines,.....NOT the...."BEAR" !!,

And I couldn't Agree More.

Between Arpey's most recent comments(to Merrill Lynch),......coupled with.......Over "5"..$$..Billion.."Smackeroo's" instantly available,.....(besides WN)... AMERICAN Will be the LAST one up the BK courthouse steps,...... if in fact they EVER do,...(a journey known ALL to WELL, to carriers like DELTA...ua, and us...)


To AMERICAN's ...MOST ardent Detractors(as it pertains to A BK filing)......Remember to..."HOLD your BREATH",...until AA climbs the BK courthouse steps !!!

(While Holding your breath,.....Beware of turning ..BLUE,.....or becoming Dillusional, in the process) :wacko:

 

[LGA Fleet Service]

You know Bears, if we actually DO file that is going to be one honkin' big Crow sandwich you're going to be eating...

 

[eolesen]

Outrunning the bear only works when there's one bear...

Beware of turning ..BLUE,.....or becoming Dillusional, in the process

Bears, you also said Hillary would be on the November ballot....

But I'm glad to see you've realized that being Blue and dillusional are one and the same.

E