AMR Sees Over $5.5B Cash, Short-Term Invest At End Of 2Q

[AAviator]

Add to that selling and leasing back 89 spare engines like they did in September, netted 100+ million $ in cash to the check book.

 

[FWAAA]

FWAAA,

Search that "financial Cranium(Crainum) " of yours to tell me what Larger amounts of "Dough re mi", have other/any carriers had on hand, in years gone by ?

NH/BB's

"That is a LOT of "scratch" to have lying around !!!

Bears, you're right - no other airline has ever piled up that much cash. Dunno what AA will do with it - maybe pay down some debt? Cancel some MD-80 leases? Buy 25 or 30 A-market 777s to replace the A300s? B)

 

[jimntx]

Which brings us full circle to the supposition I posted in the first reply to the original post.

What's up with all the cash? It's not because we think the price of bread and bologna is going up.

 

[MCI transplant]

<_< ----- Let's get one thing straight here! I would never wish the likes of Carl Icahn on anyone! He is, in my opinion, one of the lowest creatures God has allowed to crawl on the face of this his Earth! Why he created the likes of an Icahn, or Lorenzo,or scabs like PTO, we will never know! But for aa to admit to having $5 Billions in cold cash, is like waving a red flag in front of a bull! Let's hope he hasn't noticed, or doesn't have the recourses to take on something as big as aa! Because this man is a human lech, and he would sock this company dry! I know, because I've already seen one great Airline go down because of him! :down:

 

[flyhigh]

Informer,

AMR has actually been posting operating profits as of late. It's Net Losses they have been posting. It's still bad of course because that means they're not saving for future investment etc.

As for takeovers, I'm still thinking the $20 billion in debt is enough to scare outsiders off. They are probably waiting to see what happens with pension legislation. If it passes, some of this will likely go to debt servicing. Otherwise, I'm sure a bunch is earmarked for pensions...

 

[MiAAmi]

Thank the dear lord, none. I have even dropped my insurance with AA and would rather buy a ticket on any airline than to fly on AA on a pass. Now, I hope you know how I feel about AA. Its lower than low.

Its probably a good idea to buy a ticket this summer because the flights are packed and even D-1's are not getting on. Sorry you have such a low opinion of AA because I've had alot of TW-Retirees on in the past that are so nice and so glad to still have the opportunity to use their passes.

 

[whlinder]

Let's hope AA does something better with their built up cash than DL did with the cash they built up after 9/11.

 

[eolesen]

I can think of several reasons why cash may be sitting high:

1) Pension funding, if necessary

AMR has gone all out to make sure they're complying with the law, unlike other airlines, and if necessary, will likely fund any make-up differences to the letter of the law.

Wisely, they're not spending any more than necessary at the moment. Every day that the stock market does better and interest rates rise, AMR's underfunding gap shrinks. Overfunding a pension plan is almost as bad in my opinion as underfunding it, since that's money that could potentially be returned in the form of shareholder dividends and/or employee profit sharing. Plus, once it goes into the pension funds, it's not available for other purposes, such as...

2) The next fuel crisis

Having cash on hand is necessary for hedging if/when there's an opportunity to do so. It's also necessary if there's another record-breaking year of Gulf hurricanes, and fuel production get disrupted again. Personally, I think that $5B might be well served investing in a new refinery located well inland, say near Midland, TX...

3) Asset sales from DL or NW

I'm still not convinced that DL is smart enough to make it. They've had a lot of time to start ditching aircraft and facilities, yet they haven't done so. Instead, they're launching gobs of international service to second and third tier cities in Europe and Africa with widebodies...

Because they are typically the slowest airline management to react to any given situation, they are most likely to run out of cash and have nobody willing to step in to throw them a lifeline in the form of DIP financing.

They've got a lot of aircraft which could fit into AA's fleet rather nicely: 737-800's and RB211 powered 777-200ER's.

NW on the otherhand is playing the bankruptcy game a lot smarter from a business standpoint, and is less likely to go broke by running out of cash. They're not playing the game very smart from a labor relations standpoint, however, and the situation with their unions is pretty unpredictable. Nobody wants to touch them without some degree of certainty that the unions won't cause NWA to implode suddenly.

If the Pacific routes were put on the table, AA is the only carrier who could do anything with them. UA would have competive issues, CO doesn't have the cash, and no other US carrier would be able to step into the gap. Unfortunately, NWA knows that, so they won't price it cheaply, but there could come a point in time where they have no choice, and AA has time on its side.


4) Aircraft replacement

Downpayments are expensive, and AA knows it needs to do something about the aging MD80 fleet.

Ideally, I would like to think they'd want to secure a few 787 delivery positions, since by the time that aircraft enters the market, the brunt of AA's 763 fleet will be 15-20 years old, and that puts AMR at a cost disadvantage.

 

[Bob Owens]

The big factor is depreciation and the accrual system of accounting. When AA paid billions for new airplanes, it didn't write off the whole amount in year one. And that makes sense since new 777s and 738s tend to last 30+ years, so they should be written off a little each year. For AA, it writes off a little over a billion a year in depreciation and amortization - last year $1.164 billion. That's a GAAP expense, reducing net income, but it's an expense that doesn't require cash out now (since the cash for the 777s and 738s was spent in 1999-2003). That's the big difference.

How much did they write off in 2002?

It is my understanding that when these rules for depreciation were first put in place under GAAP that dep was done on a series of scales that usually started high and gradually reduced to zero(even though some of these assetts would still retain some value-another gift to corporations to reduce their share of taxes. Dont they also get to write off more than the actual amount paid out for the assett?) but in the early 90s corporations where allowed to defer or accelerate their depreciation writeoff, they could "bank" the writeoff and use them as they needed. I think the logic was that in some years businesses didnt need the write offs but they could use them in others.

In the early 90s most the airlines were posting record losses, in fact it was claimed that the industry lost more during that period than it had made since its inception. Yet somehow the industry not only survived, but prospered.

So lets say that a big chuck of the record losses that they posted in the early 90s were from the new rules and they acceelerated depreciation, however since they used it there they would no longer have that writeoff in subsequent years and now they would be posting record profits. So cash flow and other factors could be relatively constant but the taxable profits would vary greatly, as they did, and those of us who were around then can recall how during the boom years management was campaigning about how much they had to pay in taxes.Well one of the reasons they had to pay so much is because they did not have as much to write off.

So they claimed these record losses, due to legally accepted accounting tricks, used then to gain massive concessions, which they got.

It worked so well they did the same thing again on an even bigger scale in 2003, now the company has more cash on hand than ever before, and we are making less than ever before. Go figure.

Yes, AA has reported net losses, but it became cash flow positive the moment the concessions became effective in May, 2003. So far, the employees concessions have added at least $5.4 billion (probably more) to the bottom line. The concessions have helped pay the higher fuel bills. So we got a triple whammy from the oil industry, a massive pay cut that went directly from our paychecks to their pockets, then hit at the pumps and then at the checkout counter as prices increased to make up

So we took the paycuts to make Bush's friends richer. If we had collectivly said no then they would have been faced with squeezing their profits or causing political instability. We gave them the ability to cash in on their boy Bush.

We got a triple whammy from the oil industry, a massive pay cut that went directly from our paychecks to their pockets, then hit directly with higher energy costs at the pump and the meter and then at the checkout counter of every store as prices increased to make up their increased energy costs.

Hey, if you borrow tons of money, and spend it on depreciable assets, then your business could report net losses while piling up cash. But that may not be your best strategy

That depends on what the objective of your strategy is. If you are willing to lose billions of other peoples money while they pay you millions to do so then its a perfectly valid Ponzi strategy.

 

[buhbye]

AN ON TOPIC POST AND QUESTION

I am sure this has been answered before, but I still do not get it.

Call me slow, call me stupid, but how does a company go from the verge of Bankruptcy to over $5 BILLION in unrestricted cash and short term investment, when the operation has reported losing millions quarter after quarter?
I have started a small business myself, to supplement the loss of income from the 2003 without further ratification concessions.

I would love to see the small business, on a smaller scale have a continuous increase in unrestricted cash on hand and short term investments while I report a loss to the US government.

If someone can help me understand how to make this happen, I will leave AA sooner rather than later and will gladly remove myself from this forum for life.

Thanks

How? Because they hid money. Funneling it through one subsidiary out to others. There are also accounts in Grand Cayman.
This companies management was/is a master at having a company appear to be running into the ground; via acconting tricks. On paper they make it look insolvent.
To get what is needed. In Arpeys thesis, it is this very strategy that got him hired by Crandall in the first place. Carty stated that he followed the Arpey concept. One of the biggest tricks was by making it look like the "unions" got Carty's resignation. Which in fact they did NOT. He was fired the day before. Using that ploy to keep the cuts. He agreed to this so not to loose all his money.Carty did not walk away with nothing. He walked away with everything.

However now that they tricked the majority of all the workforces and the "so called" unions that represent them. They can show this money. Plus with all the unions working with the UNION BUSTERS and getting trip removals to do so, they have made the UNION's into COMPANY unions.

Now, they can filter the money back. So once the foreign airline ownership goes through we look appealing to other companies. Like TWA/Compton did. It always seems what comes around goes around......
buh-bye

 

[buhbye]

🙄

<_< ----- Let's get one thing straight here! I would never wish the likes of Carl Icahn on anyone! He is, in my opinion, one of the lowest creatures God has allowed to crawl on the face of this his Earth! Why he created the likes of an Icahn, or Lorenzo,or scabs like PTO, we will never know! But for aa to admit to having $5 Billions in cold cash, is like waving a red flag in front of a bull! Let's hope he hasn't noticed, or doesn't have the recourses to take on something as big as aa! Because this man is a human lech, and he would sock this company dry! I know, because I've already seen one great Airline go down because of him! :down:

However Carl Ichan offered to "give" TWA the money needed to reorganize as an independent carrier. In essence it equaled the amount he robbed TWA of. He offered it through another person, no strings attached as reported in the SEC filing.
Instead Compton and the TWA board of directors hired KPMG as the accountants and so began the demise of TWA.
Compton and his bandits said no to being independent. They were getting more from AA. Plus, they had gotten the DIP financing from a subsidiary of AA. AA wanted the "caribu" tickets gone. So they made TWA 'an offer they couldn't refuse.' B) Now, I don't think Ichan is an honorable man. However the American dream has turned out to be the American Nightmare....So which is better the devil you know, or the one you don't?

buh-bye! 🙄

 

[eolesen]

Accounting tricks? Accounts in the Caymans? What planet are you on? This isn't a John Grisham paperback...

Since the evaporation of Worldcom and Enron, little things like Sarbaines-Oxley exist in the real world and prevent that type of crap from happening.

 

[WorldTraveler]

Airlines can generate billions of dollars in free cash during the best of times like in the late 90s. AA, DL, and UA all generated well over $3B/year in cash. They invested a lot in airplanes, some new terminals, and even through some extra in the pension plans which worked fine until the stock market fell.

Ex-Mod,
I’m sure you don’t think DL is doing its bankruptcy “right†because what you really want to see is for DL to fold up shop and let AA move in to pick up the scraps. DL apparently has other ideas. Let's see how badly you think DL is doing after looking at their financial results for the next 2 quarters are posted. They are staking alot of their future on their ability to deliver this summer. I happen to believe they will post some very impressive results... and some of their execs are saying the same thing (which is probably why I feel a certain comfort in my position).

Just because AA has no interest in expanding internationally doesn’t mean that is DL’s philosophy. I have posted it before but DL and CO obviously have very different ideas about international growth from AA, UA, and NW with the former pair intending to service lots of cities in the vein of Boeing’s argument for building the 787. AA, NW, and UA serve a much smaller number of cities but have many seats into those markets (excluding AA to Latin America where AA has a large presence spread across many cities. It helps that AA, NW, and UA all have protected positions in either NRT or LHR, airports which DL and CO have little if any service to. Problem happens when both of those airports open up, or in the case of Asia as a whole when NRT becomes less important because new airplanes allow airlines to overfly Japan.

I am equally puzzled by AA’s willingness to sit on so much cash as well but consider that DL sat on cash in the hopes of someone’s demise and that didn’t happen. It appears that every one of the US legacies will successfully restructure including DL, former Mod, which makes AA’s strategy of hoarding cash in hopes of buying something perhaps futile. If all carriers successfully restructure, consolidation may occur but it will likely be on terms the seller dictates rather than being dictated by AA’s apparent highest bidder strategy. Given AA’s track record for dismantling airline after airline and hub after hub, it is doubtful that many airlines or politicians would put AA at the top of their consolidation list. AA’s position as being the world’s largest single airline doesn’t exactly foster the idea that AA has to merge in order to survive either.

I have said before and will say again that AA could fly dozens of routes to Asia if they would get the very capable 777s off the Atlantic and replace them with a less capable but still adequate aircraft and then redeploy the 777s to Asia which is really about the only piece of AA’s network that is lacking. Apparently, AA isn’t willing to invest in the $3B that is probably necessary to free up the 777s or the risk that is involved in making a big move into Asia. Even if AA bought Alaska, they would be spending pocket change and would assure a strong Asian presence with strong potential Asian gateways at LAX, SEA, DFW, and ORD.

Or maybe AA is saving money up to pay fines for BA and then acquire them after they are found to have colluded to raise passenger and cargo fares. Problem is that we have to figure out who BA colluded to raise fares with. AA, perhaps?

 

[buhbye]

Accounting tricks? Accounts in the Caymans? What planet are you on? This isn't a John Grisham paperback...

Since the evaporation of Worldcom and Enron, little things like Sarbaines-Oxley exist in the real world and prevent that type of crap from happening.

Yes and Yes. I am on this planet.
The planet of research. Years of it.
I wish it was a paperback by Grisham instead of a company thousands work for.
The Sarbaines-Oxley wasn't in place at that time.
Worldcom/Enron.....just an example of 'how' to get caught.
Yes, the S & O has helped and accountants are now having to actually do accounting.
That is why there has been a significant increase in CFO's leaving companies.
But, hey you believe what you want. Come negotiations we will see who gets fooled again.....
buh-bye!

 

[MCI transplant]

🙄
However Carl Ichan offered to "give" TWA the money needed to reorganize as an independent carrier. In essence it equaled the amount he robbed TWA of. He offered it through another person, no strings attached as reported in the SEC filing.
Instead Compton and the TWA board of directors hired KPMG as the accountants and so began the demise of TWA.
Compton and his bandits said no to being independent. They were getting more from AA. Plus, they had gotten the DIP financing from a subsidiary of AA. AA wanted the "caribou" tickets gone. So they made TWA 'an offer they couldn't refuse.' B) Now, I don't think Ichan is an honorable man. However the American dream has turned out to be the American Nightmare....So which is better the devil you know, or the one you don't?

buh-bye! 🙄

<_< -----buh-bye! First my eyesight ain't all that bad, so the large script isn't really necessary! At least not at this end! Now! Are you trying to tell me Icahn was going to "give" money to anyone? "No strings attached!!?" 😀 😀 😀 Now why would he want to do that? What third party did he supposedly do this? At the time Compton and Carty were talking buyout, the only dealings Icahn had left with TWA was his caribou agreement! Which at the time of the buyout only had another two years tell termination! Carabu was vary lucrative for him! The only other deal that was going on at the time was with the Unions, and the major Creditors (Boeing, Pratt, etc.) They were near an agreement, but wanted Compton and his Board of Directors out of there! Compton got wind of it and pushed his deal with aa through before the Unions could get their deal off the ground! Icahn may have tired to salvage his agreement with TWA at the last minute when he saw he was losing it with aa, but believe me, any offer made had strings attached! 😉 And at that time the aa deal was too far down the road to be stoped! In fact at first Ichan thought because of the wording in his agreement that if aa bought TWA, Caribou would just transfer along with it! As you know, didn't happen!