Bankrupcy On The Way?

[WorldTraveler]

However, bankruptcy forces control of the creditors or the investors who will provide exit financing push and push for cost reductions - most of which the airlines cannot deliver. And they also push to shrink the business in an attempt to get rid of the least profitable sectors although it never works for airlines or any other network business; airlines need to profitably grow in order to reduce costs.

I would say that AMR would file for chapter 11 if DAL does and it's no surprise that AA's recent gloomy talk has emerged just as DL enters a very critical time in its reorganization efforts. NW at least would have no choice; CO may be different since its current benefit plans are no older than the current corporation which is less than 10 years if I understand them.

DL has stated that it is not attempting to terminate its pension funds but it is likely that it will freeze them (effective allow no more benefit accruals from the existing plans) and convert to some form of a defined contribution rather than a defined benefit plan.

Given the power corporations have in bankruptcy it is very likely that the pilots and debtholders will give Delta an 11th hour deal that will avoid bankruptcy but until they do, Delta will give up the negative press to keep the pressure on. NW will soon have to take up the mantra unless it wants to be the odd man (or woman) out.

 

[Deleted by Moderator]

BY JAMES BERNSTEIN
Newsday STAFF WRITER

September 29, 2004

With United Airlines and US Airways in bankruptcy, and Delta Air Lines threatening to file for Chapter 11 protection, American Airlines stands out. It managed to avoid that fate last year by slashing its own costs, and even eked out a small $6 million profit in its most recent quarter.

http://www.newsday.com/business/local/newy...0,6008731.story

 

[TheLazarusman]

Let’s keep in mind that the reason United and USAirways are in bankruptcy is because they were not running viable businesses, not simply because they had costs they wanted to shed.

Yes WorldTraveler. And the reason we at USAairways can't run a viable business is because we keep hiring CEO's who can't manage their way out of a wet paper sack with a hole a mile wide in the side of it. They get their business degrees from a KMart Blue Light Special; and their management training at a 7-11. Good luck and best wishes to all of you at American Airlines; and please don't tell me AMR is even remotely considering filing bankruptcy. My dad retired after forty years of service with your great airline; and I'd hate to see you follow down the same road we at USAirways are trodding down now.

 

[MCI transplant]

Yes WorldTraveler. And the reason we at USAairways can't run a viable business is because we keep hiring CEO's who can't manage their way out of a wet paper sack with a hole a mile wide in the side of it. They get their business degrees from a KMart Blue Light Special; and their management training at a 7-11. Good luck and best wishes to all of you at American Airlines; and please don't tell me AMR is even remotely considering filing bankruptcy. My dad retired after forty years of service with your great airline; and I'd hate to see you follow down the same road we at USAirways are trodding down now.

[post="189604"][/post]​

<_< Good Luck to you, and all your fellow workers! From someone who has been there! Signed: "Just another one of a.a.'s redheaded step children!"

 

[Whadayano]

Given that US has lower salaries and plane lease costs than it did thanks to the first bankruptcy, you could say they are more competitive. But clearly not enough. Since UAL has done very little since bk except start TED, I would agree their costs aren't much lower. However, now that they announced their plan for less domestic and more international flying, and the grounding of 68 (I think) planes, they are starting to tackle the problem.

 

[eolesen]

US lowered some salaries and benefits, but didn't do much with overall costs, productivity or revenue. As a result, they have lower wages, but higher costs than AMR. Of the legacy carriers, only CO has a lower unit cost than AA, and stage length adjusted, AA is lower.

If AMR were to declare bankruptcy, they'd be able to restructure a lot of long term debt, but it wouldn't do squat to help with revenue or fuel, and those are the two biggest problems the airline faces right now.

The key in any restructuring, in or out of bankruptcy, is to lower costs and increase revenue. You can't just do one or the other -- both have to be done in tandem.


And BTW, US is not paying lower aircraft lease rates than anyone else.

Because they had agreements with labor to operate a minimum of 279 aircraft, they wound up renegotiating leases in some cases at higher rates for the same age and aircraft type as other carriers were getting. The higher rates were simply a reflection of the credit risk that US posed. TW had similar problems in their second restructuring -- they had lease rates double what some other carriers had.

Had US not put that 279 aircraft floor into their concession agreements, they could have rejected some of the higher leases.

What's a bigger issue here is that more and more lessors are taking a unified front, after being burned by UA and US.

I can't confirm it, but I believe this is what's really behind UA announcing that they're grounding 68 aircraft last week. My guess is that a few lessors banded together, and refused to cave in during negotiations, and UA lost the aircraft. And make no mistake -- if AA was able to sell the F100s, there are carriers willing to lease the newer aircraft operated by UA.

 

[mistified]

US lowered some salaries and benefits, but didn't do much with overall costs, productivity or revenue. As a result, they have lower wages, but higher costs than AMR. Of the legacy carriers, only CO has a lower unit cost than AA, and stage length adjusted, AA is lower.

The key in any restructuring, in or out of bankruptcy, is to lower costs and increase revenue. You can't just do one or the other -- both have to be done in tandem.

[post="190006"][/post]​

BINGO!

 

[FWAAA]

US lowered some salaries and benefits, but didn't do much with overall costs, productivity or revenue. As a result, they have lower wages, but higher costs than AMR. Of the legacy carriers, only CO has a lower unit cost than AA, and stage length adjusted, AA is lower.

If AMR were to declare bankruptcy, they'd be able to restructure a lot of long term debt, but it wouldn't do squat to help with revenue or fuel, and those are the two biggest problems the airline faces right now.

[post="190006"][/post]​

Excellent post from someone able to see the forest and not just trees scattered here and there.

One other point you neglected to mention, but repeated daily by the "We want AA to file Ch 11" crowd, is that bankruptcy would provide a means for AA to dump the defined benefit pensions (which they all think is just around the corner).

Of course, that bankruptcy drum-beating crowd doesn't realize that AA's DB plan underfunding is much less serious than that at other airlines and that the pensions could easily be negotiated away outside of Ch 11 in any event.

 

[Wretched Wrench]

the pensions could easily be negotiated away outside of Ch 11 in any event.

[post="190173"][/post]​

Now, there's a scary thought. Scarier still when one considers that retirees have no vote in recall or representation elections.

 

[Bob Owens]

I can't confirm it, but I believe this is what's really behind UA announcing that they're grounding 68 aircraft last week. My guess is that a few lessors banded together, and refused to cave in during negotiations, and UA lost the aircraft. And make no mistake -- if AA was able to sell the F100s, there are carriers willing to lease the newer aircraft operated by UA.

[post="190006"][/post]​

And those aircraft will be making them tons of money sitting in the desert right? Funnty but it appears that the lessors are doing what the workers should have done. They are walking though all of this virtually unscathed.

 

[upsilon]

And those aircraft will be making them tons of money sitting in the desert right? Funnty but it appears that the lessors are doing what the workers should have done. They are walking though all of this virtually unscathed.

[post="190312"][/post]​

Former ModerAAtor makes the point that those planes probably won't be "in the desert"; but instead will find a home with another carrier earning a return to the lessors.

Is that what "the workers" should have done? Pick up their tools and go home? Lots of airline jobs available? A strike against an airline in BK doesn't seem to be a winning strategy to me!

 

[kiowa]

Excellent post from someone able to see the forest and not just trees scattered here and there.

One other point you neglected to mention, but repeated daily by the "We want AA to file Ch 11" crowd, is that bankruptcy would provide a means for AA to dump the defined benefit pensions (which they all think is just around the corner).

Of course, that bankruptcy drum-beating crowd doesn't realize that AA's DB plan underfunding is much less serious than that at other airlines and that the pensions could easily be negotiated away outside of Ch 11 in any event.

[post="190173"][/post]​

AMR has the 3d most underfunded pension plan in the USA.

The 20 most underfunded pension plans
Company Market cap Underfunded amount at 12/31/03 Ratio of amountunderfunded to market cap
Delta Air Lines (DAL, news, msgs) 645 million 5.65 billion 8.77
Northwest Airlines (NWAC, news, msgs) 746 million 3.74 billion 5.03
AMR Corp. (AMR, news, msgs) 1.35 billion 2.66 billion 1.97
Continental Airlines (CAL, news, msgs) 595 million 1.07 billion 1.81
AK Steel Holding (AKS, news, msgs) 721 million 1.18 billion 1.65
Goodyear Tire & Rubber (GT, news, msgs) 1.92 billion 2.75 billion 1.44
W.R. Grace (GRA, news, msgs) 381 million 361 million 0.95
Delphi (DPH, news, msgs) 5.3 billion 3.97 billion 0.75
Visteon (VC, news, msgs) 1.3 billion 870 million 0.65
McDermott International (MDR, news, msgs) 708 million 410 million 0.58
Alaska Air Group (ALK, news, msgs) 558 million 311 million 0.56
British Airways (BAB, news, msgs) 4.54 billion 2.4 billion 0.53
Crompton (CK, news, msgs) 684 million 337 million 0.49
Ispat International (IST, news, msgs) 2.17 billion 965 million 0.44
Vitro (VTO, news, msgs) 292 million 127 million 0.44
Ford Motor (F, news, msgs) 26.9 billion 11.68 billion 0.43
ArvinMeritor (ARM, news, msgs) 1.37 billion 561 million 0.41
Navistar International (NAV, news, msgs) 2.5 billion 994 million 0.40
Standard Register (SR, news, msgs) 313 million 123 million 0.39
Olin (OLN, news, msgs) 1.2 billion 457 million 0.38

 

[FA Mikey]

Almost a year old info. Last quarter AA added 400 plus million dollars in to its pensions. Not sure of the amount prior. I am sure DAL, NWA and CAL all the same. Only UAL and U are trying to screw there people at the moment.

 

[FWAAA]

AMR has the 3d most underfunded pension plan in the USA.

[post="190621"][/post]​

You (or someone else) recently posted this same meaningless list. Measuring the underfunded pensions by the market cap of the company is a pointless exercise that does not measure the ability of the employer to remedy the problem. Available cash or cash flow or revenue or profits would be a better measure of the problem.

Lots of companies in the USA have plans with larger underfunded amounts.

Further, the list appears to be incomplete, since UA and US don't appear, and their plans are underfunded by many multiples of their market caps.

Lastly, as FA Mikey pointed out, the data is 9 months old. This year, AA contributed its entire $461 million minimum contribution by June 30. Next year's minimum contribution is expected to be about $450 million and will probably be made early in the year (as it was in 2004).

Next.

 

[Winglet]

Doesn't matter. If UAL, DAL dump their pensions, so will AA. There's a lot of APA pilots in deep denial right now. What needs to happen is for a major airline to or two to shutdown, get rid of about 25% of excess seat capacity in the US, and make commuter airlines pay their own freight instead of getting sweetheard fee-for-departure guaranteed profits from mainlines. Only then will airline seats be reasonably priced. Otherwise, a lot of airline service to small and medium cities is going to go away or become so expensive flying expensive ASM RJs