Rosy outlook for AA

[commavia]

Uh ... actually ... debt can "go away" if it is converted to equity.
 
Convertible debt securities are a relatively common financial instrument, and in fact the AMR plan of reorganization (POR) specifically include lots of them.  In this case, there were holders of AMR Corporation debt who agreed, under the auspices of the POR, to have their debt converted, at prescribed times and based on prescribed formulations, into shares of equity in the new company (American Airlines Group).  I believe - please correct me if I'm wrong - these conversions are still ongoing and, as I said, will not be completed until next month.  As such, we would not know for certain how much debt the new company will end up with post-bankruptcy until the second quarter financials are released in mid-June.
 
However, as I said, based on the progressively-more-positive financial projections for the company, and some of the net debt projections contained within AMR's original (i.e., standalone) POR, and based on the mountain of cash the new company is apparently sitting on, I would not be surprised if the new company ends up with net debt levels that are approaching Delta's current levels (i.e., substantially closer to Delta's current levels than AMR's just before the merger close).
 
Do you really want to start another argument about financial accounting, considering how "well" the last one went for you?  (Cough, goodwill, cough.)

 

[MetalMover]

The only ones to share in the rosy outlook is Doug and his select few. They have made it perfectly clear to the Mechanics we are not appreciated and are not going to share in any profits.

Thanks to the TWU..

 

[Kev3188]

Do you really want to start another argument about financial accounting, considering how "well" the last one went for you?  (Cough, goodwill, cough.)

That takes me back...

 

[WorldTraveler]

yes, 700,
sentences in proper English do start with a capital letter.  You are correct and I am wrong.
 
Having noted that I am wrong, I wil likely continue to be lazy and not hold down the shift key at the beginning of each sentence.
 
The only rule of capitalization that I adamantly hold to is that names should always be capitalized because it is an affront to refer to someone without capitalization, unless they, like robbedagain, choose not to capitalize.
 
consider yourself rich that your username is a number and I have no choice but to type 700.  You've won the lottery!
 

Uh ... actually ... debt can "go away" if it is converted to equity.
 
Convertible debt securities are a relatively common financial instrument, and in fact the AMR plan of reorganization (POR) specifically include lots of them.  In this case, there were holders of AMR Corporation debt who agreed, under the auspices of the POR, to have their debt converted, at prescribed times and based on prescribed formulations, into shares of equity in the new company (American Airlines Group).  I believe - please correct me if I'm wrong - these conversions are still ongoing and, as I said, will not be completed until next month.  As such, we would not know for certain how much debt the new company will end up with post-bankruptcy until the second quarter financials are released in mid-June.
 
However, as I said, based on the progressively-more-positive financial projections for the company, and some of the net debt projections contained within AMR's original (i.e., standalone) POR, and based on the mountain of cash the new company is apparently sitting on, I would not be surprised if the new company ends up with net debt levels that are approaching Delta's current levels (i.e., substantially closer to Delta's current levels than AMR's just before the merger close).
 
Do you really want to start another argument about financial accounting, considering how "well" the last one went for you?  (Cough, goodwill, cough.)

 
yes, I do well know about convertible debt securities which is precisely why Centrepork is putting out all of this BS now about how well the company will do so they can get the suckers/banks to convert a bunch of debt to equity. 
 
Even if you convert all of the debt that AA will accrue, they are taking it right back on faster than it will get retired.
I guarantee you.
 
I'm guessing you don't expect AA to show a pile of goodwill on its balance sheet? 
 
 
 

That takes me back...

well, heavenly days, make sure someone catches you.
 
we want NO ONE harmed as a result of their participation on this forum.

 

[commavia]

I'm glad you can enlighten us with the rate at which the new company - apparently profitable and generating its own cash flow from operations - is still taking on new debt.  What clairvoyance!
 
With each passing diatribe, it becomes more and more clear that reality is beginning to set it ... Delta's reign as the undisputed leader of the industry may be coming to an end.  And the sense of fear and foreboding is palpable.  How sad.

 

[FWAAA]

I'm glad you can enlighten us with the rate at which the new company - apparently profitable and generating its own cash flow from operations - is still taking on new debt.  What clairvoyance!
 
With each passing diatribe, it becomes more and more clear that reality is beginning to set it ... Delta's reign as the undisputed leader of the industry may be coming to an end.  And the sense of fear and foreboding is palpable.  How sad.

It might be the right time for new AA to sell about 100 million new shares and use the $4 billion proceeds to pay down even more debt.   

 

[WorldTraveler]

I'm glad you can enlighten us with the rate at which the new company - apparently profitable and generating its own cash flow from operations - is still taking on new debt.  What clairvoyance!
 
With each passing diatribe, it becomes more and more clear that reality is beginning to set it ... Delta's reign as the undisputed leader of the industry may be coming to an end.  And the sense of fear and foreboding is palpable.  How sad.

first, thank you for acknowledging that DL has been the leader.  Wall Street has acknowledged it too and they haven't issued anything that says they expect a reranking of the most valuable in the industry.
 
I'm not the least bit afraid that DL will lose any of its momentum.
 
I am happy AA is turning things around - after 10 years, they had to either turn it around or shut the doors.
 
no, I am not afraid and neither is Wall Street or those "wall street types" that work at DL's HDQ.
 
But all the hooplah about AA turning it around financially has yet to happen.
 
They likely will turn it around - but you and the fanclub want to dismiss the huge amount of new competition that is coming to AA, the huge amount of debt that AA is taking on - that is also unprecedented in size in the airline industry, and the low wages that US employees have been paid that have to be brought up to AA levels.
 
Again, I am not against AA's success.  But thinking that it is all smooth sailing for AA when it has just left BK is a bit over the top.
 
 
 

It might be the right time for new AA to sell about 100 million new shares and use the $4 billion proceeds to pay down even more debt.   

 
you do realize that selling new shares without increasing the value of the company will just dilute the value of the new shares?

 

[robbedagain]

you do realize commavia did not mention delta don't ya?????

 

[WorldTraveler]

see post 16 and 20

 

[commavia]

It might be the right time for new AA to sell about 100 million new shares and use the $4 billion proceeds to pay down even more debt.   

 
Possible, although we'll see how AA management views the company's market cap once all of the ongoing dilution (from employee share distributions, management stock grants, debt conversions, AMR shareholder conversions, etc.) is done.  When the music stops, if AA management believes the stock is overvalued, they may determine that devaluation through new share issuance is warranted.  On the other hand, AA management may decide to return some of the company's huge cash stockpile back to shareholders in the form of a buyback.  Only time will tell.
 
Either way, though, it appears quite likely that AA is heading for a relatively favorable net debt position pretty soon after the merger close.  If Parker is smart and plays his cards right, and if the company really does generate the type of financial returns the consensus estimates are projected (as referenced in the originally-posted article), AA will have a lot of money to play with.
 
I went back and looked at the numbers and, in actuality, AA already has substantially closed the gap in terms of net debt with Delta, which I consider to be the industry benchmark.  Using Delta's own calculation method, Delta ended 2013 with about $9.4B in net debt (including $3.2B in cash and cash-equivalents).  AA, using pretty much* the same calculation methodology, ended 2013 with about $11.9B in net debt (including $10.3B in cash and cash-equivalents).  *Delta includes ~$400M in accounting adjustments that I cannot replicate, with Delta, or AA, but even still, the bottom line is the same.  Delta - rightfully - takes credit for reducing net debt by $7.5B since 2009, meaning their net debt level post-bankruptcy and post-merger was around $17B.  AA is already $5B below that and the merger closed three months ago (and again, this does not capture the debt-to-equity conversion that has taken place since January 1).  So it does appear AA is definitely heading in the right direction.

 

[Mach85ER]

Cool.
 
Glad to see my $750,000 is going to a good cause.

 

[WorldTraveler]

commavia,
I appreciate you putting the pencil to the paper and coming up with a quantitative and not just an emotional response.
 
There is no doubt that AA is emerging from BK and doing their merger in the midst of what now is very favorable industry economics which will help a great deal in making sure that AA succeeds long-term.
 
I'm interested in seeing how much debt that AA's creditors accept for equity as well but it doesn't change that AA is taking on far more debt and increasing costs in order to make the merger work than DL is doing now.  US faced hefty debt payments in the next couple years and US' revenue model had reached its limits based on US' smaller hubs than what the big 3 have and the limited ability to grow in the int'l market.
 
Parker was willing to risk the low wages that has helped US compete in order to win the merger - and FWAAA is absolutely right that there is no other way than to realize that AA's network and AA employee cuts are subsidizing US employee wage increases - even if those US employees like robbedagain are way overdue for a pay raise. 
 
DL continues to generate enormous amounts of free cash - far higher than any other US airline and no one on Wall Street expects that to slow.  DL may or may not continue to pay down debt - but DL is generating levels of profitability that top what any other airline in the world including LH has generated.  DL's initiatives continue to generate new revenues.
 
And as much as you and others want to downplay the DCA and DAL revenue hits that AA will face, DL has no revenue threats anywhere near on the same scale and DL is growing revenue aggressively including on the west coast, thru the DL-VA joint venture and the equity stakes for DL in AM and G3,
 
AA has yet to solve their problem in the Pacific -either in size or in cutting their losses - and AA continues to cut service in NYC.  DL is growing faster than AA on the west coast and at LAX. 
 
Further, AA got rid of some small RJs in BK but the combined AA/US still will operate far more of them than DL will and the MQ issue creates significant risks to AA's network - which may well result in Parker being forced to cut a hub or two earlier than he had planned. 
 
I am glad that AA is succeeding and that there is real and meaningful competition between the big 3 again after years of AA laying on the ground while everyone kicked them.
But for every advantage AA has now relative to where other carriers had in the past, there are an equal number of large disadvantages.
 
And other carriers are NOT sitting still while AA works thru their issues.
 
The fact that AA likely will not make the same mistakes that UA has made could well permanently rearrange the pecking order leaving UA at the bottom of the list of the big 3. 
 
AA will succeed.  I have never argued they wouldn't.  But they have significant challenges to overcome.  And as I have often noted here, AA and DL are by far more competitive with each other than UA is on an overall level with either AA or DL. 

 

[AANOTOK]

WT, you may have never came right out and said AA will not succeed, but you have insinuated numerous times that the obstacles they must overcome could be daunting and possibly insurmountable. Also, what you have stated and continue to state is AA is so far behind the Great Delta, (who in your eyes can do no wrong) that the obstacles are no doubt INSURMOUNTABLE and AA will forever be playing catchup to the Almighty Delta!!

 

[WorldTraveler]

that is your interpretation then and not what I have said. 
 
and to be honest with you, from a strategic standpoint I am a lot more certain that Parker will figure out how to make money instead of trying to hold onto "trophy" service that AA has said it has had to have in order to be a legitimate carrier.   I am far from the only person who has said that AA flies alot of routes that lose money in the name of maintaining a network.
 
Parker has demonstrated he won't do that.
 
Despite the optimism you might have or the negativity you might think I convey, no one has yet to tell me any airline that has faced in the space of one year:
- the loss of 50 flights per day at any slot controlled airport to be transferred to other airlines, esp. at an airport like DCA where the number of seats that new carriers will add amounts to about 1/3 of what US currently operates
- the addition of up to 100 or more flights per day at a sister airport in the region that will become available on one date and which has not been available in the past
- a competing JV into the top int'l market for AA
- Open Skies into AA's top revenue region.
- and AA's continued inability to resolve its loss-making routes in the Pacific. 
 
 
Again, tell me what other carriers have faced similar challenges at the same time in the past.
 
AA's near-term competitive challenges are unprecedented in the industry. 
 
Doesn't mean I don't wish AA employees the very best... I truly do.
 
But it takes a whole more than a rosy outlook to overcome the challenges that face AA.

 

[robbedagain]

bingo aanotok