US Airways Sees ‘One Big Deal’ Left for U.S. Airline Mergers

[FWAAA]

And how much Debt does AA have and has to pay to service that debt?

At 12/31/10, AMR had $9.25 billion of long-term debt plus capital lease obligations (less current maturities). AMR's 2010 net interest expense was $766 million.

At 12/31/10, LCC had $4.34 billion of long-term debt plus capital lease obligations (less current maturities). LCC's 2010 net interest expense was $316 million.

By that comparison, LCC appears to have the edge, as its debt and interest expense are a smaller percentage of its revenue than at AMR.

Add in aircraft rent, however, and things again look more balanced, as AMR paid $580 million but LCC paid more: $670 million. LCC has less debt and interest expense but a lot more airplane rent (as a percentage of revenue).

Of course, LCC's employee wage expese was substantially lower as a percentage of revenue than at AMR. Those east pilots are flying for peanuts compared to AA's pilots and even the west pilots make a lot less than AA's pilots. The LCC FAs are similarly underpaid compared to AA. I assume the ramp and the mechanics are also paid less than at AA. Finally, AA's labor productivity is lower than at LCC, magnifying the differences.

At 12/31/10, AMR was not subject to any credit card holdbacks by its credit card processors. According to Parker and Kirby, LCC was indeed under a 15% holdback at the end of the year and continuing thru January. We'll see where both airlines are on that issue in a couple of weeks when the Q1 numbers are released. That's a strike against LCC - as its credit card processors are worried about LCC's ability to continue as a going concern - and AMR's processors didn't share that skepticism about AMR.

Still, I just don't see the numbers that prove that LCC is in much better financial shape than AMR. Of course, the cheerleaders in this thread who are forecasting AMR's imminent bankruptcy filing and liquidation see things differently.

As I pointed out in my earlier post, yes, LCC posted a decent profit last year while AMR lost a ton of money. But that was last year, and not this year. Fuel is significantly higher than in 2010 and looks like it may stay a lot higher for a while. I wouldn't place any bets that LCC posts a profit in 2011 and judging by the stock price, the market doesn't predict substantial profits at LCC either. Same at AMR where the stock is almost as low as it was in 2003 right after the company imposed the concessions on the employees and bankruptcy was narrowly averted.

Both airlines are in a world of hurt as both are taking delivery of new planes this year and both have borrowed heavily against nearly all available collateral. Same thing with UA-CO and DAL. None of the legacies are in an enviable position right now. Japan revenues are shrinking, hurting all except LCC. Fuel is spiking, hurting LCC the most (due to zero fuel hedging). This keeps up and the airline(s) that run low on cash will have no choice but to file Ch 11 petition(s).

 

[BoeingBoy]

This keeps up and the airline(s) that run low on cash will have no choice but to file Ch 11 petition(s).

And to that, compare the cash requirement imposed by the credit card processor to both AMR and LCC - I think you'll find that LCC has less "cash" (cash, short term investments) margin than AMR by a significant amount.

Jim

 

[Travelpro72]

My airline is better than your airline. I wouldn't say that US is fit to throw their weight around anywhere and AA looks quite sick compared to their now larger competitors. I don't hope or wish the demise of ANY airline as we are all in the same industry. I always wondered why most hate their management yet stand up and defend their airline against another. It's like protecting your husband who beats you. Really? We are all in a world of mess with management at both AA and US. I wish the best for all of you at AA. We sure have our hands full with these yahoo crackers that run this joint. (picture wind up monkeys).

 

[WorldTraveler]

My airline is better than your airline. I wouldn't say that US is fit to throw their weight around anywhere and AA looks quite sick compared to their now larger competitors. I don't hope or wish the demise of ANY airline as we are all in the same industry. I always wondered why most hate their management yet stand up and defend their airline against another. It's like protecting your husband who beats you. Really? We are all in a world of mess with management at both AA and US. I wish the best for all of you at AA. We sure have our hands full with these yahoo crackers that run this joint. (picture wind up monkeys).

correct... but we all realize that "our airline" is not just management but is "us" as well so attacks by outsiders on "our airline" is not just an attack on managment but on us personally. Even with the wife beater theory that you point out, there is very much an element that we will rally by our home team, even iwth its dysfunctionality than to permit an outsider to come in and attack us.
No one understands that principle more than I do on this and other forums.... yet my purpose on aviation chat boards has never been to avoid saying the tough words that need to be said, regardless of whose sensibilities they offend.
But it also doesn't make what I or other people say to be any less true, including those people who tell you that you shouldn't put up with your husband you beats you and abandons the kids on a regular basis.

Still, I just don't see the numbers that prove that LCC is in much better financial shape than AMR. Of course, the cheerleaders in this thread who are forecasting AMR's imminent bankruptcy filing and liquidation see things differently.


Both airlines are in a world of hurt as both are taking delivery of new planes this year and both have borrowed heavily against nearly all available collateral. Same thing with UA-CO and DAL. None of the legacies are in an enviable position right now. Japan revenues are shrinking, hurting all except LCC. Fuel is spiking, hurting LCC the most (due to zero fuel hedging). This keeps up and the airline(s) that run low on cash will have no choice but to file Ch 11 petition(s).

The airline industry PERIOD is not in an eviable position. When fuel is one of your top expenses, no one can feel comfortable in the midst of soaring fuel prices - which as I have pointed out with have as at least part of the root cause - if not a major cause that the weakness of the US economy and USD relative to other economies and currencies, including developing economies which are competing w/ the "developed world" for the same petroleum resources.
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The advantage that US airlines AS A WHOLE have now relative to previous oil shocks is that fuel economy has improved, consolidation has resulted in removal of some capacity from the system, and Americans understand better that fuel prices will result in increased costs of living and costs of doing business - so the price increases that are necessary to help cover the cost of fuel will not sink the system as it has in the past.
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But the reality is that there are differences in the financial strength of different US airlines. While trying to predict who will fail first in a catastrophic financial crisis to the industry, I don't think it does any good to try to deny that some carriers are more exposed to risk and that other carriers are going to use the financial misfortune of some carriers to benefit their own causes.... WN cleaned up handsomely during the 2005 fuel price runup because they had fuel hedges that other didn't.
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For those who remember, many of the network carriers could not afford to maintain hedges because they are risk-taking investments that require cash to ensure that the counterparty can obtain its payoff if the airline bet on prices is wrong. The then brain trust that ran DL cashed out DL's hedges (while also putting in place BK proof executive retirement packages) and sure enough the fuel price runup post-Katrina was the nail in DL's pre-BK coffin.
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To pretend that same thing can't happen again is to proverbially whistle through the grave yard.
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While US is one of the most exposed US airlines because of a lack of hedges right now, trying to predict whether AMR is weaker or not is somewhat meaningless. The reality is that ALL carriers are going to use the weakness of ANY competitor to strengthen their own positions... that is the nature of business.
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I will post the results later but there are a number of factors that can be looked at to determine the financial health of various carriers but those factors include but aren't limited to cash on hand, lines of credit, amount of restricted cash, debt payments due, other financial commitments including capital expenditures, and then a host of operational factors all of which ultimately roll up to the total cost to produce an avaialble seat mile, which is the financial metric of efficiency in the airline industry.
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What seems certain is that there is a very high chance that the fuel price runup of 2011 will lead to another round of shakeouts in the US airline industry at least and perhaps globally as well.

 

[jimntx]

While US is one of the most exposed US airlines because of a lack of hedges right now, trying to predict whether AMR is weaker or not is somewhat meaningless. The reality is that ALL carriers are going to use the weakness of ANY competitor to strengthen their own positions... that is the nature of business.

Losing money in the airline business is not a recent or one-off event. As one of the founders of British Airways once said, "If you have to tighten your belt, it's a recession. If you lose your belt, it's a depression. When you have no trousers, you're in the airline business."

 

[whatkindoffreshhell]

[quote name='roabilly' timestamp='1302282979' post='796243

I saw several previous post regarding the possibility of Virgin America not being a viable player due to the premise that it is a foreign owned carrier. If my memory serves me correctly, it was certified as a US Carrier and is actually owned in majority by Black Canyon Capital LLC, which owns 75% of the capital stock and is responsible for appointing two-thirds of the voting members of the board of directors.

[/quote]

You are not being correctly served in more ways than one. Singapore Airlines owns a majority 51% of Virgin and neither of those airlines need any US-based airline headaches. B6 code-share works because both airlines are relaxed and aggressive.

US' Airlines CEO is the same mold as UA' former CEO --- both incompetent and simply touting their airline because they want to sell and cash out their retirement bonus.

 

[MUTATIS MUTANDIS]

http://www.zacks.com/research/get_news.php?id=097l8873 Siting LCC's market CAP it is extremely easy to see, "TIME" is not on LCC's side given fuel costs and no HEDGE! MM!

 

[MUTATIS MUTANDIS]

http://www.zacks.com/research/get_news.php?id=097l8873 Siting LCC's market CAP it is extremely easy to see, "TIME" is not on LCC's side given fuel costs and no HEDGE! MM!

As not so far fetched as it sounds this guy probably has it right! http://upgrd.com/mike/does-the-rumor-of-a-split-us-airways-make-sense.html

 

[WorldTraveler]

Losing money in the airline business is not a recent or one-off event. As one of the founders of British Airways once said, "If you have to tighten your belt, it's a recession. If you lose your belt, it's a depression. When you have no trousers, you're in the airline business."

OR

"Know the best way to become a millionaire?"
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"Start as a billionaire and then buy an airline."