Will AA declare bankruptcy?

[Bob Owens]

I consider any company of our size that loses $10-$12,000,000,000 in the last decade as being in dire straits and most recently when all others prosper, we flounder. MismanAAgement? In most industries if your not moving forward, your moving back.

Just numbers, often a large percentage of those losses are intangibles, little gifts from our government that let's corporations write off and claim losses that never really existed. It would be as if you contributed $200k to your 401k and watched the stock market drive the value up to $500k, then when it tanks back down to $250k being allowed to claim the $250k decline as a loss despite the fact that the fund still has a value of $50 k more than what you put into it.

If AA truly lost $12 billion, as in a real pile of cash, it would be gone.

 

[Bob Owens]

... and then came the chickenhawk ...

That was a funny commercial.

I was thinking more of the novel a tale of two cities.

 

[strikeforce]

Strikeforce, AA has to renovate terminals, order new aircraft,etc. There is no way it can remain competitive if it didn't.

As I've been incessantly mentioning, there was no "bailout of BK in 2003" because ostensibly, wages were too high in the first place. It doesn't seem that wages in 2011 are "mean wages" (industry averages), thus AA's financial problem.

Ok, I've got a question for you.

If this is a management problem then why has literally every single independent analyst state that AA's cost structure is too much??

Even union heads state that AA's cost structure is too high:

"Capt. Dave Bates, the union chief and a 26-year American veteran, says he knows AMR has a cost problem. "Our union understands the need for [increased[ productivity ]," he says "*

*-Wall Street Journal-July 1, 2011

Another example:

"Studies show the airline (AA) is at or near the bottom of the industry in productivity, says Jerry Glass, president of F&H Solutions Group and a former US Airways labor executive."*

Let me address your points.....

First, how does "renovating" terminals affect competition? I can understand if AA upgrades kiosks that provide customers an easier way to check-in or implements systems that are customer friendly, yes it's worth the expense. But, I don't see how replacing jet bridges, upgrading terminal waiting areas or replacing the check-in counters at gate areas makes AA more competitive than other airlines. Unless someone shows me otherwise, I don't believe customers are breaking down AA's doors demanding these upgrades.

Second, "aircraft orders". Yes, new airplanes provide immediate fuel savings and require less heavy maintenance, but AA had a chance to further simplify the fleets by ordering strictly 737's. Instead, they ordered Scarebus, again. While the new order may provide savings on one side of the ledger, it will be more costly for training and the need for Airbus parts that we currently don't carry.

Lastly, "wages" and AA's high cost structure. Look, management runs the business, and they either make good sound business decisions or bad ones. Somehow it appears to me that you and others blame the union workers for AA's problems. The union doesn't make the business decisions....on the contrary, the union has continuously provided management with ideas to improve the company and it goes on deaf ears. Everyone complains that AA's union workers are the least productive.....well, then why doesn't AA management do something about it. It's not the union's fault if management allows workers to sit around for hours and play with their laptops.

The bottom line.....Management has not held up their end of the bargain. In 2003, labor agreed to help the company outside of BK, and in return labor expected management to run a tight ship and stop the waste. Instead, labor took it in the shorts and management rewarded themselves for running the airline into the ground. Now, they threaten labor with BK, and what, I'm supposed to help the incompetent management again. The hell with them.....go BK!

 

[Bob Owens]

The bottom line.....Management has not held up their end of the bargain. In 2003, labor agreed to help the company outside of BK, and in return labor expected management to run a tight ship and stop the waste. Instead, labor took it in the shorts and management rewarded themselves for running the airline into the ground. Now, they threaten labor with BK, and what, I'm supposed to help the incompetent management again. The hell with them.....go BK!

yet another reason why we keep our tools on wheels.

 

[OldGuy@AA]

The bottom line.....Management has not held up their end of the bargain. In 2003, labor agreed to help the company outside of BK, and in return labor expected management to run a tight ship and stop the waste. Instead, labor took it in the shorts and management rewarded themselves for running the airline into the ground. Now, they threaten labor with BK, and what, I'm supposed to help the incompetent management again. The hell with them.....go BK!

True statement. We were led to believe that we had to watch every dollar and we did. We didn't order anything that wasn't absolutley necessary and we watched as management got new office furniture and new computers as well as bonuses while enjoying all the benefits that were taken from us. Actions speak louder than words. Management never changed the way they did business. Now they hire consultant firms and hand them money only to disregard any advise given. Revenue comes pouring in and somehow after "Special items" there is always a loss. If the BOD did their job then they would run the imbiciles off that are running us into the ground and then turn in their own resignations since they condoned them for so long. Get someone in here that wants to be in the airline business and wants to make money to run the company.

 

[strikeforce]

We were led to believe that we had to watch every dollar and we did. Actions speak louder than words. Management never changed the way they did business. Now they hire consultant firms and hand them money only to disregard any advise given.

The only reason companies hire outside consultants to advise them on business decisions is because the company doesn't have smart & experienced people within the ranks of management. AA is no exception. It's quite obvious that management either didn't heed the consultants advice or they hired incompetent advisors that don't have a clue about the airline business. I'm going to guess BOTH!

"Management never changed the way they did business".....They did change, for the worst....they became more reckless and unaccountable.
This thing about "shared sacrifice", and "good place to work for good employees", and "take care of our customers" are all LIES!! Sounds good, but are all LIES!!!

 

[FWAAA]

Customers don't care about safety but if the terminal isn't pretty they will fly somebody else, funny but for years all we've heard was that if AA charges a nickel more than a competitor they will loose customers, more room in coach, doesn't matter, nothing matters but price but now you are claiming all these Taj Mahals are needed to make AA competitive , please, everyone knows it's just a cash burn.

Then why did the brilliant Delta management recently announce a $1.2 billion renovation of the Delta JFK terminals?

http://www.marketwatch.com/story/delta-to-get-12-billion-new-home-at-jfk-2010-08-05

Delta, currently the world's largest airline after its 2008 purchase of Northwest, is looking to strengthen its presence in high-growth markets as demand for air travel returns.

It has said upgrading JFK is essential to attracting corporate passengers as it builds a major hub in New York City. This week, it also announced plans to improve dining services at its main terminal at LaGuardia Airport.

http://www.reuters.com/article/2010/08/05/delta-jfk-idCNN0513650820100805

Someone should call Delta and tell them that Bob Owens of AA has declared new terminals useless in attracting high-yielding customers; Delta can save over a billion dollars by using its old dilapidated facilities instead.

 

[Bob Owens]

Then why did the brilliant Delta management recently announce a $1.2 billion renovation of the Delta JFK terminals?

http://www.marketwatch.com/story/delta-to-get-12-billion-new-home-at-jfk-2010-08-05



http://www.reuters.com/article/2010/08/05/delta-jfk-idCNN0513650820100805

Someone should call Delta and tell them that Bob Owens of AA has declared new terminals useless in attracting high-yielding customers; Delta can save over a billion dollars by using its old dilapidated facilities instead.

Boy are you slipping. Delta made a profit with their dilapidated terminal while AA shows losses with their brand new one! Dont recall ever saying anything that would indicate I thought Delta had brilliant leadership.

Let me know when WN announces that they are building billion dollar terminals all over the place.

 

[strikeforce]

Someone should call Delta and tell them that Bob Owens of AA has declared new terminals useless in attracting high-yielding customers.

Oh, but our high-yield customers want pomp and circumstance, yet WN prices. If it was my airline, my high-yield customers would sit on a milk crate, brown bag their meals, and crap in a hole beneath the milk crate, but at competitive prices.

 

[eolesen]

Boy are you slipping. Delta made a profit with their dilapidated terminal while AA shows losses with their brand new one! Dont recall ever saying anything that would indicate I thought Delta had brilliant leadership.

Let me know when WN announces that they are building billion dollar terminals all over the place.

I know you're conditioned from birth to believe that NYC is the center of the universe, but it isn't....

ThirdWorldPort at JFK sucks in comparison, but DL's facilities in DTW, ATL and MSP are quite nice and constantly improving. I'm told their onboard product is better, too. Haven't tried it, but will probably be forced to at some point.

Oh, and WN has been engaged in getting new facilities at their largest airports... or more appropriately, has made it clear that they expect them to be upgraded by the airports they serve. Either way, WN pays for it thru higher rent and landing fees.

DAL is getting a new terminal, HOU should just about be finished, and MDW was done just a few years back, as was BWI if I recall. PHX is only about 15 years old, and I've heard that they will soon be upgrading LAX (very much in need).

 

[WorldTraveler]

Airlines don't build new facilities these days because they want shiny new buildings. They build new terminals because what they had doesn't work anymore and doesn't allow them to continue to grow their business where it needs to grow.
AA built its MIA terminal to allow it to grow in the one region where it dominates and which is essential to the company's future.
DL is building a new terminal in JFK because their operations now are spread over 3 terminals and because the two original Pan Am terminals require an army of guards to block all of the glass doors since those terminals were built before airports even had security checks.
AA at MIA and DL at JFK have both managed to grow their business despite the terminal constraints they had before they started those construction projects.
WN is building new facilities for the same reason.
NW built its DTW terminal w/ incredibly tight financial controls - and it is a very nice terminal w/ very low passenger costs - despite operating at a fraction fo the capacity it could handle. All 3 of DL's largest domestic hubs have low passenger costs, as does AA's at DFW - and DFW is spending money to upgrade DFW's terminals - and some of that cost will be passed on to AA even though the airport has alot more sources of revenue than others.
BA spent a fortune for its terminal at LHR... but they either had to do something or could watch the airline shrink as it tried to compete w/ airlines that had better facilities.
Well designed and managed facilities are essential to running any airline that has to compete for business - even .
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Aircraft are machines that have to be replaced at some point.
While there may be differences of opinion about how many and of what manufacturer AA chose to buy, the fact is airlines have to buy planes.
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Obviously facilities and planes won't ensure an airline can make a profit but you can be assured that w/ the wrong airplanes and wrong terminals, there is no chance of making any profit.

 

[FrequentFlierCA]

Simple answer: no. AA won't declare bankruptcy this year or probably next.

What happens after that is a function of controlling input costs, hoping oil doesn't skyrocket, and a more solid recovery of the economy and demand for air travel.

 

[FWAAA]

Boy are you slipping. Delta made a profit with their dilapidated terminal while AA shows losses with their brand new one! Dont recall ever saying anything that would indicate I thought Delta had brilliant leadership.

Unfortunately, AA's nice new T-8 doesn't make AA's labor cost disadvantage go away. Every 18 months, AA's labor cost disadvantage costs it the equivalent of a new JFK T-8. Despite operating from two dilapidated terminals at JFK, AA made record profits in the late 1990s prior to announcing its new Terminal 8 in early 1999. AA was distributing about $300 million a year on average in profit sharing to the employees. Spending one year's profit to build the new JFK T-8 didn't seem like such a bad decision in early 1999 - but with the benefit of hindsight, perhaps AA could have economized a bit.

I have friends and family who rave about CO's facilities at EWR - which is thanks to Burr's poor decision to build a Taj for PeoplExpress. CO's been paying rent on that nice terminal for over 20 years. Because of Peña's decision to move the Denver airport, UA gained a brand new hub terminal, which has been costing UA plenty for more than 15 years.

I think DL's management is brilliant - don't know or care what you think of them. But according to your reasoning, they must be pretty stupid to spend $1.2 billion to replace their third world toilet of a terminal. Why spend that money when the customers will show up anyway?

Let me know when WN announces that they are building billion dollar terminals all over the place.

Eolesen did yeoman's work with this gem. I've been in some pretty nice WN terminals in CHI, BWI and PHX. WN's new half billion dollar, 20-gate terminal at DAL should be impressive.

 

[WorldTraveler]

Bob,
there are obviously degrees of how money can be spent, but the fact remains that companies have to spend money in order to make money - and that includes resources necessary to deliver the product - terminals, airplanes - tangible stuff.
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The real issue here is that, like it or not, AA employees under the current business arrangement are employees, not owners.
While there may be alot of differences of opinion as to whether AA mgmt is doing the right thing, they are running the company.
The way to change that is for employees to take control of the company - and then they can make the decisions about the future of the company, including how it spends its money.
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AA faces alot of very tough decisions in the near future in part because they didn't act more decisively years ago to fix some of the long-standing problems w/ the business. AA mgmt could have laid off alot more people and they still could; AA reduced its headcount less than other airlines who used their reduced costs as a result of lower staffing in order to exand their businesses as a result of having lower costs.
If AA's unions agreed to lay off 5% of its workforce - or allow a combination of layoffs and early retirements/voluntary separations - with the remaining personnel covering the remaining work including making some scope changes, AA could very well turn the operation around to cost levels competitive w/ other airlines - without anyone taking a pay cut.
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But since you have continually said that it is mgmt's job to figure out how to turn the company around and not labor's, then you have to live with those decisions.
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Given that airline bankruptcies are always very hard on airline employees, I would think that labor would take a very active role in figuring out how to help turn AA around... but we continue to hear demands for "restore and more" etc. despite the fact that pretty much everyone else in the airline industry and the world have accepted that the world 10 years after 9/11 has permanently changed.
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AMR's market value is less than $1.2B now... well within the ability of AA employees to take over the company in return for concessions.
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While UAL as an employee-owned company ended up badly, it doesn't have to be that way... there are many employee-owned companies taht are well-run and competitive w/ their peers. AA COULD be one of them if the employees wanted.
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But I can assure you that in the absence of labor's willingness to take control of the company and offer solutions that will turn the company around, mgmt will do it themselves - even if spending on planes and terminals is completely against what you would do if you
ran the place.

 

[Jacobin777]

Customers don't care about safety but if the terminal isn't pretty they will fly somebody else, funny but for years all we've heard was that if AA charges a nickel more than a competitor they will loose customers, more room in coach, doesn't matter, nothing matters but price but now you are claiming all these Taj Mahals are needed to make AA competitive , please, everyone knows it's just a cash burn.

Wages were never too high and there's more to costs than labor, in fact labor costs have been shrinking as a percentage for years.

Having large aircraft on long haul routes automatically increase the number of ASMs that regionals can provide in the TWU contract. Under current rules a 777 flying 300 people 7000 miles adds 126,000 ASMs for regional flying, 300x7000=2,100,000 x .06 =126,000 that's enough ASMs for 50 Eagle RJ flights between New York and Boston or wherever they want to fly within 250 miles of New York. Enough for 17 Eagle RJ LGA to DFW trips. The number of flights affects our headcount more than the number of passengers or payload. That's at 6%, if we double it to 12% one 777 on a 7000 mile trip would allow the company to increase regional flying by 252,000 ASM. That one flight could wipe out all the mainline flying in several Class II cities. So while it may add one head to JFK it may come at the cost of closing both EWR and PHL and losing 40 heads to Eagle, JetBlue or whomever AA has doing their regional feed.

I won't discuss/mention the terminal situation because that has been mentioned by a few already.

Regarding ASM's, you are correct, but it doesn't really necessarily increase load factors, yields or profitability. Also, my point stands - AA adding E190/E195's to mainline would have a very good effect to system-wide routes. ORD would certainly be one place AA can use E190/E195-sized planes.

Being profitable, as has been mentioned will allow AA to profit share.

Let me address your points.....

First, how does "renovating" terminals affect competition? I can understand if AA upgrades kiosks that provide customers an easier way to check-in or implements systems that are customer friendly, yes it's worth the expense. But, I don't see how replacing jet bridges, upgrading terminal waiting areas or replacing the check-in counters at gate areas makes AA more competitive than other airlines. Unless someone shows me otherwise, I don't believe customers are breaking down AA's doors demanding these upgrades.

I won't discuss/mention the terminal situation because that has been mentioned by a few already and I agree with them.

Second, "aircraft orders". Yes, new airplanes provide immediate fuel savings and require less heavy maintenance, but AA had a chance to further simplify the fleets by ordering strictly 737's. Instead, they ordered Scarebus, again. While the new order may provide savings on one side of the ledger, it will be more costly for training and the need for Airbus parts that we currently don't carry.

While I'm completely pro-Boeing, I think AA got a great deal with the Airbus. Listen, AA has incessantly stated that there was no way any one of the manufacturers could replace the planes AA need to have replaced. They got great financing and practically zero risk.

Will Airbus make money at the end of the deal? Probably, but AA got a great deal as well. As much as I hate to say it or admit it, AA got a great deal and it was a deal they should have done.

Lastly, "wages" and AA's high cost structure. Look, management runs the business, and they either make good sound business decisions or bad ones. Somehow it appears to me that you and others blame the union workers for AA's problems. The union doesn't make the business decisions....on the contrary, the union has continuously provided management with ideas to improve the company and it goes on deaf ears. Everyone complains that AA's union workers are the least productive.....well, then why doesn't AA management do something about it. It's not the union's fault if management allows workers to sit around for hours and play with their laptops.

I'm not blaming anyone bud. I'm stating that when changes have to be made, they need to be made. Regardless. Many in AA management get fired as well. They don't have job protection like unions do. I've pointed to links, etc. as to where AA's cost structure is too high. Is management to blame for part of it? Certainly. However there is enough blame to go around.

I have also mentioned that all the union groups and management need to get together practically on a daily basis or few times/week and sort these problems and inefficiencies out. I'm still very skeptical that becoming more efficient and productive will solve the fiscal woes.

The bottom line.....Management has not held up their end of the bargain. In 2003, labor agreed to help the company outside of BK, and in return labor expected management to run a tight ship and stop the waste. Instead, labor took it in the shorts and management rewarded themselves for running the airline into the ground. Now, they threaten labor with BK, and what, I'm supposed to help the incompetent management again. The hell with them.....go BK!

What does "not held up their end of the bargain mean"? AA still hasn't filed for BK 8 years later. Many, many dynamics have changed since 2003. Thinking this is 2003 or prior is simply ignorant and/or foolish (pardon to be so blunt).

I also don't understand by what you by "management rewarded themselves". Management worked out a deal with the union(s) back in 2003 (Carthy's situation was a bit different). Also, If you notice, management practically always gets rewarded on Wall St. (again, a function of cronyism between the board members, etc.). I say this needs to be changed, but that is a completely different subject/topic.

The only reason companies hire outside consultants to advise them on business decisions is because the company doesn't have smart & experienced people within the ranks of management. AA is no exception. It's quite obvious that management either didn't heed the consultants advice or they hired incompetent advisors that don't have a clue about the airline business. I'm going to guess BOTH!

That's simply not true. Outside consultants have experts in a particular area, know many people in particular areas and add unbiased opinions/ideas.

"Management never changed the way they did business".....They did change, for the worst....they became more reckless and unaccountable.
This thing about "shared sacrifice", and "good place to work for good employees", and "take care of our customers" are all LIES!! Sounds good, but are all LIES!!!

That's total B.S. Management have to be accountable to shareholders, bondholders and the Securities Exchange Commission.

I want you to point out ONE case of management fraud at AA where someone from management was tried and convicted. C'mon, I dare you! Your comments about "lies" are nothing more than opinion.