Originally Posted by
Peloton
For every buyer there is a seller.
They are the most highly leveraged airline around. Their balance sheet in last SEC filings tell the story. Do they have a young fleet? Yes but they owe money on the planes, they are not free.
Latest numbers are AA has 22B in short and long term debt. It’s cash position is 5B to invest and it generates around 4B. That puts us cash to debt ratio of around 18 percent. Pretty inefficient use of debt to finance growth. In addition it does not generate enough to cover its current debt load, thus the statement I made. For example Delta is the opposite as it sits on 10B in debt. A much easier debt load to satisfy.
Now it’s true it currently can cover liabilities with current revenue but they will run into problems when the next recession or slowdown hits the travel market. In addition interest rates are creeping up and AA reissues debt to pay off old debt, thus that will lead to higher interest payments in the future. It will retire around 3B a year from 2018-2022. AA would have done better using the tax windfall to pay down debt and not make stock buybacks a priority.
But I digress with all this as my statement to the other dude was labor cost is not an issue as it’s debt load will be a bigger problem going forward thus his implication pilot pay will ruin the company is a red herring.
Bit of a thread hijack, but an interesting subject nevertheless.
They're loaded with debt, but their fleet renewal is fully funded, so there's no need to borrow any more. And they negotiated fantastic rates, so if the economy doesn't tank in the next couple of years, they are in a great place. Those investments will start paying dividends when they get more of the new planes flying.
I do agree, the stock buyback really wasn't a great idea and their timing was poor. But saying they are struggling is 100% inaccurate. That might happen if the economy falls on it's face, but for now, they are doing just fine. Market analysts seem to agree with this, given the favorable views.