Originally Posted by
ag386
Having to borrow 750 million @ 5% just to satisfy pension obligations isn't good business strategy no matter what the college's are teaching today. It is another indication of serious trouble. Debt loads backed up by depreciating aircraft assets aren't the worst thing if kept to a manageable level. 22 billion is starting to stretch manageable. Borrowing that 750 mil is telling that AA is having trouble meeting obligations. Otherwise, why borrow at 5%?
Because their capital (as they have 7B in cash) is probably making considerably more than 5% - therefor if they just paid out of pocket - they would be missing out on that considerable opportunity. Every capital decision is stress tested against a sophisticated NPV model. At the end of the day 750M is only 1.7% of their FY 2018 revenue.
Last edited by FlyPurdue; 05-18-2019 at 07:10 AM.
Reason: corrected erroneously spelled word 'capital'