Originally Posted by
FlyPurdue
I don’t mean that they will be making more than 5% in annual interest, I'm simply saying that >5% is a hurdle rate for any capital expenditure.
Thanks for pointing me to the 10-q, although I spent 5 years in planning at AA; revenue management and fleet planning. Treasury/Capital Planning, was not my area of expertise. Doug reiterates on every investor call that AA has a liquidity of $7B, and I took that at face value - I was wrong.
Our margin is 3%, meaning we are borrowing at 5%+ to earn 3%.
That would be like taking out a 5% mortgage while having the cash in the bank earning 3%, and leveraging up to the hilt.
It's the opposite of using OPM and no one ever got rich doing it that way.
If you could borrow at 5% but earn 10%+ using that money, you'd borrow as much as you could, right?
The issue with AA right now (and probably forever) is there is limited amounts we can grow our core business. AA so far has not taken on risk to grow their businesses outside of a standard 2%-3% per year. They are laser focused on just transporting passengers.
As a stockholder what you want to see is a company that can continue growing...it's what you pay the leadership for and why you own stock. AA is not exciting and has little to no growth in it, hence the low multiple on the stock.