I work for AA. While not everything is sunshine and lollipops, I think we are in a drastically different financial position and pilot manning outlook.
Debt - this is the one everyone screams about. Yep, we have a lot of it. But the short term isn’t bad at all. Our highest rates are on the CARES act loans at around 4%. Our “big” long term debt is our capital expenditures - mainly airplanes. We have staggered payoffs, some debt will be serviced beginning late next year IIRC, but the large amounts don’t get serviced until 2022 and now 2027 (this is what I’ve been told by some of our APA smart money guys). We have lots of cash and liquidity on hand, which means we are ok with cash burn for now.
The best analogy I can come up with is that our debt is more akin to a mortgage, why payoff the house at a 2.5% rate when your other investments and cash instruments have a higher rate of return? Sure I can say I’m 500k in debt with my brand new house but in reality if I can make the payments then who cares? Better yet, if I can defer my payments for a year and there’s no penalty, now I get to save cash. Yes, this is obviously a simplistic view but it fits.
Let’s take DAL as an example for the opposite. The don’t have a huge mortgage staring them in the face as their ‘house’ is older and is closer to being paid off. They have a good revenue stream, and are great with money - when times were good. But they made risky investments with their extra cash - a few airlines here, some there and a refinery to boot. That’s where their cash went. They still have some, but their “investments” aren’t paying off at all, and that cash is likely gone forever - and what’s more devastating is their ability generate revenue from those investments.
Who’s in the better position for a “short term” downturn? The cash strapped low debt DAL or the accidentally cash ‘rich’ AA?
I know you all have some large, short term debt debt coming due very quickly as well to some hedge fund sharks. This adds to the liquidity stress and depletes your cash on hand which unfortunately affects your ability to operate. Maybe the play is to use CARES act loans to pay them off next spring, but then you’re still in the same problem, only deferring it for a few months?
Manning - last summer we were 1000-1500 pilots short and that’s not even counting the staffing requirements for the grounded MAX. We were also looking at the highest retirements of any major. These factors considerably hampered our operation and ability to grow in a sustained manner. We couldn’t reliably sustain the operation while training for retirements (the old rule of thumb was each 777 CA that retired caused 7 additional training events). We wanted to get rid of older fleets, but didn’t have the training bubble to effectively pursue that additional training demand (the S80 retirements caused a 4-6 month backlog alone, and effectively killed new hires from being integrated into the line).
This crisis has given us the ability to actually have a nice little training bubble - a relief valve for the pressure cooker that was our operation. Now we can not only ditch our old, unreliable and gas guzzler fleets (most also have heavy checks awaiting we didn’t want to spend cash on), but we can offer our most expensive and least productive line employees an early out and retrain their replacements.
This helps us out because instead of 8-900 retirements a year in the next 5 years, we only have ~500 a year the next three years. This ultimately reduces training going forward. I don’t think we will see any furloughs at AA for this reason. We have ‘right sized’ the airline and will be prepared to accept new hires at some point next year without killing the operation.
Please note that we don’t have evil geniuses that were prepared for this - we got lucky and caught a break. My hope is that there’s no furloughs at UAL/DAL. I have great buddies at each.
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