Originally Posted by
Duffman
I came here to learn a little about the financial future of my parent company, but 90% of this makes about as much sense as accountants arguing about the technical details of the MAX, except with Twitter troll-ishness.
I don't have a financial background aside from playing the stock market, but my immediate "gut feeling" is that the accountants at AA aren't stupid and they're making their decisions based on the projection that things will be 90% back to normal next fall. We also just quantitatively eased (printed) $3T for COVID relief, so there'll be a lot of inflation next year, which waters down existing debt. That's how the rich get richer from inflation; even Trump has used this tactic. So, yeah, AA has a ton of debt on their shiny new airplanes, but they also bought them when the trolley used to cost a nickel vs everyone else, who will have to update their fleets at future post-COVID inflation dollars. I'm not saying this can't backfire horribly, I'm just saying that it seems to me there're some extra dimensions here that aren't being discussed.
The problem is that interest rates ARE NOT cheap for any of the airlines. Recently United paid 10% on their bonds. This summer AA paid 12% while my mortgage company is trying to talk me into refinancing at 2.5%. I agree with Rickair that with the current surplus of used aircraft and white tail aircraft, existing bond holders might cut the airlines some slack, but with their bonds essentially junk bond rated, I think the airlines are still going to have to refinance their maturing bonds at a lot more than the 2.5-3.5% they were financed at five or ten years ago when - yes, the Fed was ALSO flooding the market with money to try to get us out of the Great Recession.
And there is competition. The future will be brightest for the airlines whose flying comes back first, and that would not appear to be those highly dependent on business and international flying.