Originally Posted by
Excargodog
Except the last bonds that AA sold they had to pay 12% for the loan of the money. ForUnited it was 11%
and their financial situation is more precarious now. Except for Alaska, I think all the majors are junk-rated now. And they don’t have the money to pay off their junk rated bonds, instead they must refinance them by selling new bonds collateralized by older airplanes in the face if their own declining credit ratings. That’s bad enough - akin to refinancing credit card debt by repeatedly charging it on a new credit card at higher and higher rates.
Add inflation to that, and the yields will skyrocket. How can ANY company make enough profit to pay off $40 billion (which certainly at least AA will reach before this is over) while paying 15-20% interest on that debt?
Inflating your way out of debt might work for the government which after all prints money, but it will put every major airline (and most regionals) in bankruptcy if it happens.
No one wanted those airplanes (why would you agree to finance old airplanes at the previous value when there's no market for them). I think Delta and SWA aren't junk. United is junk but they can still access the market.
Airlines can hedge most of their costs, so I doubt large inflation would be an insurmountable problem. Even such things as pilot pay get locked in for years in the future via the CBA and inflation has no bearing on that. The real issue is if there's shocks to the system instead of a nice steady climb in inflation.
Back on topic, the US government (the group that can tax) is much more likely to use inflation than taxes to pay off their debts.