Originally Posted by
victormike
Someone help my smooth brain understand this "BK is certain" talk because I fly airplanes better than I can read a balance sheet.
As of year end 2020 the breakdown of assets between AAL, UAL, and DAL was as follows:
Total Equity (total assets minus total liabilities)
AAL: -6.87B
UAL: 5.96B
DAL: 1.53B
We can clearly see how up a creek AAL is right there, but digging into more numbers does that remain the case?
Current Liabilities/ Long Term Liabilities (>12 months):
AAL: 16.56b / 52.30b
UAL: 12.72b / 40.86b
DAL: 15.92b / 54.53b
Yes, AAL has some more current liabilities then the rest which doesn't help cash burn but we don't have long term liabilities that are out of line for the fleet size using DAL as a comparator.
Average Fleet Age:
AAL: 11.2 years
UAL: 16.3 years
DAL: 14.4 years
Obviously the younger the fleet, generally you get a savings in fuel, and maintenance cost. When you remove the newer outlier fleets from both UAL (787) and DAL (350 & 220) they age significantly and the 767, and 757 aren't cheap frames to replace. Even taking into account AAL having some old little busses, you pop new engines on them, do new interiors, and they do become more efficient in a way Delta or United can't make a 757 or 767 thereby saving cash. We also reduced our fleet types streamlining maintenance, equipment and training which saves cash. I'm old enough to remember when the magazine had over 10 mainline bodies consisting of 9 aircraft types. We are down to 4 types today.
Here's my naive take on the whole industry right now. Covid is going to end and its going to end sooner than we think. The anxiety of the public is the same as the anxiety of most on this forum. Everyone just wants to move on with their lives and for a lot of the public that means traveling. Once July/August rolls around you'll see restrictions ease as the vaccine gets rolled out to everyone and even the people who right now are like, nah I'm not taking it will end up getting it purely to move on with their lives. Back to normal in December. Good luck non-reving for a while after that.
When things get back to normal American will be positioned with the most efficient and streamlined operation of the three meaning they make more money to pay more debt. We have the new planes, we have efficient engines, the interiors are fresh, the max is flying again and people are traveling. Its going to explode because this was an artificial suppression of the free market and all you inflation bears need to chill because if AA and the rest of the industry got their debt at fixed rates the debt becomes valued less with increased inflation. Theoretically the cash congress gave us at that dirt cheap interest rate could become a negative interest rate under the right market (as in the LIBOR (currently .28%) + 3.5% rate could be outpaced by inflation of 4% from now till maturity in 2025 for a net negative of (inflation-(LIBOR+3.5%)) since they tied it to LIBOR which is a global indicator and isn't as directly affected by USD inflation like the fed rate. So, in summary, we got new planes, a streamlined operation, and lots of debt. Everyone else has old planes, an antiquated operation and also lots of debt. Who makes more money under that scenario to pay that debt off? I think American and I hope American. If they manage it right we will walk away from this winning after covid in a big way.
I think people need to start being a little more positive for your own mental health.
Note: All my finance figures are from Yahoo finance balance sheets for 12/31/20 and ages from airfleets if you want to check my work.
I think this is a tad overly simplistic. Prior to 2019, the US airlines were certainly not making money hand over fist.
Over the last preCOVID decade they AVERAGED - IN TOTAL - a free cash flow of about $5 billion a year. And that’s pretty much everybody except for F9 which is privately held and doesn’t report SEC financials.
A couple of airlines have increased debt in one year by ~$10 billion, while simultaneously becoming smaller. Nor does smaller necessarily mean more efficient. Sometimes it just means smaller. And that debt itself has to be serviced, and most airlines debt right now is below investment grade, limiting buyers and demanding a higher coupon. This summer AA was selling bonds at an effective coupon of 12%, and UA at 11.5%. So even if the bonds themselves don’t mature for five years, the debt service on them is due quarterly and $2.5 Billion at 12% is $300 million off the free cash flow. And while the short term debt isn’t as much, most companies don’t have the liquidity to pay off even the modest amount they do owe, meaning they are going to be refinancing that debt by selling more bonds at their current depressed bond ratings adding to the debt service without really getting rid of any of the debt.
Now none of that means any airline will necessarily fail or go into bankruptcy, but it’s a counterweight to your somewhat Pollyanna-ish comments above. Doesn’t matter if you believe the IATAs estimate of international recovery time or not, , doesn’t matter if you think Gates’ estimate of long term/permanent loss of business travel is accurate or not, doesn’t matter if you think the COVID thing was way overhyped or not, this has been and will be a bigger hit to the industry than 911 and the worst is NOT yet behind us. Will the government continue to provide badly needed support? Well, we hope so, but even that is a long way from guaranteed. This is going to be a tough slog and it isn’t behind us yet.
So yeah, don’t anybody open any veins or anything, but be conservative in your expectations. it ain’t over until it’s over and we aren’t anywhere near there yet.