Originally Posted by
Excargodog
You are partially correct. Digging in to the details they have $14.5 Billion “sitting around” but the balance ~$3.4 Billion is in lines of credit.
So we are both right, you perhaps a little “righter” than me.
But I agree about the cash flow issue. Even in 2019 - before COVID - AA wasn’t turning out that much net income, only about $1.5 billion a year. It is difficult to see where they will find the net income to meet their goals with the increased cost of the debt service they have recently incurred at far higher interest rates, let alone what will happen if interest rates go up which will increase the costs of their lines of credit almost immediately.
Still, you can certainly understand them wanting to pay off those senior secured notes at 10.75 and 11.75% as soon as possible, but like you, I’m not certain they can do it.
Time will tell I suppose, but with any prolonged significant inflation or recession, their financial plan looks fairly shaky. Unless there is another PSP.
You dug much deeper than I did. Their annual debt obligations in interest alone is just under a billion dollars. They need to generate a billion dollars in operational cashflow, every year until 2025, just to service the interest. And at that point they have paid 0 dollars back of the principal of the loan.
From those numbers you can see why they went on a lending spree for the past 8 years. Borrowing money at 2% is a very attractive proposition. Too bad it backfired now when they chose to carry the debt instead of paying it back.
The only "good" thing with those numbers is, that they can now borrow at half the interest rate of 2020.. But borrowing 10 billion dollars at over 5.5% interest rate is a financial hail mary, especially when 25% of it went to service existing debt that had a much lower interest rate. Kinda like stacking payday loans.
People much smarter than us are dealing with this at AAG. I'm just excited to watch it from the sidelines to see what plays they call.