Originally Posted by
Excargodog
Liquidity isn’t the same as cash. When part of the liquidity is a letter of credit you have to pay 12% on if you exercise it, all you are doing if you use it is to pay off an existing credit card with one that charges you a higher rate. Whether AA goes bankrupt (again) is really not in the hands of AA management, it’s in the hands of the Fed and the vagaries of international and business flying in the era of COVID. AA cannot reasonably be expected to pay off all the bond tranches they have coming due in the next 3-4 years. They MUST refinance that debt. Even at current rates having the profits to pay off that debt simply isn’t going to happen. They must refinance at higher rates and with credit ratings in the bond market that are lower than the original and with collateral that is no longer new aircraft. The Fed is talking about three interest rate raises this year. This WILL cause lending rates to go up and could put AA into a death spiral of debt service eating up profits regardless of what their management does. Chap 7? No. But Chap 11 is a real possibility.
And they’ll need to have about $7 Billion in liquidity to make Chap 11 work.
I chose a poor metaphor. AAG will likely not liquidate but it will restructure - and there go years' worth of progress for pilots there. There is a book called 12 years of turbulence that goes into the last BK proceeding - once it looked like their liquidity was going to decline past a certain point they decided to pull the trigger. They needed a certain amount to tide themselves through the BK proceedings.