full of luv

Have you seen what Nancy and the Dems have been whipping up in congress? Something that purports to spend $5+ Trillion. It's going to be an interesting ride.

RustyChain

what Nancy want's and what she gets are way different. Another corporate bailout for airlines is a long shot.

Fredturbo

https://www.barrons.com/articles/boe...ps-51589294871

Many airlines have gone bankrupt in the past and demand for air travel—which fuels demand for Boeing’s planes—continued to grow year by year.

Photograph by Stephen Brashear/Getty ImagesBoeing CEO Dave Calhoun said in an NBC interview on Tuesday that a U.S. airline bankruptcy is likely in 2020. It is a curious comment coming from an executive whose company sells to airlines, but Covid-19 has hit the industry particularly hard.

Looking ahead, Calhoun’s comment raises two questions for investors: which airline and is that bad for Boeing?



The answer to the second question is: not so much. Many airlines have gone bankrupt in the past and demand for air travel—which fuels demand for Boeing’s (ticker: BA) planes—continued to grow year by year.

Covid-19, of course, is unprecedented, cratering demand for air travel like no other event in history. Air travel in the U.S. is down more than 90% year over year. Boeing expects demand to be back to roughly 50% of previous levels by year-end. That assumes the economy reopens and things start to get back to normal. Many Wall Street analysts think it will take years to get back to pre-virus demand.

Boeing shares are down on that expectation, falling about 60% year to date, worse than comparable drops of the Dow Jones Industrial Average and S&P 500. Shares of major U.S. airlines are down, on average, about 60% year to date too. But if bankruptcy is in the offing, some airline shares might have further to fall.

There are financial instruments that help investors judge the odds of default for any company, namely the credit default swaps, or CDS, that helped catalyze the 2008-09 financial crisis. Buying a CDS literally swaps the risk of a bond default from one investor to another investor. The investor who takes the risk gets paid. The riskier the bond, the higher the price.

Examples among airlines are Southwest Airlines (LUV) and Delta Air Lines(DAL), which have the best balance sheets in the industry and appear to be in the best position to weather the downturn.



Credit default swaps of Southwest and Delta are trading at spread of about 4.7% and 12%, respectively. That means that bondholders wanting to swap the risk of default have to pay $4.70 and $12, respectively, for each $100 of bonds they want to protect.

Those prices are much higher than normal. Protecting Apple(AAPL) bonds, for instance, costs about 30 cents per $100, according to Bloomberg CDS pricing quotes.



American Airlines (AAL) CDS are trading at spreads of 54%. United Airlines(UAL) CDS trade for 24%. JetBlue Airways (JBLU) CDS trade for 1.6%. Investors appear to be most nervous about American’s ability to repay. Thus, its bonds are the costliest to insure.

There is, of course, no guarantee that Calhoun’s prediction will come true. The federal government is offering support to the airlines, including American, much like the support offered to banks in 2008-09. That is one way airlines might avoid bankruptcy. But the government will take some form of equity in the airlines receiving money, diluting the value of existing shareholder stakes.

FettyWap

Yikes. That article doesn’t give me the warm fuzzies. Why do I get the feeling that after this all is over the only thing that will be left is cockroaches and Southwest?

seafeye

This is where Trump needs to show leadership and do what the electoral college elected him to do. Be presidential. And Quit thinking this whole Covid19 thing is about him and the election in November.

TooMuchTAFB

As in, how about a PLAN?!

rdneckpilot

and Mesa. Somehow they survive too I’m sure.

Arado 234

The saga by Seeking Alpha about AA contines:

link

Mozam

I am not buying any AAL stock any time soon. That said, AA has a great route structure, if AAG got rid of Parker and brought in someone who knows what they are doing ,AA could be a powerhouse .

Al Czervik

Look for Richard Anderson. He’s out of Amtrak soon.