Excargodog

And Fitch just downgraded some bonds (and affirmed others) based upon (Mainly) the Decrease in the value of the used aircraft collateralizing the aircraft because of today’s depressed used aircraft market:

https://www.fitchratings.com/researc...tcs-16-10-2020

Proximity

If the banks had gone under there would have been a massive upheaval in the banking system basically freezing credit (gross oversimplification). In the auto industry bailout, the argument was that those jobs would have been lost overseas forever, removing billions from the USA economy. Neither of these is true in the airline industry.

Airline hubs come and go but market forces will sort everything out in the end. Look at two former American hubs of STL and PIT. American drew down STL after the TWA purchase, but it made sense for Southwest to grow there due to the limitations of MDW. PIT...well it's just too to other hubs to make sense for anyone. Somehow the economies of STL and PIT. Here's two more former hub cities...MEM and MCI. Both seem to be doing okay also.

If American ceased operations there would be a short term disruption for consumers, but there is plenty of supply that can be brought on almost instantly. As in past airline bankruptcies other airlines will be quick to honor American ticket holders which will assuage the main concern of politicians. Moreover, those jobs will not be lost, just transferred over to stronger competitors. Boeing will be okay, if there is demand for those airplanes, they'll be taken by other airlines. In any case, I doubt that American's orders are more than 2% of Boeing total order book, and it's not assured that American will take those airplanes even if they survive.

Allowing American to become a "zombie corporation" is not beneficially to the overall economy or the consumer. While I feel for the employees that would be devastated, they were let down by management taking on so much more debt than their competitors management and being in the worst position for an inevitable downturn. It's certainly very hard to predict to predict if there will be government intervention, but I would wager that the chances for help specifically targeted for American would be extremely low.

Something major is likely to happen with American in 2021, it's likely going to be ugly, and the company will be significantly changed. Too think American can go through a straightforward Chapter 11 and resume pretty much as they exist today is wishful thinking.

JoeyPants

"Professor, without knowing precisely what the danger is, would you say it's time for our viewers to crack each others' heads open and feast on the goo inside?"

"Mmm, yes I would, Kent."

LonesomeSky

Proximity... I think I agree with your assessment more than what I wrote a few pages back. Maybe I shouldn't have said "too big to fail." However, I do think American is large enough that congress would at least consider bailing them out. And, I think congress is dumb enough to create an undead zombie airline with no-scruples, drunk driving, stock buy-back paid for by Amex card, Doug Parker. That would be a decade killing bad decision for the industry.

There's also a possibility that covid drags on through 2021 and more airlines than American are at risk of failure. In that case, congress will need to do something. In this scenario, it'd be the third wave of bailout money and the tax payers would probably demand something for their money. Who knows what that'll look like. I'm hoping the vaccine is effective, everybody takes it, and we also come up with a system for contact tracing. Crushing coronavirus is the only way to save our industry IMO.

ZeroTT

If anything would stabilize the airline industry right now, it would be allowing one major to fail.

I wouldn’t bet on Congress being too concerned about AA

ShyGuy

Reminds me when pilots wished for the demise of US Airways in 2002-2004. Nothing like wishing ill on other people, because one major "needs" to fail in order to benefit the rest.

chrisreedrules

No one is wishing for AA to fail. Least of all those of us who work for AAG. I just think it’s foolish to think this is all somehow too big or too important to go away. There is precedence and it can absolutely happen. Not much we can do about it however.

You also have to remember... For as hard as Doug and AA will be lobbying the federal government and likely several of the states, the leadership at competing airlines will be lobbying against an AA bailout too.

AxlF16

You are correct- from the perspective of airline management & some large investors. From our perspective as labor, the 'failure' of any major airline would be incredibly DEstabilizing.

Proximity

Remember that in the bank bailout, the Treasury Secretary at the time, Paulson, who was an industry insider, worked to get banks on the same page and lobbied Congress for the money. In the auto bailout, the CEOs flew to Washington and testified together in front of Congress (leading to the infamous carpooling story). In the current political environment who is going to advocate for American? I don't see any other airline CEO teaming up with Parker to sell Congress on a bailout. More likely CEOs such as Bastian, Kelly, and Christie will making calls behind the scenes advocating against an American bailout claiming that the best thing to right the industry would be a reduction in supply. I just don't see politicians getting behind a bailout of one airline, and there won't be an industry wide bailout in the time frame American requires.

Betting American's future on a bailout would be quite risky.

bababouey

If liquidation was such a high probability, then why does the stock still have value?