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Originally Posted by TransWorld
(Post 3412478)
Financial and corporate people look at Debt to ASSET ratios. They do not look at Debt to Equity.
If a company that has to buy equipment, via Debt, is in a position where they have no Equity, that does not mean they are not credit worthy. As an example, if a person just starting out buys a house, and has no equity (calculated like they are a business), their debt to equity is zero. But, assuming they put down 20% on the house, their debt to asset ratio is 0.80. Which would a bank consider in making the house loan? Another barometer is what percentage of their free cash flow (you may call it income, but more properly it is free cash flow) has to be dedicated to paying the debt, and is that reasonable. |
Originally Posted by dera
(Post 3412641)
What you are talking about is also known as shareholders equity. And that is almost 10 billion in the red for AAG. Compare to 3-4 billion in positive for UA/DL.
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Originally Posted by bababouey
(Post 3412653)
so how will United and delta avoid the debt like AA when they have to refleet? Or are they gonna fly the 75/76 until the wings fall off?
When DL/UA will finance a new plane, they also gain that plane in their assets. Their total debt will increase, but it will only have a minor effect on their debt to asset ratio. The problem AAG has is that even with all the new shiny planes, they still are way down in the drain with their shareholder equity. Not to mention their free cashflow and profit margins are in a different ballpark than AAG, so their ability to pay down any debt is a lot better than AAG, who is barely staying afloat right now. |
AAG free cash flow in the last decade has not been stellar
https://i.ibb.co/BjMNG02/EDC24-C9-C-...37-F74-D57.jpg |
All those shinny new aa planes have been sold to leasing companies and leased back to american.
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AA management predicting the 3rd quarter revenue and profits to be the highest on record….
for whatever that’s worth |
Originally Posted by AllYourBaseAreB
(Post 3412730)
AA management predicting the 3rd quarter revenue and profits to be the highest on record….
for whatever that’s worth |
Originally Posted by bababouey
(Post 3412733)
I’ve heard a few say that they can get back close to what 2015 was if they catch a few breaks. If that can be the norm for a few years, then the balance sheet can get cleaned up. If Covid is a non factor, and they don’t have the max or mechanics to blame, maybe they actually can make some money.
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Originally Posted by dera
(Post 3412661)
I'm not sure you understand how this works.
When DL/UA will finance a new plane, they also gain that plane in their assets. Their total debt will increase, but it will only have a minor effect on their debt to asset ratio. The problem AAG has is that even with all the new shiny planes, they still are way down in the drain with their shareholder equity. Not to mention their free cashflow and profit margins are in a different ballpark than AAG, so their ability to pay down any debt is a lot better than AAG, who is barely staying afloat right now. |
Originally Posted by TransWorld
(Post 3412908)
You are off base. When Delta and United refleet, they will be in a similar position to where AA is a couple of years down the road. You jumped from debt to equity to talk debt to asset. I am not going to waste my time trying to reason with you.
Pro tip: It was you who started talking about debt to assets and got D/E and debt to assets mixed up in one sentence. I just said financing new aircraft does not have a big effect on that ratio. If you would have read my comment and understood it, you would have seen I only mentioned shareholders equity, not D/E that you came up with. Raw fact is, AAGs shareholders equity is around 9 billion in the red, where UA/DL are around 3-4 billion in black. Even the largest refleet will not drop these carriers anywhere near that number, I doubt they would even go to red. |
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