Should I stay or should I go?
04-26-2022 | 11:33 AM
#81
In a land of unicorns
Joined: Apr 2014
Posts: 7,072
Likes: 102
From: Whale FO
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.
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.
04-26-2022 | 12:06 PM
#82
Line Holder
Joined: Mar 2014
Posts: 898
Likes: 47
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?
04-26-2022 | 12:22 PM
#83
In a land of unicorns
Joined: Apr 2014
Posts: 7,072
Likes: 102
From: Whale FO
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.
04-26-2022 | 02:46 PM
#87
Line Holder
Joined: Mar 2014
Posts: 898
Likes: 47
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.
04-26-2022 | 08:23 PM
#88
In a land of unicorns
Joined: Apr 2014
Posts: 7,072
Likes: 102
From: Whale FO
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.
04-26-2022 | 09:35 PM
#89
Gets Everyday Off
Joined: Aug 2016
Posts: 6,995
Likes: 1
From: Fully Retired
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.
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.
04-26-2022 | 09:59 PM
#90
In a land of unicorns
Joined: Apr 2014
Posts: 7,072
Likes: 102
From: Whale FO
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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