Major Hiring - how will it play out?
05-06-2021, 03:36 AM
#41
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Posts: 2,012
Originally Posted by Meep
Hard to fail when Grandpa Joe keeps handing out Billions of dollars!
but at this point private capital will rescue American from chapter 11
05-06-2021, 06:23 AM
#42
Perennial Reserve
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Posts: 11,503
Originally Posted by ZeroTT
Yes, different government choices likely would have seen one or more airlines liquidate.
but at this point private capital will rescue American from chapter 11
but at this point private capital will rescue American from chapter 11
You might recall that Republic was still cash flow positive in its last bankruptcy. Chapter 11 was simply a mechanism their management used to get rid of 50 seat contracts so they could reorganize. It doesn’t - at least for the MBA crowd - carry the emotional baggage it does for the rest of us. It’s simply a management tool that allows them to legally renege on contracts. The company still has more value as a slimmed down and more efficient entity than it would have if you sold off its separate parts. So it doesn’t go away - just stiffs a few creditors and gets reformed. Sort of like violating the contract, everybody just grieves it and keeps flying. The bankruptcy judge just decides how to divvy up what cash is there to pay what percentage to which creditor. Actually ceasing to exist is unlikely. Even being allowed to merge with someone is unlikely.
05-09-2021, 03:38 PM
#43
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Joined APC: Dec 2019
Posts: 1,318
Originally Posted by ZeroTT
Yes, different government choices likely would have seen one or more airlines liquidate.
but at this point private capital will rescue American from chapter 11
but at this point private capital will rescue American from chapter 11
05-10-2021, 10:43 AM
#44
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Posts: 2,012
Private capital (as opposed to government funding) will allow American to exit its inevitable bankruptcy. The other alternative in bankruptcy being liquidatuon.
This isn’t a dig on Americans employees or management or anything else. Just a look at their debt and revenue. It doesn’t work long-term
This isn’t a dig on Americans employees or management or anything else. Just a look at their debt and revenue. It doesn’t work long-term
05-10-2021, 02:19 PM
#45
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Originally Posted by ZeroTT
This isn’t a dig on Americans employees or management or anything else. Just a look at their debt and revenue. It doesn’t work long-term
But again, these are accountants and guys with MBAs. Bankruptcy is simply another tool in the toolbox.*. It doesn’t carry the same emotional baggage with it for them that it does with the rest of us.
*
Advantages of Chapter 11
Companies that are facing seemingly insurmountable financial difficulties can often turn to chapter 11 for relief. Some of the key advantages of filing chapter 11 to successfully resolve a company’s financial woes are:- Automatic Stay: The filing of a chapter 11 petition will, by operation of law, prohibit creditors from taking or continuing with any and all collection actions.
- Freezes Pre-Petition Debt: Upon the filing of a chapter 11 petition, the debtor is prohibited by law from making payments on its pre-petition debt, thus providing an immediate benefit to the cash flow of the business.
- Restructuring of Secured Debt: Under chapter 11, secured debt may be restructured by lowering the interest rate on the obligation, extending its maturity, or both. In certain circumstances, the amount of secured debt can be written down to the value of the creditor’s collateral.
- Extend Payment of Tax Debt: Tax debt to the federal or state government may be paid in installments over a five-year period dating from the bankruptcy petition date.
- Reduced Unsecured Debt: In the typical chapter 11 case, a committee of unsecured creditors is appointed to represent the interest of all unsecured creditors. The debtor negotiates with the committee for a reduction in its unsecured debt to a manageable level and a repayment on the reduced amount that is consistent with the debtor’s ability to pay. It is not uncommon for a substantial amount of debt to be forgiven with the realization that if the debtor is forced to shut down and liquidate, creditors will get a zero return.
- Assume or Reject Contracts or Leases: Debtors under chapter 11 can rid themselves of unfavorable contracts or leases, such as equipment leases, real estate leases and long-term contracts, or assume contracts or leases that were previously in default.
- Recovery of Payments or Repossessions and Avoidance of Liens: If a debtor makes payments as a result of collection pressure or has its assets liened, attached or repossessed within 90 days of a bankruptcy filing, the payments may be recovered and the liens, attachments or repossessions may be avoided as “preferential transfers.”
- Sell Property Free and Clear of Liens: Debtors can use the chapter 11 process to sell any or all of their assets whether or not they are encumbered by security interests or other liens. The bankruptcy court has the authority to order that the sale be free and clear of any security interests or liens.
Last edited by Excargodog; 05-10-2021 at 03:01 PM.
05-12-2021, 07:40 AM
#46
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And this is one of the big threats
...to airline companies with high rates of indebtedness:
While it’s not necessarily anyone’s fault, COVID forced a number of companies deep in debt while also cutting off much of their revenue. Unless the rebound is brisk, it will be quite awhile before they have the free cash flow to be able to pay off that debt as it matures. A lot of this debt was bond debt, taken on when the companies were profitable, had good cash flow, had good bond ratings, and were backed up with the equity of the new airplanes they were used to purchase. But times have changed.
Most airlines are not currently profitable and may not be this year. Even if they are, they aren’t going to have enough free cash flow to pay off the debt - they are going to have to refinance. Except right now most of their bond ratings are in junk territory, and and the aircraft they used for collateral are now used aircraft in a market flooded with used aircraft. That alone is going to drive up refinancing costs and hence debt service. And any persisting inflation will make that situation even worse. Already one major airline is looking at an annual debt service - that’s just interest, not actually paying off any debt - of $3 Billion. Having to service $8 million a day can be a fairly huge drain on profitability even for a major airline. Inflation, reduced collateral value, and reduced current bond rating could easily double that if we are unlucky. At that point a reorganization through chapter 11 could look quite attractive to some airline managements.
While it’s not necessarily anyone’s fault, COVID forced a number of companies deep in debt while also cutting off much of their revenue. Unless the rebound is brisk, it will be quite awhile before they have the free cash flow to be able to pay off that debt as it matures. A lot of this debt was bond debt, taken on when the companies were profitable, had good cash flow, had good bond ratings, and were backed up with the equity of the new airplanes they were used to purchase. But times have changed.
Most airlines are not currently profitable and may not be this year. Even if they are, they aren’t going to have enough free cash flow to pay off the debt - they are going to have to refinance. Except right now most of their bond ratings are in junk territory, and and the aircraft they used for collateral are now used aircraft in a market flooded with used aircraft. That alone is going to drive up refinancing costs and hence debt service. And any persisting inflation will make that situation even worse. Already one major airline is looking at an annual debt service - that’s just interest, not actually paying off any debt - of $3 Billion. Having to service $8 million a day can be a fairly huge drain on profitability even for a major airline. Inflation, reduced collateral value, and reduced current bond rating could easily double that if we are unlucky. At that point a reorganization through chapter 11 could look quite attractive to some airline managements.
05-12-2021, 09:59 AM
#47
Gets Weekends Off
Joined APC: Apr 2017
Posts: 3,595
Originally Posted by Excargodog
.
While it’s not necessarily anyone’s fault, COVID forced a number of companies deep in debt while also cutting off much of their revenue.
While it’s not necessarily anyone’s fault, COVID forced a number of companies deep in debt while also cutting off much of their revenue.
The major economic sabotage of last year was ABSOLUTELY the fault of the government, political, and media operatives.
The first few months of COVID before anyone really knew what to expect, yeah sure, that economic damage wasn't anyone's fault (assuming the virus didn't leak out of a lab). Shutting down for a couple of months made some sense and yes that pain was probably unavoidable.
But after the first few months, the lingering shutdowns, fear mongering, faulty "science", bureaucrats and politicians on a power trip, and political agendas aimed at causing damage to rivals, was 100% avoidable.
And the same can be said for the current inflation and potential hyperinflation / economic hard times that are headed our way like a runaway freight train.
05-12-2021, 10:22 AM
#48
Gets Weekends Off
Joined APC: Mar 2017
Posts: 174
Originally Posted by SonicFlyer
Wrong.
The major economic sabotage of last year was ABSOLUTELY the fault of the government, political, and media operatives.
The first few months of COVID before anyone really knew what to expect, yeah sure, that economic damage wasn't anyone's fault (assuming the virus didn't leak out of a lab). Shutting down for a couple of months made some sense and yes that pain was probably unavoidable.
But after the first few months, the lingering shutdowns, fear mongering, faulty "science", bureaucrats and politicians on a power trip, and political agendas aimed at causing damage to rivals, was 100% avoidable.
And the same can be said for the current inflation and potential hyperinflation / economic hard times that are headed our way like a runaway freight train.
The major economic sabotage of last year was ABSOLUTELY the fault of the government, political, and media operatives.
The first few months of COVID before anyone really knew what to expect, yeah sure, that economic damage wasn't anyone's fault (assuming the virus didn't leak out of a lab). Shutting down for a couple of months made some sense and yes that pain was probably unavoidable.
But after the first few months, the lingering shutdowns, fear mongering, faulty "science", bureaucrats and politicians on a power trip, and political agendas aimed at causing damage to rivals, was 100% avoidable.
And the same can be said for the current inflation and potential hyperinflation / economic hard times that are headed our way like a runaway freight train.
05-12-2021, 10:32 AM
#49
Perennial Reserve
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Joined APC: Jan 2018
Posts: 11,503
Originally Posted by SonicFlyer
Wrong.
The major economic sabotage of last year was ABSOLUTELY the fault of the government, political, and media operatives.
The first few months of COVID before anyone really knew what to expect, yeah sure, that economic damage wasn't anyone's fault (assuming the virus didn't leak out of a lab). Shutting down for a couple of months made some sense and yes that pain was probably unavoidable.
But after the first few months, the lingering shutdowns, fear mongering, faulty "science", bureaucrats and politicians on a power trip, and political agendas aimed at causing damage to rivals, was 100% avoidable.
And the same can be said for the current inflation and potential hyperinflation / economic hard times that are headed our way like a runaway freight train.
The major economic sabotage of last year was ABSOLUTELY the fault of the government, political, and media operatives.
The first few months of COVID before anyone really knew what to expect, yeah sure, that economic damage wasn't anyone's fault (assuming the virus didn't leak out of a lab). Shutting down for a couple of months made some sense and yes that pain was probably unavoidable.
But after the first few months, the lingering shutdowns, fear mongering, faulty "science", bureaucrats and politicians on a power trip, and political agendas aimed at causing damage to rivals, was 100% avoidable.
And the same can be said for the current inflation and potential hyperinflation / economic hard times that are headed our way like a runaway freight train.
and you can include in the people to point fingers at a fair proportion of our population that has simply become risk averse to an unreasonable degree - apparently believing if they take sufficiently excess precautions they will never die.
05-12-2021, 12:54 PM
#50
Prime Minister/Moderator
Joined APC: Jan 2006
Position: Engines Turn Or People Swim
Posts: 39,293
Originally Posted by BobSacamano
The first-world’s response to COVID will go down as one of the greatest policy bungles of all time.
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