Quote:
Originally Posted by Bucking Bar
Alpha,
Would you agree that American's bankrutcy is about:
(1) The cost of funding a defined benefit pension plan in a bear market (and that unfunded liability)
(2) Renegotiating aircraft leases
(3) Scope
(4) Debt
AMR surely has their fleet "cross collateralized." You probably understand the term, but for the rest of the sports fans, this means that the paper for every airplane is set up so that is does not correlate on ONE airplane. To prevent reposession, the parts are scattered everywhere ... an airframe here, one engine on that jet, another engine on this other jet, the APU sub leased to JAL, the FMC is over there ... etc. The Courts are still trying to unscrew the mess that ACA created to keep its Dorniers out of the hands of their creditors.
They are in bankruptcy to:
1. Get rid of small aircraft 30-40 seats that lose money hand over fist
2. Accelerate MD-80 retirements
3. Fix productivity issues that weren't addressed in 2003
4. Freeze or terminate pensions
5. Hit labor one more time
6. Reduce debt as much as practical
7. Take a shot as vendors, airports, etc. to negotiate better contracts
8. Redo leases on aircraft they want to retain
Most of AA's aircraft and debt are in EETC's. Bundles of aircraft are secured by one EETC which is split in tranches and each tranche is sold to multiple buyers in varying amounts. It is impossible to unwind those EETC unless they give up all the aircraft. No airline has been able to crack the EETC problem in bankruptcy and I don't expect AA to be the first. They are designed that way to protect creditors, that is why the interest rates are lower.
As I said to Carl, the underlying issue for them is not costs but revenue. Sure they can in the short term push costs down to a level that will help them out, but in the end they are too small a player in a market that is increasingly getting crowded with Delta and United.
If you were a corporate travel manager for a global business, whom would sign a contract with? Look at where you can go with Delta and United and then look at American. They don't compete. We are everywhere in the world and American has gaping holes in their network. This is not theory, it is happening every day as Delta steals more and more high value customers away from American and US Airways. Airways survives only because their labor force has gone completely insane and they are now operating on essentially regional airline wages. At some point the merry go round stops for Airways too. Why else has Doug Parker put on his high heeled boots and low cut dress and hung out on every street corner saying "Buy me, please. Come on big fella, don't you want to get in bed with me." There is no long term future there.
The problem that both airlines have is that if they merge 1+1 = about 1.4. After you eliminate duplication, there is not enough left there to compete with Delta and United. Where do either of those airlines go west of the international date line? How about Africa? Middle East? Wait Airways goes to Cancun so they have that booming business market to fall back on.
So American will scrape some costs off in bankruptcy, but if that is all they do then they still have serious long term problems. Their network doesn't compete and they are getting their butts kicked every day by Delta and United. They need to get to bigger, they need to expand their network, they need to recapture high value business travelers that are the life blood of an international network carrier.