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AA VS UAL Approach

Old 05-28-2020, 06:23 PM
  #21  
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Originally Posted by Poss View Post
Could it be there is nothing American can do affect the outcome? Even if American took drastic cost cutting measures, they are going bankrupt unless there is a very quick rebound in passenger loads. I'm suspecting they know their cash cannot outlast the forecasted return of passengers. It's not a matter of if, but when.

So why not press forward? If passenger loads miraculously return in Q3 or 4 and they were the only one who didn't shrink, AMR is in a better competitive position than either DAL or UAL. They just completed a "Doug" Flutie Hail Mary.

The short term financial position AA is in is better than UALs and possibly Delta as well.
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Old 05-28-2020, 07:08 PM
  #22  
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Originally Posted by HulkaBurger View Post
Word on the street is that they were now told nevermind, we're not sure when training will resume.
My shocked face. Ok really not too shocked. Again even if we had don’t it I won’t feel safe until I am looking at a calendar and it says October on it and I am sipping my coffee on “the jet.”

/sorry for the jet reference
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Old 05-28-2020, 07:40 PM
  #23  
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Originally Posted by mainlineAF View Post
The short term financial position AA is in is better than UALs and possibly Delta as well.
A person could make a fortune with that knowledge considering how the market has priced AA's credit default swaps.

https://www.assetmacro.com/united-st...ps-aal-5y-cds/
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Old 05-28-2020, 08:57 PM
  #24  
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Originally Posted by mainlineAF View Post
The short term financial position AA is in is better than UALs and possibly Delta as well.
Given all of the articles and analysis I’ve read on this lately, I’d say this is far from true. If any of the big 3 declare ch.11 it will be American first which will then drag UA and Delta with it. AA’s windfall is that retirements are double ours and that they were chronically understaffed with pilots to begin with. Their training department can finally catch up. That’s about 2000 pilots less they would have to furlough relative to UA right there.

https://seekingalpha.com/article/434...st-to-go-under
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Old 05-29-2020, 02:44 AM
  #25  
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I work for AA. While not everything is sunshine and lollipops, I think we are in a drastically different financial position and pilot manning outlook.

Debt - this is the one everyone screams about. Yep, we have a lot of it. But the short term isn’t bad at all. Our highest rates are on the CARES act loans at around 4%. Our “big” long term debt is our capital expenditures - mainly airplanes. We have staggered payoffs, some debt will be serviced beginning late next year IIRC, but the large amounts don’t get serviced until 2022 and now 2027 (this is what I’ve been told by some of our APA smart money guys). We have lots of cash and liquidity on hand, which means we are ok with cash burn for now.

The best analogy I can come up with is that our debt is more akin to a mortgage, why payoff the house at a 2.5% rate when your other investments and cash instruments have a higher rate of return? Sure I can say I’m 500k in debt with my brand new house but in reality if I can make the payments then who cares? Better yet, if I can defer my payments for a year and there’s no penalty, now I get to save cash. Yes, this is obviously a simplistic view but it fits.

Let’s take DAL as an example for the opposite. The don’t have a huge mortgage staring them in the face as their ‘house’ is older and is closer to being paid off. They have a good revenue stream, and are great with money - when times were good. But they made risky investments with their extra cash - a few airlines here, some there and a refinery to boot. That’s where their cash went. They still have some, but their “investments” aren’t paying off at all, and that cash is likely gone forever - and what’s more devastating is their ability generate revenue from those investments.

Who’s in the better position for a “short term” downturn? The cash strapped low debt DAL or the accidentally cash ‘rich’ AA?

I know you all have some large, short term debt debt coming due very quickly as well to some hedge fund sharks. This adds to the liquidity stress and depletes your cash on hand which unfortunately affects your ability to operate. Maybe the play is to use CARES act loans to pay them off next spring, but then you’re still in the same problem, only deferring it for a few months?

Manning - last summer we were 1000-1500 pilots short and that’s not even counting the staffing requirements for the grounded MAX. We were also looking at the highest retirements of any major. These factors considerably hampered our operation and ability to grow in a sustained manner. We couldn’t reliably sustain the operation while training for retirements (the old rule of thumb was each 777 CA that retired caused 7 additional training events). We wanted to get rid of older fleets, but didn’t have the training bubble to effectively pursue that additional training demand (the S80 retirements caused a 4-6 month backlog alone, and effectively killed new hires from being integrated into the line).

This crisis has given us the ability to actually have a nice little training bubble - a relief valve for the pressure cooker that was our operation. Now we can not only ditch our old, unreliable and gas guzzler fleets (most also have heavy checks awaiting we didn’t want to spend cash on), but we can offer our most expensive and least productive line employees an early out and retrain their replacements.

This helps us out because instead of 8-900 retirements a year in the next 5 years, we only have ~500 a year the next three years. This ultimately reduces training going forward. I don’t think we will see any furloughs at AA for this reason. We have ‘right sized’ the airline and will be prepared to accept new hires at some point next year without killing the operation.

Please note that we don’t have evil geniuses that were prepared for this - we got lucky and caught a break. My hope is that there’s no furloughs at UAL/DAL. I have great buddies at each.


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Old 05-29-2020, 02:46 AM
  #26  
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Great post Cheddar. Im surprised with the AA animosity from the UAL guys. Personally, I hope we all squeak by with no furloughs/BK. Any of you think things might be picking up a little and SK may just be wringing you out as much as he can?
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Old 05-29-2020, 03:37 AM
  #27  
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Originally Posted by Al Czervik View Post
Great post Cheddar. Im surprised with the AA animosity from the UAL guys. Personally, I hope we all squeak by with no furloughs/BK. Any of you think things might be picking up a little and SK may just be wringing you out as much as he can?
I can only speak for myself but I hold no animosity. I lived through 9/11. I witnessed many who were hoping for United to fail and carving us up for their benefit. Equally repugnant was the letter writing campaign against our ATSB loan application. I was nauseated.

We shouldn't profit off the pain of other groups.
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Old 05-29-2020, 03:43 AM
  #28  
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Originally Posted by Cheddar View Post
Who’s in the better position for a “short term” downturn? The cash strapped low debt DAL or the accidentally cash ‘rich’ AA?
I’ll take a shot at answering this. It is without a doubt much better to be a low debt airline right now. Delta has stated they will have $12-14B in the bank by the end of June, without the CARES Act loan they’ve applied for but are hoping to not need. Please correct me if what I’ve read is wrong, but AA has said they will have around $11B in cash (with a higher daily cash burn rate) by the end of June but that includes the second phase of the CARES Act loan of about $4.8B.

Secondly, Delta’s unencumbered assets are estimated to be about $8B. Everything I’ve read has said these same assets available to AA are much lower, though I couldn’t find a number.

I’m a Delta guy so please don’t interpret any of this as snarkiness. I hate we are all (the airlines) in this position for the foreseeable future. I strongly disagree, however, that AA has a better cash position than Delta and I think the publicly available information supports that conclusion.
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Old 05-29-2020, 06:53 AM
  #29  
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AA’s unencumbered assets are $10B.
Sources....Q1 earnings call.
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Old 05-29-2020, 07:04 AM
  #30  
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Originally Posted by Al Czervik View Post
Great post Cheddar. Im surprised with the AA animosity from the UAL guys. Personally, I hope we all squeak by with no furloughs/BK. Any of you think things might be picking up a little and SK may just be wringing you out as much as he can?
No animosity towards AA from me. I have 2 family members that are pilots there. I don’t want AA to go into bankruptcy because then UA will definitely follow. As Cheddar points out, with AA being 1500 pilots understaffed to begin with, it’s dumb luck that American won’t have to furlough nearly as many as UA, if any at all. That’s great for AA pilots! What I worry about is American’s cash burn rate. Yes, American has a lot of cash but their daily cash burn rate is close to double UA’s. I’ve seen a few spreadsheets that show AA running out of cash about 4 months before the next closest airline to the flames, UA.

I think you are right about SK trying to ring us out, to a point. From the company standpoint, we have more excess pilots than American, and that’s easy savings for UA, “low hanging fruit” if you will. Of course Kirby will shake the tree and try to get concessions. Paint a doom and gloom picture while contradicting himself at the same time saying we need to be ready to take market share back. He is clearly trying to get us to accept a reduction in hours. He will say it’s in order to avoid furloughs and allow for a quick snap back. A saving grace is with SouthWest saying they will be back to full capacity by the end of the year. This puts pressure on us to not lose market share to them. It’s harder for SK to say we need to furlough more if you don’t take concessions, if it’s obvious we need to keep more pilots.
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