MilesBuzz! - Forbes ranks likelihood of liquidation for major airlines

Here's a newsflash: Airlines are burning through cash at a debilitating pace, debt is climbing, and revenue is not making up for high costs. Many say consolidation is inevitable. That may be, but the question is who is in a position to buy?

The answer is that virtually no domestic airline is currently capable of buying another airline--and won't be for a year or more. Most laid off thousands of employees after slashing flight schedules up to 23%. Unionized airline employees would most certainly be perplexed as to how their employer would find the money to make an acquisition, but can't afford to keep people employed ...

... Below we provide a snapshot of each of the nine major U.S. carriers, from largest to smallest. We've also ranked the likelihood of liquidation on a scale of 100%.

Highest: America West (90%) and US Air (80%)

Lowest: Southwest (0.5%) and Alaska (15%)

http://biz.yahoo.com/fo/011108/1108airlines_1.html

Hmmm. I'm confused. According to the article American Airlines only has $69 million cash on hand and is losing $10 to $15 million per day. How are they going to make payroll in a couple of weeks?

VERY interesting. And, as I fly AA, fairly reassuring.

There's some discussion of this over concerning US over at:

http://www.flyertalk.com/forum/Forum51/HTML/001770.html

Needless to say, I don't think US has an 80% chance of being liquidated, and I'd be willing to give anyone at least even odds they won't be liquidated.

Beckles, Thanks for the link to the US thread. It looks like some people think the Forbes article might be a bit weak statistically. Interesting.

I am no business genius, but I live with one, and although a number of the airlines are in dire financial straights, isn't the reporter missing something?

Before an airline, or any US company liquidates, i.e. Chapter 7 under the Bankruptcy Code, there is a little thing called Chapter 11, which allows for debt reorganization. True, that America West has gone this way before, but I think it highly unlikely that even if AA files for bankruptcy, it will ever be liquidated. US Air, however, is a different kettle of fish.

I'm no expert, but does anyone think that it's slightly detrimental to make such forecasts as it might affect a consumer's likelihood of using an airline that might be 'going under'?

well, Sun Country is probably under Forbes' radar, but on the news tonight (MSP) SY has put itself up for sale, and if there's no buyer then it's probably The End for SY. they haven't turned a profit since starting scheduled service in 1998 after years of profitable charter operations. big ol bad NW probably hasn't helped.

The AA number is either an error or the writers are trying to sensationalize the story. If my memory is correct AA had $1.3 billion in cash on hand per their 10Q of 6/30/2001.
(1) the cash number is an error, or (2) they are excluding marketable (liquid as in money markets) securities to make more of a point.
Anyway, even with near zero cash the airlines might be able to borrow money to see them through rough times.
The airline is similar to your personal life. My checking account had $805 the other day. I'm not going bankrupt this week. I could draw down funds in savings accounts or I could borrow money before my next deposit of income into my checking account.

All losses aren't cash losses. They're racking up debt to all sorts of accounts payable accounts, both short-term and long-term (pension funds, for example).

However, the cash on hand number also doesn't seem reasonable.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by blairvanhorn:

Lowest: Southwest (0.5%) and Alaska (15%)
</font>

The Eskimo will persevere http://www.flyertalk.com/forum/smile.gif http://www.flyertalk.com/forum/smile.gif http://www.flyertalk.com/forum/smile.gif



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SeaDoo III (http://seattle.markbach.com/) Come Join Us!!!

My predictions, worth considerably less than $0.02, is that sometime at the end of 2001 or first quarter or so of 2002 we will see:

1. US and HP in Ch 11, some pieces sold off to other airlines, mostly routes discontinued and the company basically liquidated after that.

2. A trip through bankruptcy chapter 11 for UA and possibly AA, but they will be reorganized and survive. They may operate for quite a while in chapter 11 as the dust settles.

3. Fewer airlines in the USA, quickie mergers bringing the number down to 3 strong airlines. My candidates as survivors: AA, DL and UA, with CO and NW absorbed between them. (Perhaps UA/CO/NW, or DL/CO/NW)


3. WN surviving as is.

I could see most USA airlines operating in chapter 11 for a while next year. It is going to be very grim. But, the survivors will be stronger, with good solid labor relations, good franchises, and a reasonable return on investment to assure that they will make plenty o' money when good times return.

<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by MarkinDallas:
The AA number is either an error or the writers are trying to sensationalize the story...(1) the cash number is an error, or (2) they are excluding marketable (liquid as in money markets) securities to make more of a point.</font>

AMR's latest quarterlies (9/30/01) show 2.34 billion in combined cash and short-term investments.

All y'all who follow this carefully, I need some information and/or advice. I have about $800 in 2 very old tickets on HP, that I wanted to use to go to Cabo in Feb. Dare I do that? Should I use them up sooner just to use them? Can you point me to more info online so I can follow the progression? Any help/advice appreciated. (I know, the safest is to use them ASAP, but I really waant to use them for Cabo.)
THANKS!
NancyD

HP isn't going to vaporize before February, it'll die a slow death, Chapter 11, followed by squeezing the creditors and employees into giving up $$$. The pilots can kiss their dreams of industry standard pay goodbye.

It ain't gonna be pretty, and it'll go on way past February in all likelyhood, NancyD. Hope you enjoy Cabo!

Thanks, snake! Appreciate the reassurance. We LOVE to hang out and watch the whales. I think I may hang in there and use them for Cabo after all. If we are lucky, maybe they will tank while I am on the beach, leaving me with no way to get home! :-)

[This message has been edited by NancyD (edited 11-12-2001).]

I agree with the statement that it will be a long, slow death for the airlines that go under. If you've got some money, I'd short USAirways and America West. They're doomed, and everyone knows it.

USAirways was the biggest flyer out of DCA and they haven't been able to get to a somewhat normal schedule, so they are in big trouble. Plus, they flat out said that all they were working on was being acquired by United and that they had no other plan. Well, they ain't gonna get acquired by United now, except maybe in bankruptcy proceedings.

America West can't decide whether they want to be a regional or a national player, and that's doomed them as well.

I wonder if they will do a follow up story and re-rank AA after todays crash.

Crash Inflicts Heavy Blow on Prospects of AMR

Before Flight 587 fell from the sky yesterday, American Airlines was seen as one of the carriers best positioned to weather the drastic downturn that followed September's terrorist attacks. But now American could find itself in much deeper trouble, experts said yesterday.

"The question in my mind is whether this now makes it harder for American to recover relative to the rest of the industry," said David Newkirk, the head of the travel industry consulting practice at Booz Allen & Hamilton.

Donald J. Carty, the chief executive of American's parent, the AMR Corporation, seemed to telegraph that message in his public comments yesterday.

"Today's news comes at a difficult time for the nation, a difficult time for the airline industry and a very difficult time for American Airlines," Mr. Carty said at a news conference at the company's Fort Worth headquarters. "Given the changed world we live in today, it will be as important as it has ever been to quickly and to accurately determine the cause of this accident."

A new terrorist attack would probably cause passenger traffic to plunge again and raise questions about whether American, which lost two planes on Sept. 11, was being singled out because of its name.

But even if the crash turns out to be an accident — the best that American can hope for — the carrier could be severely harmed. American has had a higher number of fatal accidents than its competitors in recent years. Another one could harden the impression that the airline has a safety problem.

http://www.nytimes.com/2001/11/13/business/13AMER.html