Originally Posted by
FWAAA
If I borrow a billion dollars today and park it in the bank overnight and use that billion dollars tomorrow to pay off maturing debt, many would not equate that to "burning through cash." If I borrow that billion dollars in March and use it to redeem debt that matures in the third quarter, I don't see that as "burning through cash," a term that generally refers to negative cash flow from operations.
While cash flow from operations is important, net cash flow is a critical measure for highly leveraged asset-intensive companies like AMR. While I wouldn't expect AMR to be able to fund its re-fleeting through cash flow, its not generating enough cash to cover its pension and debt payments. Having to use your liquidity or borrow more to repay borrowings is certainly indicative of "burning through cash."
Originally Posted by
FWAAA
AA announced this week that it will perform an impairment analysis on its MD-80s and 757s, but I don't know whether those airplanes secure the maturing debt - but perhaps you do? For all I know, the maturing debt is secured by late model 777s and 738s.
Some of the maturing debt is secured by 737s and 777s delivered before 2001. The debt was basically refinanced and the aircraft now secure new issuances.
Originally Posted by
FWAAA
In April, Arpey said that AA would have "well over a billion dollars worth" of section 1110-eligible aircraft free of encumbrances by year-end because of maturing debt. He didn't elaborate on which types those were. If they are predominantly MD-80s and 757s, then AA is in much deeper trouble with respect to the potential to borrow against those aircraft with a view toward the benefits of section 1110. If those aircraft are mostly 777s and 738s, then the opposite is true.
I don't have a complete list of unencumbered aircraft, but I believe they are limited to MD-80s and 767-200s with perhaps some 757s thrown in.
Originally Posted by
FWAAA
It would certainly be more accurate to say that AMR is failing to generate sufficient cash from operations to meet all of its obligations (including redemption of maturing debt). Without knowing more, however, characterizing a quarter to quarter decline in the cash balance as "burning through cash" may be very misleading.
My characterization is not based on a single quarter, but an understanding of projected operating cash flow and upcoming obligations. Unfortunately, this quarters decline in liquidity may be the rule, rather than the exception.