toomanybooks

WN's deal to buy Airtran was announced at $1.4 billion.

YahooFinance says AMR's market cap now is $1.39 billion.

Wow.

Supersonic Swinger

Interesting point of view here - http://crankyflier.com/2011/07/26/he...ot-more-to-do/

Ambraciot

It recovered the 20 cents in the first couple hours of trading today, so I still think I can win the theoretical bet.

FLYERIL

This article in Forbes gives a future price of $6.70 for AMR stock.
http://blogs.forbes.com/greatspecula...pply-pressure/

Jacobin777

With the way "black gold" is going, I'm not so sure if AA will be able to make a profit before the new planes arrive.

Jacobin777

Almost touched the $4.00 mark today (even with price of oil down today).

Also, there are many mutual funds which don't purchase stocks <$5.00 so AMR stock loses a lot of institutional support.

IMHO, if AMR stock goes <$3 and certainly <$2 and I think AMR is in serious trouble as a company and Chapter 11 wouldn't be too far behind.

MiamiAirport Formerly NY George

AA still has a consider stockpile of cash. However, if AA starts having problems rolling over/refinancing debt that is when the Company starts to get wobbly. Also, debt holders may start extracting very high interest rates (in excess of 13%-14%) even on refinanced secured debt. Its not like you can park a repossessed MD80 out in front of LGA with a For Sale sound taped to it.

Jacobin777

Given how the credit markets are going and that there is a distinct possibility of a "double-dip" recession, I'm not so sure if AA's financial situation doesn't get more perilous. While the price of "black gold" will start to go down, so will revenues.

Looking at AMR's stock, it ostensibly seems that the "Street" isn't too sanguine as AMR getting its "house in order" w/out having to go into BK. That being said, we have seen AMR's stock a couple of times at these lows before so I'm not 100% certain we'll see AA file for BK.

Regardless, when taking salaries, pensions, work-time, etc. into consideration, AA's cost structure is just too high.

Using AA's July 10-Q, for 2011, AA has to pay about $1.331 billion in debt, $1 billion in plane payments and another $233 in pension payments. Pension payments for 2011 are about $520 million.

Fortunately for AA, non-fuel expense was up only 2.9% y-o-y.

I guess only time will tell as to what will happen with AA's stock.

Life_Platinum

Another interesting story about AA's mismanagement.
http://www.beachstreetnews.com/2011/...0-buy-or-sell/

Beach Street News

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Monday August 15th 2011
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American Stock Under $4?
The economy is doing funny things, and so is American Airlines (AMR). Yesterday the stock price dropped below 3.90 a share at closing leaving AMR with a Market Cap of under $1.25 Billion. It is understandable that the entire market is still a little skiddish of the debt plan that the government concocted, but the problem at American is much worse.
American Airlines 737 at RDU

American 737

In 2000, AMR purchased TWA for a total of $782 Million using $500 Million in cash to fund the deal. AMR shares were trading at $34 the day the deal was announced. What happened to 90% of the value of AMR?

Under Robert Crandall’s watch, American was an aggressive growth company that ran afoul of the DOT once or twice in order to block competitors from gaining routes. Today under Gerard Arpey, American has walked away from nearly all of its investment in Reno Air, leaving the routes to Southwest Airlines (SWA), and then walked away from Long Beach leaving routes to upstart Jet Blue.

From 1998 to 2003 Don Carty was the CEO of American while the stock slid from a high of about $38 to $11 about the time he was ejected by the board. Clearly the board took the steps they should have. So what is happening now?

Since Sept 11, 2001 Mr. Arpey has used high costs as his excuse for everything. The spirit of competition at American is all but gone and the market knows it. How else could Southwest Airlines be worth $ 7 Billion vs. American’s paltry $1.25B and American did almost exactly double the revenue.

Gerard Arpey has not been the CEO that American needs, he hasn’t had the chain smoking enthusiasm for the Airline business that Robert Crandall brought, or the tattoo yielding LUV that Herb brought to Southwest. In fact instead of being out cheerleading the enthusiasm of the new 400+ aircraft purchase, he has been nearly unseen according to most American employees at the Dallas Hub located just minutes from the headquarters.

Labor isn’t the problem at American Airlines, the leadership is. The longstanding gap between labor and management at American could have been welded shut when Mr. Arpey took over the carrier from Don Carty. Instead labor pay cuts and increasing management bonuses have only deepend and widened the chasm Mr. Arpey must cross to restore the ailing carrier.

Recently at the opening of Terminal two at San Francisco International Airport, you could see the problem first hand. Richard Branson of Virgin American showed up and brought along his space ship and astronaut Buzz Aldrin to speak about the future. Mr. Arpey sent a 1940’s era DC-3 that left a trail of oil on the gleaming new tarmac and a few retired instructor pilots. Mr. Arpey was nowhere to be found.
American DC-3 at SFO

American DC-3 Leaving its mark at SFO

The recent good news of American buying 420 new airplanes is slightly reminiscent of the deal that Robert Crandall struck to buy the current MD-80 fleet at a super discount and grow the airline. The difference was he had all the labor deals in his pocket first. According to the press releases recently by the mechanics and flight attendants, Mr. Arpey is nowhere close to having these agreements.

With a looming pilot shortage and pilot pay that is among the lowest in the industry, sources say that American is getting less than 20% of its furloughed pilots returning to work. Where does Mr. Arpey plan to get the 4000 plus new pilots to fly the 420 new airplanes?
The bottom line is American is generating twice the revenue, and half of the gross margin of Southwest and is valued by the market at one seventh of its competitor Southwest. Is the board ever going to do anything besides approve another bonus for Mr. Arpey? In many markets, American’s competitive answer to Southwest has been the much smaller, slower and less efficient jets of American Eagle and that just doesn’t fly. Even under $4.00 Mr. Arpey hasn’t given us a reason to buy.
Post Published: 03 August 2011
Author: Freelance writers
Found in section: Beach St. Biz

panjabi

While I am no fan of Arpey and look forward to a new CEO, posting Union talking points is not the answer. The "article" is laughable in many of its assertions including the truly insane "pilot pay that is among the lowest in the industry"

I don't know what happens to fine men and women when they join a union. Are they made to drink a special Koolaid. How is it they spout crap that is demonstrably false?

I think that our Congressmen and women must drink the same Kool-aid because when I hear our politicians talk (of either party) I hear these same FAKE statistics and facts said with a straight face

Just as a quick summary from WillFlyForFood.com

Alaska 12 Year Captain 737 $172/hr
Airtran 12 Year Captain 737 $162/hr
Continental 12 Year Captain 737 $150/hr
Delta 12 Year Captain 737 $167.53/hr
AA 12 Year Captain 737 $166/hr
JetBlue 12 Year Captain A320 $158.70/hr
Southwest 12 Year Captain 737 $211.98/hr
United 12 Year Captain 737 $137.14/hr
US Air 12 Year Captain 737 $137.68/hr
Hawaiian 12 Year Captain 717 $162/hr


Except for Southwest, AA is right in the upper middle of that bracket. Keep in mind that 737 is the BIGGEST jet that Southwest has and that is how high you can possibly go in Southwest

In AA you can climb to become the captain of a 777 at which point you will earn $205/hr.

The 737 is an "entry level" jet at AA and with the Mad dogs that are going to be phased out, it will be the smallest jet in the fleet. The Airbus NEOs will be larger and the fleet will have 757 (mabye), 767 (maybe), 787 (likely) and 777 (certain)

Jacobin777

WN and many other carriers aren't saddled with pensions which AA is. Why isn't that number included? Unlike those "bonuses" management gets, putting money into legacy pensions costs AA directly (i.e.-hits cash-flow directly) to the tune of hundreds of millions $$$/year!

bernardd

It's not that they don't have pensions. From the WN site:

The point about AA is it has an underfunded legacy "defined benefits" plan, as opposed to WN's "defined contributions" plan. The current WN will still be costing them a ton of money every year, but an underfunded defined benefits plan is always going to be a problem in a shrinking business like AA's.

Jacobin777

You are correct. AA's pension is rather outdated.

Regardless, AA's cost structure is too high. Practically every single analyst-either working for a Wall St. firm or a private independent firm has stated this. Its almost "common knowledge". Only someone/some people living in "la-la" land refuse to believe this.

ByrdluvsAWACO

I just noticed that AMR fell 5.73% and below its support level of $3 to $2.96. AA's market cap finally fell below one billion as well.

It looks like investors didn't like hearing about AA's plans to borrow more against aircraft.

mreed911

Of course not. More debt = less equity.

Then again, if more debt = more cash flow, that's better than going bankrupt with billions in assets.