AA Headed into Bankruptcy?

Discussion in 'American Airlines | AAdvantage' started by Counsellor, Oct 5, 2011.  |  Print Topic

  1. Counsellor
    Original Member

    Counsellor Gold Member

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    See news item at:


    Excerpt: "Shares of AMR Corp., American's parent, tumbled 33 percent, closing at $1.98 . . . . Trading of the Fort Worth, Texas-company was halted seven times Monday because of extreme volatility . . . . AMR's stock price has fallen 75 percent since the start of this year, while industry shares have dropped 41 percent. Morningstar airline analyst Basili Alukos was among those advocating that American seek bankruptcy protection."
  2. gleff
    Original Member

    gleff Co-founder

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    Much discussion of this already. AMR has both a cost problem ($10B+ of debt, over 5 times their market cap, and higher labor costs in part because they haven't been through bankruptcy while UA/DL/US have). They also have a revenue problem (plenty of frequent light routes, eg ORD-LHR doesn't pull its weight). And while the joint business venture should help, it won't help enough or alone.

    So markets certainly believe there is a significant chance of a bankruptcy filing in the coming years, and my own guess is that there's a strong chance in 2012 as a 10-figure debt payment is due. Sure, AMR might be able to refinance and currently they do have access to capital markets albeit borrowing over 8% even when collateralized. But big debt maturities are the kinds of things that put pressure on a filing in order to preserve cash. Citibank is another ace in the hole, I wouldn't be surprised if AA could access $500mm off their co-branded credit card partner.

    But what of it?

    United and Delta were in bankruptcy in the last decade. US AIrways was in bankruptcy twice. They all benefited from it and our miles were fine.

    Miles will be fine in the event of an AMR bankruptcy.

    And there may even be huge promos to leverage the program. And a strong resistance to award chart inflation during a bankruptcy. So flyers could even be better off int he short-term should AA choose a prepacked bankruptcy restructuring.

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