Bankruptcy Concerns Rise Again for AMR

Discussion in 'American Airlines | AAdvantage' started by garyst16, Nov 17, 2011.  |  Print Topic

  1. garyst16
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    garyst16 Silver Member

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    http://money.msn.com/top-stocks/post.aspx?post=d343405d-bbf2-49aa-a1bb-dae9dd5a3ca9
    Link includes video from MSN Money...Not a positive outlook...

    The company's stock has fallen nearly 80% this year, mostly on concerns that labor costs and other contracts are becoming unmanageable. Shares were down some 6% Thursday on news that bankruptcy could become a very real possibility.

    Talks are going nowhere between AMR-owned American Airlines and a labor union representing the its pilots. American put forth a contract offer aimed at saving money, but the pilots' union said the proposal would fail in a vote by the rank and file. The two sides have decided to take a break until late November.
    That leaves the airline with no progress as it heads into its fourth straight yearly loss. The company already has the highest labor expenses in the industry.

    Here's the bind for the airline: It desperately needs to restructure, but it can't do that until it works out union agreements. It needs to lower its costs, but again, it can't do that unless the unions cooperate.
    AMR is the only major airline that has not declared bankruptcy in the last decade -- and that's part of the reason why its costs are so high.
     
  2. Mike Reed

    Mike Reed Gold Member

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    And yet they have enough cash for two years of operations. Bankruptcy why?
     
  3. garyst16
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    garyst16 Silver Member

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    What I found most interesting was this quote. "AMR is the only major airline that has not declared bankruptcy in the last decade -- and that's part of the reason why its costs are so high."
     
  4. mrredskin
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    mrredskin Gold Member

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    cause someone be lyin'!
     
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  5. Lufthansa Flyer
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    Lufthansa Flyer Gold Member

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  6. Lufthansa Flyer
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    Lufthansa Flyer Gold Member

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    Why? screw the shareholders, settle for pennies on the dollar with bond holders and cripple the pensions. Then issue new shares to all the new folks running the "Better than Ever" airline. Worked for UA I guess......
     
  7. Mike Reed

    Mike Reed Gold Member

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    You obviously have no idea how this works.

    "Screw the shareholders" is a great way to find oneself in a situation where, as a director, personally liability is incurred. Directors are *required* to act in the best interest of the stockholders.
     
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  8. Mike Reed

    Mike Reed Gold Member

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    I'm not sure I understand. According to the AMR balance sheet they had ~ 1.2 billion in cash and over 700 million in net receivables at the end of 2010. In Sept 2011, they had about the same.

    Their net income, while negative, has increased the past three years running, even with a more than doubling of administrative cost (and a look at the business might even attribute the positive move towards profitability towards that increase in actual management, especially management of expenses), trending towards a profit in 2012, depending on market conditions, etc. Either way, positive signs from a business that was in trouble several years ago and has simply taken longer than expected to pull out.

    As in investment? Horrible. Not going to beat the market anytime soon, IMO. Their stock isn't for investors, though, it's a bartering tool in lieu of capital. What really hurts them with a low stock price is having to give more of the company away in terms of number of shares for the same value. But either way, the shares are issued and without a buyback there's no difference to AA.

    Sad thing is that now would be a great time for a buyback... if they had the cash to do it. They're nowhere near that, though...
     
  9. Lufthansa Flyer
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    Lufthansa Flyer Gold Member

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    Actually I have every idea about how it works but how would you know right? . I've only been in the arena for 20+ years ....."personally liabilty" seldom falls on a director unless criminal negligence is discovered. So spare me the soap box and hubris telling me that I'm wrong.
     
  10. Lufthansa Flyer
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    Lufthansa Flyer Gold Member

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    WHY? Shareholder equity has eroded. Public perception has devalued the company. Clear as day.
     
  11. sithlord
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    sithlord Silver Member

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    AA treats people who arent ck's are vip like dirt. They used to show proper respect to plats and exps but when the plat desks left at major hubs so did I.
     
  12. sithlord
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    sithlord Silver Member

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    To redo the bad contracts of the fa's and pilots.
     
  13. Mike Reed

    Mike Reed Gold Member

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    I get treated well by AA, and I did before I achieved EXP. Do they have customer service issues? Sure. They're certainly better than many other airlines... and the ones I have the most problem with are the ticket counter agents. I've simply learned to bypass them as much as possible and get to someone who can help.
     
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  14. Mike Reed

    Mike Reed Gold Member

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    Then stop using terms like "screw the shareholder," where screw is the active verb.
     
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  15. sithlord
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    sithlord Silver Member

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    The frontline people do care but the management has taken their empowerment tools. Elites used to get 30 dollars for dinner during irrops now 7 dollars. The customer relations is great after the fact but during situations Dl,Ua are much better. In terms of upgrades exp have it good but don't expect a cart like a concierge key or wannabe celeb sitting in coach in lax lol.
     
  16. Mike Reed

    Mike Reed Gold Member

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    By "redo" let's assume you mean in a way that negatively impacts air crews, both on the flight deck and in the cabin.

    Let's assume AA really does that. And let's assume that the air crews, in response, offer a level of service below what they currently offer, as they are getting compensated less. I'm not asserting that the crews would actually be any less professional, but let's assume that there's a morale hit and it happens.

    Do you really think that AA's end goal is more surly flight crews, more bad passenger interactions, worse relations with labor, that ends up driving customers away?

    You'll probably answer "management doesn't care." And sometimes I'd agree with you - AMR management and Arpey have not been forwardly engaged in making things better for the airline and crews at the same time... but I can assure you they should care, as fewer customers is bad all around and hurts both sides.
     
  17. sithlord
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    sithlord Silver Member

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    As long as they keep corp and sag contracts they will be happy. The individual leisure or biz traveller is of no worry to them . They are monolith of a company which will go the way of many other companies who ignore the silent now loud majority. If you are a mid fare traveller there are better airline for you but I will say as long as you are happy with aa would stay as well.
     
  18. Mike Reed

    Mike Reed Gold Member

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    This is quite possibly the most ignorant statement I've read on the internet, ever.

    A lion's share of their traffic is the individual traveler, which is why they have so many one-off programs catering to such for ancillary revenues and fees.
     
  19. garyst16
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    garyst16 Silver Member

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    When I posted this news story I never thought for one minute it would set off a firestorm between two MP'ers... Thanks for the entertainment!
     
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  20. sithlord
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    sithlord Silver Member

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    If special services is not escorting or meeting you at the gate or you are not getting picked up by cart you are not important to them. You may think you know alot but you don't compared to me.
     
  21. kansaskeith

    kansaskeith Gold Member

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    This thread has become frustrating -- a feeling I haven't had often during my still young (5-month-old) Milepoint membership. The main question members want to know, in my humble opinion, is whether AA will file for bankruptcy, and if so which chapter and when. They'd also want to know, if a filing is going to occur, what it will mean to their travel and to their miles. And finally, is there any reason beyond bankruptcy fears that the stock price has fallen so badly?

    The discussion here arguably started to address those things, but turned personal, which is annoying.

    Way, way back - probably even in civics class in high school in the 1960s - we were taught that strategy aside, the basic criterion for a bankruptcy is if liabilites exceeded assets. If they didn't, then there would not be a bankruptcy. There's been a zillion cases and almost as many new lawyers since then, but isn't that criterion still true? So, which does AMR have more of: assets, or liabilities?

    ---

    Cutting and pasting from the web:
    bankruptcy

    A common expression used to mean insolvency, being a condition in which one's liabilities exceed one's assets, or in which current cash flow is not sufficient to meet current debts. Source: http://financial-dictionary.thefreedictionary.com/bankruptcy
     
  22. Lufthansa Flyer
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    Lufthansa Flyer Gold Member

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    Part of the problem (thats become a self fufilling prophecy) is the value of the company now. At 1.69 a share (after hours quote), the airline is only worth 576 million. It depends also on how much of the stock they own themselves has been pledged as collateral on their financed assets. If investors lose confidence, it doesn't matter whats in the bank account or what the revenue projections are. If you lose the shareholder, you run the risk of losing the company. After all, shareholders are owners, and if the owners are selling the stock (obviously happening), then what confidence does the market place have left in AMR. Typically you would need to change the highest levels of leadership to re-install faith in the company, or have current management unveil solutions to the problem.

    Another issue becomes the fact that the stock is now a penny-stock. Many institutional investors (mutual funds, pension plans, etc) are not allowed to buy low priced securities. If you look at most publicly traded companies, there is a substantial institutional ownership. Latest data shows that insitutions own 63% of the company. If they bail (which may or may not happen), there's little money out there left to buy those shares. With the year end approaching, many asset managers may choose to cut loses for tax purposes, which isn't going to help AMR at all.

    They are definitely in for some head winds AND, this is IMHO before anyone pulls out their flamethrower.
     
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  23. Mike Reed

    Mike Reed Gold Member

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    The emphasis above is mine, and I want to specifically comment on it (and because I agree with the points made about investor confidence and management). The market cap of the company is only 576 million, but that's very different from its worth. If anything, the current price and market cap may represent a significant value premium on the stock. Enough that like Randy and others who have publicly blogged about it, it may be a good time to buy. Of course you're hedging the bet that they won't file bankruptcy, but I don't believe that's in the cards, and my biggest reason is that they have commitments for both purchasing and financing of new aircraft. If we're talking about you, you can be sure that Boeing and Airbus were, too. They don't want an AMR bankruptcy any more than AMR does.

    IMO, the airline is worth significantly more than 576 million, but worth is a relative term. What I think it's worth and what someone else thinks it's worth is represented in the ask/bid on the stock.

    I'm very seriously weighing the merits of 1000 shares of AMR vs. 2000 rounds of 308 ammo (ammo has been a good investment recently, you'd be surprised the value of lead). The ammo would be for later resale or trade, not for plinking at the range. But, a good return on AMR would mean more ammo. :)
     
  24. Randy Petersen
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    Randy Petersen Founder

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    As someone who has flown through all this before with TWA, Continental, United, US Airways, United, Delta and Northwest, I feel comfortable in pointing out that the standard practice of bankruptcy if called upon will be Chapter 11, not 13. Timing of this is likely relative to who is going to blink at the negotiation table, if it is relative at all. While the airline is proud to not have followed others down this path, pride and prejudice are different terms when it comes to survival. As to the stock price, bankruptcy fears are certainly one, unsettled labor another, flirting with $100 oil yet another among I'm sure general unsettleness of the market itself. American like others is not immune to to the European debt crisis concern, etc.

    As for what it means to my travel and my miles? I can point out that every one of my miles is still in an active state having lost none despite the nearly 10 bankruptcies they have been through with the above names airlines and as it turns out, my miles through bankruptcy have the same if not more value than miles that have not gone though bankruptcy such as Southwest or the current topic—American. I think it could easily be defended that changes occurring in any of these prior bankrupt programs relative to miles is no worse than changes that have occurred in airlines never visiting a courthouse. As for my travel? I can't remember much if any major distraction as a traveler other than an occasional picket line (and that happens even outside bankruptcy blues). Changes such as fees, award charts can and have occurred even in the best times so it would be from my POV inaccurate to point to them as related to bankruptcy. Anyway, my decision to fly AA has absolutely no bearing on their current state of finances, market rumors and stock price. It has everything to do with bonuses, schedule, destination and trying to make the current Challenge they have offered as part of the OWMD flight. I do know that despite this distraction, the AA team devoted to the OWMD has done nothing less than an outstanding job juggling the demands of such an event. And while I'm not a EXP or even Platinum guy with AA, as a lowly Gold member, I've never personally felt badly treated. And as for what I get, well, I know that if i were to push things with my status level, likely as in other programs the higher my elite the better off i will be, but right now, life and flying isn't all that bad on AA. And while true that YMMV, touring that mileage for one is the same for everyone just does not fly.Count me as one that i've never been unhappy with AA.

    AND as to these personal posts that have become annoying, i agree and have pledged to simply unload that kind of baggage as over the weight limit here on milepoint. Thanks for sharing that part.
     
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  25. sithlord
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    sithlord Silver Member

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    Getting offered free statuses and challenges will make most people happy!:D
     

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