Citibank tells American Airlines to love me or leave me

Discussion in 'American Airlines | AAdvantage' started by sobore, May 24, 2013.  |  Print Topic

  1. sobore
    Original Member

    sobore Gold Member

    Messages:
    12,421
    Likes Received:
    33,847
    Status Points:
    16,520
    http://aviationblog.dallasnews.com/...merican-airlines-to-love-me-or-leave-me.html/

    Citibank, which has offered AAdvantage-branded credit cards for American Airlines for a quarter century, said Friday it’s time for American to decide whether it will stay with Citibank after American’s merger with US Airways.

    It told the U.S. Bankruptcy Court that that decision would have a big impact on American’s bankruptcy case because Citibank has a big potential claim against the airline.

    Citibank objected to the disclosure statement American has filed for the airline’s plan of reorganization and the plan itself because it said its agreement to offer AAdvantage credit cards had been left in limbo.
    In addition to the objections, Citibank filed a motion demanding that American decide by July 2 if it would remain with Citibank.

    “Because the Debtors cannot reorganize under the current Plan with Citibank’s status regarding the Agreements unresolved (and indeed, seemingly cannot reorganize under the Plan unless the Agreements are assumed), this Court should compel the Debtors to assume or reject the Agreements by July 2, 2013,” Citibank said in its motion.

    Read More: http://aviationblog.dallasnews.com/...merican-airlines-to-love-me-or-leave-me.html/
     
    Aloha-Rick, Max M, jbcarioca and 7 others like this.
  2. ariosto

    ariosto Silver Member

    Messages:
    103
    Likes Received:
    154
    Status Points:
    360
    Interesting let's wait and see but I personally think they will stick with Citi
     
  3. LETTERBOY
    Original Member

    LETTERBOY Gold Member

    Messages:
    1,650
    Likes Received:
    2,522
    Status Points:
    1,425
    I think they'll stick with Citi too (that seems to be the general consensus among FFers), but you never know. I'm not a lawyer, but it seems like Citi made a decent argument. Given the choice between Citi and Barclays, I'd prefer Citi. I've had a couple of bad experiences with them, but the stories I've heard (here and on TOBB) about Barclays would make me reluctant to give them too much of my business. Hopefully this will make AA/US and Dougie decide the credit card issue quickly.
     
    Max M, jbcarioca and MX like this.
  4. HaveMilesWillTravel
    Original Member

    HaveMilesWillTravel Gold Member

    Messages:
    12,504
    Likes Received:
    20,199
    Status Points:
    16,520
    Maybe US Bank will make them a sweet offer they can't refuse. They are probably still missing all their NWA cardholders.
     
    jbcarioca likes this.
  5. LETTERBOY
    Original Member

    LETTERBOY Gold Member

    Messages:
    1,650
    Likes Received:
    2,522
    Status Points:
    1,425
    The blog post linked to in the OP says that Citi purchased $1 billion worth of AA miles. Furthermore, it says that the "obligation is secured by takeoff and landing rights at airports, airport facilities, route authorities and other assets." Even though that $1 billion is probably lower by now, whether it's $800 million or $600 million (or whatever it is), I can't imagine US Bank or Barclays (or anyone else, really) putting up that kind of money in this economy.
     
    Max M and jbcarioca like this.
  6. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    Mate...$600mm or $800mm is trivial for either of those banks.

    The bigger issue is access to retail customers. While Barclays has a presence in the US, they are dwarfed by Citi. Barclays hasn't had retail branches in the US in ~15/20 years. There is no large scale retail bank left for AA to partner with. Chase is exclusive with UA. BofA is tied up with Alaska, but I'm not sure of the exclusivity.

    One thing I've wondered about is if Amex is exclusive with Delta. Way back when, Amex was to be the original partner with AA for a miles credit card. Amex ultimately turned it down...and the rest, shall we say, is history. If they weren't exclusive with DL (I'm not sure if they are or not), it could be an interesting resurrection. Amex doesn't have bank branches per se, but they have far more touch points with American consumers than Barclays does.
     
  7. HaveMilesWillTravel
    Original Member

    HaveMilesWillTravel Gold Member

    Messages:
    12,504
    Likes Received:
    20,199
    Status Points:
    16,520
    Is it really important to have retail access? Chase as far as I know had very little west coast retail coverage until they bought WaMu in 2008.

    How about Wells Fargo? Are they just not interested in affiliate credit cards?

    Ultimately I do think Citi will continue to be the purveyor of AA cards. But it is fun to speculate.
     
    jbcarioca and LETTERBOY like this.
  8. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    Ah, yes, Wells is the interesting one (which I overlooked). They have more funding than any other money center bank in the US. They now also have a largely national footprint. Frankly, growing their card balances would seem to make a lot of sense.

    I do think existing retail connections are important. It is only our nutty group of frequent flyers that focus on cards quite the way we do. Existing retail touch-points are a very valuable (and easy) way to convert customers into cardholders of these higher fee card products. Chase, while they were limited west of the Mississippi prior to WaMu's demise, at least had +/- half of the country's population in their retail zone. Between legacy Chase/ChemicalMannyHanny, overlay Texas Commerce Bank and BankOne/FirstChicago/NBD, they were very strong "back east," with >7% of the nation's deposits at the time IIRC.

    Barclays is a meaningful underdog to keep this. US and Barclays were two underdogs working together.

    My handicapping:
    1) Citi
    2) Wells
    3) Barclays
    4) USBank
     
  9. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    I wonder if BofA can get out of their AS deal?
     
    Max M and jbcarioca like this.
  10. HaveMilesWillTravel
    Original Member

    HaveMilesWillTravel Gold Member

    Messages:
    12,504
    Likes Received:
    20,199
    Status Points:
    16,520
    Can't be exclusive since they also have Hawaiian, who are nowadays facing a lot of competition from AS.
     
    jbcarioca, LETTERBOY and NYBanker like this.
  11. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    Fair point. There could be, however, a limitation in the exclusivity like "mainland-based" or something of the sort. The air/card affiliations are almost all geographically focused. Hawaiian isn't a mainstream carrier for most of the US population. Lots of combinations available elsewhere that we can't get here.

    I don't know if AS has enough clout to get any exclusivity. AA, however, would nearly certainly demand it. Even if AS didn't have exclusivity, they'd probably have a set term in a joint marketing agreement. That term could be co-incidentally coming up, too?

    Lots of speculation. Sounds like we may know in about a month!

    [​IMG]

    [​IMG]

    [​IMG]

    (Wow. This Qantas card offers 3 miles per $ for dining and 2 miles for travel. Would be great to see that here, Amex! QF as a MR transfer partner wouldn't be bad, either!)
     
  12. wombat18
    Original Member

    wombat18 Silver Member

    Messages:
    326
    Likes Received:
    429
    Status Points:
    520
    Have they paid back their TARP bailout yet?
     
    Max M and jbcarioca like this.
  13. HaveMilesWillTravel
    Original Member

    HaveMilesWillTravel Gold Member

    Messages:
    12,504
    Likes Received:
    20,199
    Status Points:
    16,520
    jbcarioca and NYBanker like this.
  14. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    Of the large banks, Wells needed it the least, frankly.

    As to why they didn't repay first, frankly, who would pay back capital that attracted an ongoing cost of 5%?

    Of Chase, Citi, BofA and Wells, Wells is unambiguously in the best credit standing.
     
    Max M and jbcarioca like this.
  15. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    The government has made billions on the Bear and TARP fundings.

    A guy I hired 16 years ago has run the Bear and AIG portfolios for the NY FRB. Fascinating to hear how it has played out. Wildly profitable for the government.

    Frankly, the only sector where profits haven't been reached for Treasury is the auto sector.
     
    Max M and jbcarioca like this.
  16. wombat18
    Original Member

    wombat18 Silver Member

    Messages:
    326
    Likes Received:
    429
    Status Points:
    520
    Yep, nothing as cheap as government money!

    So, is Wells in a position to chase a new, larger unsecured loan portfolio?
     
    Max M, jbcarioca and NYBanker like this.
  17. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    Absolutely. They're the strongest of any US money center bank.
     
    Max M and jbcarioca like this.
  18. OnlyOne

    OnlyOne Silver Member

    Messages:
    77
    Likes Received:
    42
    Status Points:
    185
    Anyone think we actually get clarification from AA by July 2nd?
     
    Max M, jbcarioca and LETTERBOY like this.
  19. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    My guess is that Citi will win because Citi's loan agreement will trump Barclays one with US. Given that both have loan agreements Barclays did not secure theirs with operating assets, while Citi did. Regardless of management preferences Citi has the legal position of preferences IMHO (and non-legal opinion too). Anyway that position by Citi gives Parker cover with his shareholder Barclays. How Barclays will act as a shareholder in this case is another interesting question, but even if they sell they'll come out handsomely.

    Although Wells clearly has the financial strength they've never had much of a credit card operation. As mostly a mortgage bank they had tons of cards but very very low usage and even lower revolving balances. When they bought Wachovia it had just begun to restart a credit card operation after they'd sold theirs, IIRC to their cross-town rival Bank of America (even though teh card operation, nee-MBNA, is based in Delaware). Former MBNA, of course, is the world leader in affinity credit cards, but not too strong in T&E.

    Thus, I'd handicap:

    1) Citi
    distant 2) Barclaycard
    3) American Express
     
    Max M, Aktchi and LETTERBOY like this.
  20. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    While I agree that Citi likely keeps the business, I'd wager that the Citi loan is prepayable, negating any impact of their security interest in collateral in the determination of what bank runs their card program prospectively.
     
    Max M, Aktchi and jbcarioca like this.
  21. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    We do not have easy access to the 2008 agreement, but the PaymentSource article on the subject suggests the Citigroup position is that they will have the right to the assets pledged (i.e. some routes and slots as well as AAdvantage program assets) in the event of repudiation of the issuing rights. As we both have imp[lied, I think, this is much more likely to be affirmation of rights before the bankruptcy court than it is to represent and actual dispute between the parties. Frankly, Barclaycard has inadequate infrastructure to operate the program anyway, even if they would like to try. In addition the legacy assets in the existing program are Citi assets anyway. The net impact of an attempt to migrate would be disruption a merging airline certainly will not need, especially when the incremental benefits to the airline would probably not be material anyway. So, technically the points prepurchase advance seems to be prepayable, but with a substantial poison pill were the prepayment to be accompanied by a change of issuer.

    Either way this is very interesting, isn't it?
    http://www.paymentssource.com/news/...-airlines-credit-card-contract-3014236-1.html
     
    Max M, Aktchi and LETTERBOY like this.
  22. edekba

    edekba Gold Member

    Messages:
    3,462
    Likes Received:
    3,783
    Status Points:
    2,145
    This is all so interesting.


    One thing though, how is the loan secured. So if AA doesn't pay Citi back, Citi has the slots and routes? Would Citi then auction those off to the highest bidder (ie another airline)? What about FAA regulations on slots and routes?
     
  23. jbcarioca
    Original Member

    jbcarioca Gold Member

    Messages:
    17,507
    Likes Received:
    57,455
    Status Points:
    20,020
    This has happened before. The rights are generally sold to an appropriate airline, but AFAIK there have not been outright auctions. When they did this deal on 2008 AMR was very anxious to avoid bankruptcy. In the end they did not succeed in doing so, but Citi did gain a great deal.

    Sent from my iPhone using milepoint
     
  24. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    This isn't about AA not paying Citi back. But yes, if they (AA) were to default on their obligations to pay, Citi could attempt to foreclose on the routes.

    There are plenty of instances of creditors securing routes. Delta has pledged a number of their Pacific routes. AA has even financed the jet bridges at JFK T8 in a secured deal (which I looked at buying for my fund a few years back). On that deal, if they didn't pay, we could have seized the jet bridges and they had an affirmative covenant not to buy replacements. ;)
     
    Max M, edekba and HaveMilesWillTravel like this.
  25. NYBanker
    Original Member

    NYBanker Gold Member

    Messages:
    32,725
    Likes Received:
    191,901
    Status Points:
    20,020
    This is an interesting article. I wonder how long their current contract is for. ...and, I wonder if AA has rights to market a replacement product to existing Citi cardholders. If they do not (which I suspect they wouldn't), then wow, even if they have an out, it would be extremely burdensome to change issuers.
     
    Max M, LETTERBOY and jbcarioca like this.

Share This Page