Is AMR headed toward bankruptcy?

Discussion in 'American Airlines | AAdvantage' started by sobore, Sep 26, 2011.  |  Print Topic

  1. sobore
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    sobore Gold Member

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    http://www.star-telegram.com/2011/09/25/3395624/is-amr-headed-toward-bankruptcy.html

    First time in a while I am hearing the B word at AA.
    Article cites an industry consultant saying a 50/50 chance in the next year. :confused:
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    Is a bankruptcy filing on the horizon for AMR Corp.?

    The b-word is starting to swirl around the parent of American Airlines after the question was raised during a recent investor conference and the treasurer didn't completely dismiss the possibility.

    The Fort Worth-based carrier has had only two profitable years in the past decade, its stock has slipped to a one-year low near $3 and credit-rating agency Moody's downgraded AMR's outlook to "negative" last week.

    Some industry analysts think that the company is running out of cash and that a bankruptcy filing is possible. But others say the airline still has another year or two to turn its finances around.

    "They have a mess on their hands when it comes to their operating costs and their financial commitments," said Bob Herbst, an industry consultant who runs AirlineFinancials.com. "They are just in bad shape right now."

    Read More: http://www.star-telegram.com/2011/09/25/3395624/is-amr-headed-toward-bankruptcy.html
     
  2. MSPeconomist
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    MSPeconomist Gold Member

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    I suspect that the stock prices of many major corporations hit their one-year lows last week.

    Remember than bankruptcy, especially in the airline industry, doesn't necessarily mean that operations will cease and the company will be dissolved.
     
  3. JohnDeere19
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    Right, AMR is having these problems because they didn't declare bankruptcy in the early 00's when all the other US airlines did.
     
  4. MSPeconomist
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    Their decision periodically looks like a mistake, but I like the ethics of taking bankruptcy very seriously. OTOH the general climate in the country was better for bankruptcy filings then; the current administration might be less willing to let AMR break union and pension contracts, for example. Should we mention to big to fail here?
     
  5. JohnDeere19
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    JohnDeere19 Gold Member

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    Dare we go down that road? :p
     
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  6. DestinationDavid
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    The bankruptcy rumor has been circling for a few months, and I don't mean the types of rumors that have circled for years. These seem stronger and are coming from a variety of angles.

    Some links for anyone who wants to read more:

    An article from Forbes last week: LINK.

    TravelingBetter's commentary from JonNYC: LINK. (lengthy but there's info in there)
     
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  7. jbcarioca
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    There is obviously greater risk now that US travel is slackening and union contracts are in a delicate state. I would be surprises were they to declare, precisely because they did not do so when the political cost would have been minimal. There are some factors that make speculation about BK to be rampant, not least of which is a general flight to quality globally. We ought not to overreact to this IMO. OTOH if they did file I would not be shocked, even though I think they'll find a way to avoid it.
     
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  8. DestinationDavid
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    Bankruptcy rumors true or not, I don't see a near future with AA not flying, so panic is certainly to be avoided. As long as no significant chances happen to where they fly and the program, I will still be on an AA plane.

    If I can't get where I'm going to though....
     
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  9. Seacarl
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    Seacarl Gold Member

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    AA has a huge problem on their hands - their costs are materially higher than every other U.S. airline - both the legacies and newcomers. Only to the extent that AA has protected routes with higher revenues can AA compete.

    AA can't continue without a serious restructuring, however they achieve it.
     
  10. DestinationDavid
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    Can you define and give examples of these protected routes?
     
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  11. flamingo

    flamingo Gold Member

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    Can Doc. ask this B* question during the 10/9 One World Mega Do planning meeting?
     
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  12. DestinationDavid
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    What exactly would be asked though? No matter how it's presented, I highly doubt the President of the loyalty program is going to be in a position to answer questions about bankruptcy. It would be great to get a comment, but realistically what would we expect her to say?
     
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  13. mowogo
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    If this did happen, we might see US try to buy AA, just because Parker wants somebody to merge with, and a bankrupt American might be the only way US can get any sort of merger with their own issues. Should take about a million years to integrate the workforce though ;)
     
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  14. flamingo

    flamingo Gold Member

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    I believe AA shall get lots of FREE $ from folks + companies -- buying AA miles -- in order to achieve the LT MM status. Flamingo is one of those MM "runners":D to "donate":( $$$ to AA. AA shall be easily to make B$$$ from the 12/1/11 MM deadline.
     
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  15. harvson3

    harvson3 Silver Member

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    Eh, I'm skeptical that anonymous internet commentators on bulletin boards are a representative sample of the flying population at large, and that the number of people serving as "catheters" is therefore being overestimated. Remember that the previous MM program was "secret."

    But I guess only the next 10-K will tell. ;)
     
  16. Bluto
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    With over $5 billion in cash as of June 30, it's very unlikely that AMR will have any liquidity problems in the near future that will force it to file for bankruptcy. They might eventually choose to file anyway in order to restructure their obligations, in particular their pension and labor obligations, but a filing for this purpose would reduce cash burn and actually improve its viability. Importantly, it's very likely that AMR would emerge as a going concern with its miles liabilities unimpaired. So, the bottom line is it should not make much difference to us as accumulators of AA miles.

    If someday you see that $5 billion dwindle away and you see the quarterly cash losses ramp up, then AMR's viability could be fairly questioned. That's when it might be worth accelerating award redemptions.
     
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  17. travelgourmet
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    travelgourmet Silver Member

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    I don't know if AMR is headed for bankruptcy, but I'm pretty darn sure that they will never be able to become a profitable company without it. They are in an almost impossible position with their labor costs (and their debt load only compounds the problem) and I don't see a way out of it. The reality is that the bulk of the union members would have to take some sort of haircut to make AMR competitive again, and the longer they can push the day of reckoning out, the closer they get to the point where their best play is to simply drive the company into the ground.

    In some ways, I respect the way AMR worked to avoid bankruptcy, but Chapter 11 was designed for exactly these sort of cases. They should use it to restructure what are simply unworkable long-term commitments (esp. debt and labor costs) and try to get to a sustainable model. Frankly, they should have done it a while ago.
     
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  18. danny
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    danny Silver Member

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    There would be a bigger impact if they lifted the limit of miles an individual was allowed to buy.
     
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  19. milchap
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    milchap Gold Member

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    This brings up the question.....are there too many airlines in the USA ?
     
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  20. DestinationDavid
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    I think we all know the answer is yes.

    Or perhaps was. That's why we've seen so many mergers and smaller companies go out of business. The question becomes what's the new market threshold?
     
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  21. milchap
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    milchap Gold Member

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    How many airlines are there needed?
     
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  22. DestinationDavid
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    That's exactly what I rhetorically asked. ;)

    It's not a question that has an easy answer.
     
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  23. Seacarl
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    I mean ones where due to AA's network they have a competitive advantage vs. other carriers. Most would be to/from hubs, e.g. South American to Miami, many DFW routes, etc. Not to say that there isn't some competition but where AA can likely maintain a revenue premium vs. other entrants.

    In the long run, AA has to get its costs closer to the other airlines in order to be able to be profitable.
     
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  24. DestinationDavid
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    That's what I figured you meant. AA's no different than any other carrier though, most US legacies have networks where they have advantages from their hubs to certain areas.

    Certainly agree that cost is going to kill them in the long run if they cannot address their structure though.
     
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  25. DenverBrian
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    Yes. There's nothing wrong with AA that the death of US wouldn't cure.
     
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