WSJ Article: Moody's Lowers AMR Outlook from Stable to Negative

Discussion in 'American Airlines | AAdvantage' started by DestinationDavid, Sep 19, 2011.  |  Print Topic

  1. DestinationDavid
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    All stuff we've heard before with regards to labor costs and fuel cost increases, though interestingly it seems the recently announced fleet upgrade is now added as a factor in the downgrade. Fuel for the bankruptcy rumors....

    LINK.

    Moody's Investors Service raised the likelihood of a downgrade further into junk for AMR Corp. (AMR), the holding company of American Airlines, on expectations for deteriorating liquidity, uncertain cost structure and pressure from losses.

    American Airlines was the only major carrier that didn't turn a profit in 2010.

    In changing its outlook to negative from stable, Moody's said Monday that the company's operating metrics would continue to be weak over the medium term as it expects debt maturities and fleet-modernization costs to exceed operating cash flow, causing erosion in its liquidity profile.

    Moody's also said that AMR's loss-making operations would pressure credit metrics, contributing to the outlook cut. In addition, the firm cited uncertainty about how AMR would revamp cost structure to sustain positive free cash flow and reduce leverage.

    The firm currently rates AMR at Caa1, which is seven notches below investment-grade status.
     
  2. DestinationDavid
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    As seen on TOBB - an interesting, semi-related article in Forbes, LINK:

    At the Deutsche Bank Aviation and Transportation Conference held recently,American Airlines denied seeking bankruptcy liquidation (Chapter 7) but did not rule out the possibility of seeking bankruptcy protection (Chapter 11) to reorganize its labor agreements that put it at a marked disadvantage to airline industry peers such as Delta Air Lines,Southwest Airlines,US Airways and United Continental.

    In the past, several major players including Delta, US Airways and United Airlines have filed for bankruptcy in an attempt to rationalize their costs. American Airlines has avoiding bankruptcy so far, but this looks increasingly likely as negotiations have broken down between the unions and management.

    Below, we take a look at what might factors may cause American to file for bankruptcy protection and how these may impact the company’s valuation....
     

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