Why AA has a chance...
Route structure, we connect the most people inside the USA, and our hubs are not in current hot spots so our fundamentals suck the least at the moment. (IF DFW becomes the Next NYC then all bets are off). At the moment, United not only has the hangover of Europe. But their biggest hub is Newark, aka Corona Central.
Financials, There is Debt, and then there is the STRUCTURE of the DEBT.
United's structure sucks and they have big balloon payments coming in the fall. IF you were back here around 07-08 you remember "The wall in the fall" when we had big debt payments coming due. Fortunately they came due BEFORE the financial crisis hit, and they were able to simply remortgage the same assets again. (Basically roll the debt over). That is NOT an option for United right now. THey are going to have to pay the debt, but they are unlikely to be able to roll it as no one wants airplanes right now.
Delta has similar problem but no where near as extreme. The basic problem is that an old fleet is only worth 12cents a pound for scrap aluminium. They might be worth 5 or 6 billion dollars. But no one is going to loan against them even at 50 cents on the dollar of value, at any price as United just found out 2 weeks ago.
We have a lot of debt. But its all operating or capital leases. (The distinction doesn't really matter). There are no balloon payments, and the debt is tied specifically to aircraft at very favorable rates, So we aren't staring at a big single payment like United is in the fall.
So the hope is that we can leverage our better domestic network and newer fleet to gain market share there, and just bump along till things turn (While possibly increasing overall market share.)
Its a risky strategy that I actually like. It also means that lots of flights are going to cancel for the foreseeable future as they throw a million flights into FOS and see what sticks.
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Andrew's discussion is accurate. And, I might add, it appears both Delta and United are going to be forced to draw down their operation more than AA.
Delta's mainline fleet is old and they are removing all of their MD-88s,/MD-90s and a large number of their B717s and 7ER aircraft from their domestic operation, which could result in 7000-7500 excess pilots in the near-term and 2500-3500 excess pilots next year.
United is suffering internationally in Asia and Europe. Newark is the most profitable hub in the U.S. and as Andrew indicated it is "Corona Central." United's recent Displacement Bid
In my opinion, CEO Doug Parker, President Robert Isom, CFO Derek Kerr, and SVP of Network planning Raja Vasu are taking somewhat of a risk in how they're positioning our company for the future ff the virus is not contained, a vaccine is not developed by a biotechnology company, or demand does not come back fast enough.
AA is reducing its ASM's the least amount of the three network carriers (creates an industry leading cash burn rate), it is keeping all of its hubs intact, it is not reducing its RJ feed operation because these smaller jets better match capacity with demand, and in our case unlike at Delta or United, AA & APA have negotiated industry leading LOA's in an effort to prevent furloughs.
The strategic plan appears to be to position AA to take market share away from Delta and United if these two companies pull down flying as indicated. According to the DCA Director of Flight Keith Firmin on tonight's DCA Town Hall meeting, indicated CLT, DCA, & DFW are the company's most profitable hubs. If other airline assets become available (gates, slots, etc.) AA intends to go after those assets. In addition, Captain Firmin indicated the LOAs are intended to prevent furloughs, if possible.
By keeping the majority of AA's fleet in place (115 E190, B757, B767, A330, a few other mainline aircraft, & some RJs are coming out of the network) than our primary trunk airline competitors, not furloughing pilots and other employees, it appears AA's "executive suite" is positioning to rapidly rebuild the network while the other companies are in the middle of downsizing, furloughing, and then trying to turn the switch off.
As far as liquidity, yesterday Kerr disclosed to Wolfe Transportation airline analyst Hunter Keay (who I believe is very bright), that AA's financing plan is to first secure the CARES Act loan at attractive rates. Then if necessary AA could access the equity market (a secondary offering) or the debt markets (bond sales) using its Property, Plant, & Equipment (PPE) assets (owned aircraft) as collateral. In addition, AA's Citi and Barclays credit card awards/miles are higher than the company indicated on the Q1 financial results conference call. In that call Kerr was vague and seemed to indicate this asset was worth between $10-$12 billion. However, yesterday Kerr told Keay it's between $18-$30 billion.
The challenge is nobody at AA wants to see the company add to its debt load. Yesterday Isom and Kerr indicated their plan is to rightsize the airline in 2021 to be cash flow positive. With money coming into the corporate treasury management intends to pay down the airline's debt as fast as they can to repair the balance sheet.
The good news is their strategic thinking and plan could prevent furloughs, allow AA to take market share away from other carriers, and over the next 3 to 5 years create a much, much stronger balance sheet. The bad news is that it's unlikely we will see a new contract for the foreseeable future.
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On tonight's DCA Town Hall seven key additional points were made (comments paraphrased):
1. The company does not expect training to commence that is generated from the Vacancy/Displacement Bid until August to complete the backlog of training created by the closing of the DFW Flight Academy and CLT Flight Training Center. In addition, new equipment training is not expected to be completed well into 2021.
2. Tonight the company offered additional VPLOA and VSTLOA's per LOA 20-001. APA's Negotiating Committee (NC) has approached management a couple of times to lower the VPLOA age limit or offer a VPLOA for a 2 or 3-year term regardless of age, but so far management is "not interested" in changing the VPLOA's provisions.
3. APA NC Chairman John Karim indicated that both AA management and APA believe preventing furloughs is "very manageable." Network Planning intends to further increase the schedule July 7, 2020. Unlike Delta and United, who do not have a lot of near-term age 65 retirements, AA has 2,396 age-65 retirements between May 11, 2020 and May 11, 2023. From now until December 31, 2030 AA has 8,437 age-65 retirements. The company's strategic plan, which has some risk if passenger demand does not return, is to over staff the airline with more pilots onboard than required to be in position to capture the "revenue rebound." AA's pilot attrition is in our favor to prevent furloughs.
4. DCA Director of Flight Keith Firmin on tonight's DCA Town Hall meeting, indicated CLT, DCA, & DFW are the company's most profitable hubs. If other airline assets become available (gates, slots, etc.) AA intends to go after those assets. In addition, Captain Firmin indicated the LOAs are intended to prevent furloughs, if possible. Captain Firmin indicated AA has an appetite to obtain additional DCA slots, if they become available.
