7 responses to “3 Links I Love: American Says No Bankruptcy But Slashes Jobs, Delta Looks for Volunteers”

1. 

   FC

   May 29, 2020 at 5:27 am

   Of course DP is going to say no BK. Who is going to tell investors that they are going bankrupt?

   AA is still burning $70 million a day when UA is down to around $40 million and DL is down to $50 million. AA is going to have to cut probably half of its labor force if it wants to not file BK. It had the largest fixed cost of any carrier and is just massively over staffed. 30% does not go nearly enough when compared to what UA is doing. That $11 billion they’ve been telling investors about will be down to under $7 billion by start of Q4. Unless they get some additional liquidity, they are going to have to file late this year or early next.

   Reply
   1. 

      SEAN

      May 29, 2020 at 6:50 am

      FC,

      And that assumes we don’t have a second wave of Coronavirus, something I wouldn’t bet on. The CDC is going on the premise that we will have a second wave in the fall concurrent with the flu season. if so, then the airlines better be prepared to reverse course & be ready for another rapid pull down. The end result will make Wall Street quite unhappy.

      Reply
2. 

   ryby

   May 29, 2020 at 7:18 am

   Cranky isn’t the headline is a bit misleading as AA is also looking for volunteers first? All three airlines are operating in the same mode.

   FC I am sure the targets of $40-$50 million were to be achieved by end of June.

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   1. 

      CF

      May 29, 2020 at 8:47 am

      Ryby- I haven’t seen any other airline set a target for the number of jobs that will be eliminated with volunteers or not. The others are being more nebulous, but AA is confirming job losses.

      Reply
3. 

   DesertGhost

   May 29, 2020 at 7:44 am

   Wall Street airline analyst Helane Becker estimated that the airlines would end up about 30% smaller coming out if this. It looks like her number was just about right. The whole issue is going to revolve around how fast demand recovers. The sooner it returns, the better the situation will be. A business can have all the assets in the world, but if those assets don’t generate income, their value really doesn’t matter. It still surprises me how many people seem to be rooting for at least one major airline to be liquidated (not merely file for Chapter 11 protection). It looks like a lot of people are going to lose their jobs in a number of industries, with travel and tourism being particularly hard hit. The ripple effect, especially in areas dependent on tourism (Las Vegas comes to mind), will cascade through local economies and hurt a lot of people. I can’t understand why anyone would want to celebrate that.

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4. 

   Tim Dunn

   May 29, 2020 at 9:38 am

   Bankruptcy is never an option in the business plans of any company. It is the result of being unable to control your destiny which, in the current context, requires being able to raise enough capital to survive the current downturn in revenue and to be able to get costs down to levels to match revenue. American has said it is counting on the proceeds from a CARES Act loan. They are totally dependent on the decision of the Treasury at this point. Based on American’s own projections, they cannot survive without a loan from the federal government.

   As FC notes before, AA will have to dramatically cut its workforce in order to survive. The Treasury will have to make decisions based on current employment because AA and other airlines can’t tell them how many employees they will lay off after Sept 30.

   No one wants anyone to lose their job or see their salaries cut but those are just some of the inevitable results of business failure. Hertz didn’t get a federal grant and didn’t have the opportunity to request for a federal loan – and they filed for chapter 11 just like many airlines have done in the past. Some survived, some didn’t.

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5. 

   iahphx

   May 29, 2020 at 6:23 pm

   I don’t think Brian’s comment “[d]on’t let news of a recovery fool you. This is a slog” makes much sense at all. Nor do I agree that “American has frequently used a less urgent tone when talking about this crisis, but its actions are now suggesting something different.” I think the tone is measured, and the job cuts both expected and necessary. As is common in post-merger companies, AA had a payroll that many believed was somewhat excessive. It’s really hard to fire people when you’re making billions. It’s much easier to do so when you’re losing billions. The industry’s recovery seems to be proceeding quite reasonably here. We’ll know more in a couple weeks, but there will likely be a decent summer travel season. At least domestically. And the int’l routes will be more numerous than people think, largely because of the cargo rates (and low fuel prices) make them fairly attractive to operate now (note Kirby’s overlooked comment about this). No one in the industry is betting on a full recovery by next year. That would be a foolhardy bet. Instead, they’re attempting to get to break-even on 50% demand. That seems like a very smart strategy. It involves shrinking the airline and the payroll costs. It seems extremely smart to me. Kirby and Parker didn’t get to their positions by being stupid.

   Reply

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