3 Links I Love: American Says No Bankruptcy But Slashes Jobs, Delta Looks for Volunteers

American, Delta, Links I Love

This week’s featured link

American Air CEO Says Bankruptcy Is an Option He Won’t ConsiderBloomberg
We have three related links this week. First, a recap of what American CEO Doug Parker said at an investment conference this week. (United CEO Scott Kirby seems to think the same thing.) I would agree that filing for bankruptcy protection is a failure, especially if you’re the first one to do it, but where we diverge is on the idea that nobody will be forced to file for bankruptcy this time around. That’s an optimistic view that can’t be backed up with facts as currently known. It’s the traveling public that will determine if bankruptcy needs to happen or not. American has a lot of debt, but it has a lot of liquidity as well. If travel comes back sooner than later, American will be ok. If not, then it won’t.

Image of the Week: TAME is folding up shop down in Ecuador, so I thought I’d show some photos this week.

Two for the road

Letter to Employees on Job CutsAmerican Airlines
American has frequently used a less urgent tone when talking about this crisis, but its actions are now suggesting something different. There will be a loss of 30 percent of employees in the management and support staff ranks either through volunteering or layoffs. That is a very steep cut, but it’s good to see American lead with management. Still, the difference between actions and tone is… strange.

Letter to Employees on Early Out PackagesDelta Air Lines
Delta is focusing on getting volunteers for its draw down but leaving the future more nebulous.

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7 comments on “3 Links I Love: American Says No Bankruptcy But Slashes Jobs, Delta Looks for Volunteers

  1. 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.

    1. 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.

  2. 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.

    1. 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.

  3. 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.

  4. 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.

  5. 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.

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