Folks, I find the idea that American Airlines is at risk of declaring Chapter 11 bankruptcy to be fanciful delusion. I don’t see it happening nor do I find such speculation helpful.
Bankruptcy At American Airlines? Highly Doubtful.
At a base level, there is an inherent risk of bankruptcy at any business. Just like there is a risk that I will be struck by lightning or hit by a motorcycle or die from a lethal mix of monkeypox and coronavirus.
I’m not trying be facetious. Certainly, I can point to warning signs at American Airlines. Indeed, there is debt. Yes, interest rates are rising and a recession looms. True, labor relations are tense and new contracts are under negotiation, with both sides far apart.
But I can also make a case for bankruptcy (albeit a different one) for United, Spirit, Alaska, and JetBlue.
The bottom line is that I see no signs to suggest that American Airlines is actually considering the “nuclear option” and don’t find it helpful to speculate about it until we cross that path (until AA cannot service its debt or a strike is initiated or demand falls through the floor once again).
Millions of people read this blog and others on the Boarding Area network. I don’t want to flatter myself over the reach of Live and Let’s Fly, but I also don’t want to drive people from booking travel on American Airlines over fear of bankruptcy. Many people fail to understand that declaring Chapter 11 bankruptcy does not mean liquidation, but restructuring debt. Even so, I don’t even think Chapter 11 will be necessary unless strong headwinds hit the entire industry.
(And if that happens, Uncle Sam is always ready to bail out U.S. airlines)
Thus, I would still book travel on American Airlines if the schedule and price makes sense. American Airlines has ZERO risk of going under and I’d rate the probability of bankruptcy of any chapter at this point at similar levels.
Then again, I was wrong before…let me pepper this piece with a bit of humility and a personal note.
I remember the day American Airlines filed for bankruptcy in 2011. Why? Because I panicked, sold all my AA stock at pennies on the dollar, lost thousands of dollars, and then watched as the stock was not cancelled and rose steadily as the airline emerged from bankruptcy.
Don’t panic folks. Whatever happens, American Airlines will still be with us, will still fly, will still have AAdvantage, and will still be a source of debate.
> Read More: American Airlines Headed for Bankruptcy? (A piece I wrote in 2011 two months before AA declared bankruptcy)
> Read More: What American Airlines’ Bankruptcy Filing Means for You (Another piece I wrote in 2011 just after the bankruptcy filing)
CONCLUSION
Talk of bankruptcy is premature and counterproductive. Let’s stick to operational reliability, current labor negotiations, and trying to convince AA not to decimate the AAdvantage program. Maybe I’ve learned nothing over the decade, but this just does not strike me as a 2011-like situation.
image: American Airlines
Nobody should be fearful of booking on AA because of a potential bankruptcy, they should avoid them because they are a ULCC disguised as a legacy airline, especially if you are booking in economy. I don’t think anyone is predicting that they are going to liquidate, but airline bankruptcies aren’t exactly uncommon. AA and US Airways have filed chapter 11 a combined 3 times in the last 20 years
Comments like this show up on nearly every AA article on the internet, but that doesn’t make them any less stupid. Go ahead and name a ULCC that has all of the following:
1. A useful points program
2. A useful list of alliance partners
3. A lounge network
4. Domestic first class
5. A widebody fleet with lie-flat business class
6. A hub and spoke model with hundreds of destinations and thousands of codeshare destinations all over the world
There are more, but I’ll stop here. If you can name a ULCC with all of that, go ahead.
Based on your screen name I assume you are either a captive AA flyer or an employee, but here we go…
1. Spirit has a rewards program
2.ok, that’s true
3. Lounges are not what they used to be, that’s any airline though
4. I did specify economy, but spirit has big seats, you just won’t get a bad meal with it.
5. See above. AA flies overseas so they need widebodies. I’m sure if they could fly a 737 to Asia they would.
6. That’s the same as point 2.
For a domestic flyer in economy, which the majority of flyers are, I contend that AA is below southwest in terms of comfort and service
Should AA declare bankruptcy, don’t be surprised if JetBlue bids on some of the AA lounges. Should JetBlue (or a consortium of JB, HA & AS) make a fair bid, AA would be required by law to entertain the bid with a fair, transparent review. This would be a great way for other airlines to move up the food chain in US aviation.
Should AA say this is unprecedented, the response is that AA has multiple lounges in BOS, JFK, Los Angeles, Chicago which are surplus in a downsized airline.
Thank you for a level headed response to the previous story.
Yea, kinda funny when Monday’s space has to be used to clear up Sunday’s nonsense.
The problem with declaring bankruptcy now is a judge may not void union contracts in a way that actually helps American Airlines. They should have used Covid as an opportunity to declare bankruptcy and severe all union contracts in 2020 as not flying for months would mean termination of all employees would cancel the contracts and they could start again without signing any union contracts. There would be hundreds of thousands of unemployed flight attendants who would choose to join with no union contract.
It’s harder to do that now because the judge may say they are still flying as normal and won’t cancel the union contracts. That’s the only thing that can free American and America. Next time a union contract expires, American management needs to not sign an new one. The company can not thrive if it signs a contract that requires the company to only hire union labor. American management does not have to sign or renew a contract. Only pilots are the issue because they are the only ones in short supply. Mechanics can be outsourced to a private company short term which costs more money but would allow American to train and hire non union ones for the long term which will be cheaper.
Amy, AA has less than 25,000 flight attendants. Not sure how hundreds of thousands would become unemployed by canceling a Union contract.
So yesterday your website posted this article by Kyle: https://liveandletsfly.com/american-airlines-stock-bankruptcy/ saying that AA bankruptcy chances are increasing. Today you contradict that opinion. How do you expect readers to react?
Personally I don’t think AA will file for bankruptcy this year, but the fact they mortgaged Advantage program for enormous sum of $$$ is worrisome on many levels. I still fly on them – same level of comfort/service as United or Southwest. The problem with main US carriers over past 10 years is that they took a low-cost carrier playbook and used it on themselves, charging for almost every extra without providing solid hard/soft product in the first place. So AA, United and partially Delta are now on same level as JetBlue, Southwest and Frontier as far as service and features, at least in domestic market. For international flights I choose almost any non-US carrier over them, in coach and business – and can bet the experience would be much better.
I think JetBlue and Hawaiian airlines are on the forefront in USA as far as airlines, they only need to give more legroom in coach (as they had some years ago – 32″-34″) and improve soft product: food and snack offers/choices.
Advantage program has a good core, except for the exuberant prices on many routes, and very limited partner awards availability. If they can fix those problems, it could become a frontrunner program and worth the money they American mortgage it for.
@Aleks: Kyle and I have a different view on this issue, which is why I wrote my own story. He may be right, I may be right, or we both may be wrong, but it is a discussion worth having.
Depending on coupon and maturity most AAL paper is trading between 80 and 90 cents/dlr. Not exactly great stuff. That said, imminent BK would have them far lower.
Appreciate the fair and non-sensational approach to writing about the complexities of the airline business. And as a response to the nonsense this week from those two. Honestly, Kyle and Gary both sounded like a couple of young mid-level underwriters at a local bank who just throw some numbers into a box and try to look for negatives…all because it makes them feel important.
I think Kyle and Gary are right to point out the growing concerns at AA, but I think AA is very far from BK and that many hear “bankruptcy” and falsely assume that AA might go out of business.
AA is safe. It’s too easy to bribe congress(wo)men and in return get bailed out. Just do it again. Americans are too dumb to question obvious conflicts of interests and gaps in logic so i believe the airlines will get away with it again. Case in point, Ghislaine Maxwell is in prison for pimping underage girls to non- existent johns. Are you aware of any criminal cases against any johns? How can you have a pimp without johns? And dumb Americans do not question it. See? Americans are dumb, or corrupt and the airlines will be fine. Another bailout incoming.
I don’t agree with all of your analogies, but I do agree that they will get bailed out – not in the form of a direct payment from the government, but in leniency in BK filings which will allow them to do this again and again.
They will get what the law allows just like any other company.
It’s not fear of bankruptcy that drives people away from booking on AA. It’s the subpar service and abysmal travel experience. They called me a few weeks ago to ask me why my bookings with them fell off a cliff…….I told them.
AA is a garbage airline that has bases in several cities that don’t need any. The airline is just no viable long term. It’s a ULCC with the costs of a Legacy.
One reason I think they will file Chapter 11 is to get out of leases at ORD and PHL.
They aren’t even really trying any more at ORD.
They might want to do that quick before they end up funding their half of the new global terminal at ORD they won’t be using
Look at AA’s long term debt compared to UA’s or DL’s. It’s not pretty.
They have the oldest fleet and are still flying a mishmash of AA and US aircraft.
No. AA won’t go bankrupt in the time frame in which you could buy a ticket today, or any time soon, but as Scott Kirby of UA said just a couple of days ago, the airlines are still enjoying a “tailwind” from pent up Covid travel.
When that dies down and the economy slows, people are not going to be so keen on buying tickets based on $100/bbl oil jet fuel and higher post-Covid wages.
“They have the oldest fleet”
This is just plain wrong. Here are the average fleet ages of the active fleets of AA, DL, and UA:
AA – 11.78 years
DL – 14.68 years
UA – 16.44 years
I’m not disputing that AA has a debt problem, but they have the youngest fleet of the three airlines you mention.
Matthew, Matthew, Matthew… buying an airline stock? Tsk tsk. We gotta talk.
I disagree with the point above that this is a discussion worth having. Travel bloggers like Kyle and Gary (Kyle notably didn’t link to Gary’s article) don’t do a high quality analysis of airline financial statements. Airline financials aren’t straightforward as they are full of leases which have unique accounting treatment, and phantom liabilities like frequent flyer miles and future flights. AA’s auditors have no concern that AA will go bankrupt in the next 12 months, so why should Kyle and Gary.
Kyle also did a post last year where he advocated that AA invest in bitcoin (https://liveandletsfly.com/bitcoin-airlines/). The article was written after Tesla invested in bitcoin when it was trading at $40,000. Bitcoin is now trading at half that price. This week, Tesla booked a $170 million loss from its bitcoin holdings over the first six months of the year.
TBH, AA would be closer to bankruptcy had they followed Kyle’s advice.
Stay in your lane.
Take a look at the debt maturation in 2024 and you’ll find your answer. Even if they are at pre pandemic profit levels, they can’t pay back the debt in 2024. Also why their new pilot contracts only go to 2024. Writing is on the wall for those that can read the books
In legal slang, a second bankruptcy is know as Chapter 22 (Chapter 11 with two visits). Chapter 33 is three visits to the court house. Keep me honest here, but I think TWA was pushed into Chapter 44 before AA would buy them out.
At one time, Chapter 11 was a cheap way to get out of burdensome labor contracts and expensive leasing arrangements. If in doubt, think back to Frank Lorenzo and Texas Air. However, judges are getting wise to the ploy. In the most recent consolidation of AA and USAir, the judge denied a golden parachute to AA leadership.
The so-called “analyst” (whose name I didn’t see mentioned) in the other piece only looked at the balance sheet. That kind of analysis is flawed. There’s a reason why companies also provide income statements and statements of cash flows when reporting financial results. The balance sheet, by itself, doesn’t tell the whole story.
The income statement and statement of cash flows are equally, if not more, important than the balance sheet. They tell how much the company is taking in and spending. It’s no different than one’s own finances. If one has enough income to pay one’s bills, one stays afloat. The net value of one’s assets and debts has little to do with one’s ability to pay their monthly bills. When housing prices went way down in the 2008 to 2014 time frame those who continued to pay their bills did just fine, as did those who remained patient.
Bankruptcy occurs when a person or business can no longer pay its bills. It has little to do with one’s assets and liabilities at a given time. That’s why there was such an emphasis on “cash burn” at the height of the Covid crisis. Cash is king. If there’s enough income and time, an entity or peson can get out of any short-term financial setback.