JP Morgan, in an investor note, says American Airlines would have to file for Chapter 11 bankruptcy protection if they get down to $8 billion in cash. The airline has shared its loan covenants require it to retain $2 billion in liquidity, but that’s not the trigger for a filing.
JP Morgan’s Jamie Baker says that at most the airline has another $2-$3 billion in assets they can encumber depending on market sentiment. With everything at the airline already mortgaged they aren’t likely to do well with debtor-in-possession financing and would have to file early enough to manage chapter 11 on their own liquidity.
I think this helps explain why,
- American Airlines was cheap with its employee voluntary retirement packages, they’d rather conserve cash than reduce future costs. Indeed, the big package they offered was money for healthcare later that employees worried wouldn’t be there if the company went through a restructuring.
- They furloughed the largest number of employees.
- Their CEO has been the most forward-facing advocate of a second federal bailout amongst airline CEOs. (Other CEOs have been on board, and have spoken publicly – the won’t turn down billions of dollars – but it’s Parker who’s been on a mission.)
American Airlines has been adamant that they do not wish to file for a strategic bankruptcy. They would only file if forced into it. Parker himself still owns about 2.3 million shares in the company (after selling around $100 million in the airline’s stock when share prices were much higher).
This wouldn’t happen soon, by the way. They’re probably burning about $1 billion a month in cash currently, which is a little higher than expected but revenue forecasts haven’t fully materialized. American is the most vulnerable of the major airlines, but their position is ultimately dictated by whether travel demand recovers enough so that they can stop losing money early enough in 2021.
If American does survive, though, they’ll have higher costs than competitors (with only their most senior employees working flights, since they’ve furloughed less expensive staff) and more debt as well. So they’ll still be likely to underperform the industry. On the other hand, their international exposure is less than Delta’s and especially United’s, so it’s possible that their business could recover a little faster too.