I wrote on Thursday that American Airlines could find itself in chapter 11 bankruptcy. It wasn’t a prediction that this would happen, or a claim that it’s somehow inevitable. Instead it was an explanation that it is now thinkable because of their vulnerable financial position combined with high fuel prices, increasing labor costs, and looming recession. If these stars misalign for them, they’re the most likely big airline to take that hit.
The post led to a number of misunderstandings that I would like to clear up.
- American has liabilities greater than assets, that doesn’t mean it will enter bankruptcy. I do not think they are ‘bankrupt’ today. Instead I suggested that American has less margin for error than its competitors. It has plenty of cash and can pay its bills. It isn’t being forced into bankruptcy now, and bankruptcy is not inevitable. The argument was simply that they’re not in great financial shape, and the world could turn against them making their costs unsustainable.
- They face a number of challenging potential conditions that could make their situation worse. Rising interest rates make rolling over their debt more expensive, and they have a lot more debt than competitors. New union contracts under negotiation will increase their costs as well (they’ve already publicly offered pilots a 17% raise, capitulated to mechanics at the start of the pandemic, and have an open contract with flight attendants). And these higher costs, for an airline with low margins to begin with, could pair with deteriorating revenue from recession. This is the mechanism that could create the conditions for a bankruptcy filing – in the way it’s simply not thinkable at Southwest or Delta.
They aren’t in great financial shape, and macro conditions could substantially worsen. American is more vulnerable than other airlines, even more vulnerable than United.
- Bankruptcy doesn’t mean ‘going out of business’ I had a couple of readers ask about their miles, and redemptions on partner airlines. A chapter 11 filing is a reorganization. American has done it before (and US Airways did it twice). United has done it before (and Continental did it twice). Delta has done it before (and Northwest did it too). They would likely continue to fly through bankruptcy without difficulty or significant interruption. It would largely mean shareholders and potentially some creditors taking a haircut, and also possibly renegotiation of union contracts (which is why unions were so supportive of government bailouts during the pandemic, hoping to avoid this).
I used the word bankruptcy and that scares people. It triggers an emotional response. And many people do not understand what chapter 11 bankruptcy even means.
Does Anyone Actually Disagree With This?
It’s really a simple argument, and despite vitriol in the comments there isn’t really disagreement that American is the most vulnerable large airline given its:
- high costs
- high levels of debt
- low margin even in the current high fare environment
I haven’t seen anyone disagree that interest costs are rising (which disproportionately affects American), that labor costs are rising, and that we could be entering a recession. Those things could combine for a storm that presents real risk for the business.
Instead the concerns are largely strawmen, that American isn’t bankrupt (now); that United has low margins too (they’ve been second-most at-risk throughout the pandemic) and that they are making money (today). But do they make enough so that when costs rise and revenue falls they’re still covering costs? They’ve already mortgaged most of what can easily be mortgaged. And in a recession with high interest rates taking on more debt creates further challenges.
And even if an airline could go bankrupt that doesn’t mean it will in a given timeframe. American lasted as a ‘bankruptcy waiting to happen’ for many years as CEO Gerard Arpey simply refused to file as most other major carriers went to the courthouse. They’ve got the cash to forestall it for a long time even if it becomes in the strategic interest of the business.
Watch The Price Of Credit Default Swaps
If you want to understand what the market thinks about bankruptcy risk at any given time watch the price of credit default swaps. Before the second and third taxpayer bailout the market was pricing a virtual certainty of bankruptcy. (The absolute peak price of 5 year credit default swaps came in mid-May 2020, after the CARES Act but before the next two rounds of funding.)
The injection of around $10 billion in government funds into the airline (plus a $5 billion subsidized loan) during the pandemic forestalled bankruptcy, but didn’t eliminate the possibility given the economic conditions we could be heading towards. In fact, the price of 5 year American Airlines CDSs has traded 4-6 times as high as pre-pandemic.
In other words, the market believes there’s a meaningful but not currently existential risk that American defaults on its debt in the next five years. It’s not something likely to happen today, but that’s my point – they are in a position where near- and medium-term changes could push them into such a position.
How To Turn Around Fortunes
On a day that the airline triumphantly announced its highest revenue ever for a quarter, it’s worth noting that it would have been highly in these inflationary and high fuel cost times if that hadn’t happened. And their costs per seat mile grew just as much as their revenue did.
American’s key problem is that its costs are too high to offer products like an ultra low cost carrier. It needs a product that will generate a revenue premium, that people want to fly and will pay more to do so. On-time reliability is a necessary but not sufficient condition for this. The experience has to be pleasant. That means comfortable cabins, it means friendly employees, and numerous small touches along the way that influence customer impressions. It’s everything the airline has underinvested in over the past 8 years.
The current strategy has gotten them into their current position. Don’t blame the pandemic, other carriers have faced that too and taxpayers handed them $10 billion in cash and subsidized loans and the Federal Reserve subsidized their borrowing costs. ‘If you always do what you’ve always done, you’ll always get what you’ve always got.’
Investments in a more premium or customer-friendly approach don’t guarantee success! And they can be especially tough sells heading into recession. But a low yield strategy fails when paired with American’s costs.
Once again Gary you are correct in your assessment. Good explanation
Gary, the fundamental problem is that people are reading with filters on (a la Immanuel Kant).
One thing about which most readers are unfamiliar is the use of bankruptcy as a strategic tool of management . . . to restructure debt, contracts, etc. You intimated this.
In comments, one person says “I think X.” Another person says “I think Y.” Yet another offers the obligatory and trite “dumpster fire” comment. But, the fact is that no one knows jack poop about what AA will actually do — not even financial analysts — except its board and senior leadership. The same is the case with any airline.
Gary, keep up the good work.
Gary, what you didn’t say (but I will) is that American’s C-Suite needs to be cleared out. The choices management has made these past few years have caused travelers like myself from making AA my #1 choice to my last. They’ve squandered away customer loyalty and deserve the door.
Nice analysis. What American needs is a competent Board Of Directors but considering that over the past several years shareholders have not held the Board accountable for repeated instances of staggering ineptitude, it seems unlikely to happen.
@ Gary
Are you able to stump up the data to inform the statement that AA relative to the other airlines has in the quoted period:
high costs
high levels of debt
low margin even in the current high fare environment
How do these airlines then rank in ability to weather a financial perfect storm ? Such as how the debt is structured, how margins would change in a different fare environment, etc.
In other words, what is the sensitivity to change. Surely, there is another layer of information we need to inform a conclusion?
You have clarified your position, but offered little extra information (apart from the info on credit default swaps, which appear to suggest unlikely to declare bankruptcy in the next five years in your own interpretation “meaningful but not currently existential risk that American defaults on its debt in the next five years”).
If you want to debate risk of (Chapter 11) bankruptcy – they surely we need a handle both on probability of relevant (cited headwind) events and impact of such event (how sensitive the financials are to a given event).
Such risks also need to seen in the context of positive risk (i.e. opportunity) – you cite some ways in which AA can address progressive change (relative to their perceived failures in your eyes) – are these practical and achievable?
@ Reno Joe
“One thing about which most readers are unfamiliar is the use of bankruptcy as a strategic tool of management . . . to restructure debt, contracts, etc. You intimated this.”
IMHO a point well made.
AA has one of the lowest customer satisfaction scores of *ALL* US airlines, and it’s dropping. Customer satisfaction and profitability go hand in hand in the medium to long term, so a downward spiral into bankruptcy is quite definitely in the cards.
This would simply continue the trend of shareholder value destruction starting from when Doug Parker & Co. took over AA (while Delta stock more than doubled.in that period, American’s more than halved).
Thank you for highlighting this.
@platy – I wrote a short blog post on the day the earnings came out, pointing to important factors that lean in one direction. A full investment firm white paper would, indeed, put together graphics on the time-structure of the debt and would present similar data on competitors. I didn’t spend the time to pull the most recent numbers, since they wouldn’t have changed materially since last quarter.
However if you’re going to take the position that I am *wrong* you would need to actually show this, rather than saying my quick blog post doesn’t rise to the level of said white paper.
And in case this wasn’t obvious, this is not investment advice. Nor am I making any trading decisions in AAL stock.
Good article. American needs to clean house and install leadership that actually has strategic vision and understands customer satisfaction.
They are in no position to charge a premium because their service doesn’t warrant it.
Delta seems to be able to and as a result, has the highest margin of the legacies.
@ Gary Leff
Your original post included the following statement:
“However American remains in a more precarious financial position than its competitors and has large maneuvering room than other airlines do facing the headwinds that are on the horizon for the industry”
You have failed to correct your language either way even having been challenged on such – were you saying that AAL has more or less room to weather headwinds? Clarity on such is crucial to your argument. You might be right or wrong, but how can you expect to extol a position based on such clumsy writing?
Your language is sloppy and your meaning unclear. That sentence hinges on one missing word.
I would submit that some of the “confusion” in your readers, which you now feel it pertinent to address, could have been avoided by offering greater clarity in the original article.
” I wrote a short blog post on the day the earnings came out, pointing to important factors that lean in one direction.”
Yes, you did. And you could have left it at that. But the sensationalist couldn’t be restrained. So you also made bold statements without any data (“No other major airline is underwater in this way”) aside from the (interesting) liabilities and assets data for AAL.
“A full investment firm white paper would, indeed, put together graphics on the time-structure of the debt and would present similar data on competitors.”
Great – so we agree an informed opinion would need more analysis than that offered. But a full white paper might not be necessary – just sufficient depth of analysis to bolster your primary argument.
I’d argue that the commentary your original article solicited demonstrated a demand for such (?)
“I didn’t spend the time to pull the most recent numbers, since they wouldn’t have changed materially since last quarter.”
Then maybe simply reference them? Let’s remember the trading environment is changing very fast!
“However if you’re going to take the position that I am *wrong* you would need to actually show this, rather than saying my quick blog post doesn’t rise to the level of said white paper.”
No, Gary, I’m not saying your are *wrong* – I am seeking to encourage you to be more accurate, articulate and focused in your presentation of position and argument (you were an accomplished college debater and have finance credentials – no?). Surely, the onus is on you as the blog owner to take responsibility for your content. I’m just a reader of your blog with my own personal observations and opinions – not your subeditor or subject matter expert.
I’ll call you out for being *wrong* on factual matters (e.g. wrong numerical data on El Al loans) and on those topics where I have some experience or expertise (e.g. Australian IR legislation, viral disease control) or I may attempt to cite data or examples which augment or detract from your position, if I feel that contributes to the debate.
It is also my personal opinion that this blog would be enhanced rather than lessened by some sort of moderation – again, your blog so your choice.
FWIW my personal perception is you have the talent and competency and insight in spades to nail these articles with excellence – it is also my guess that small change could add huge value to the articles. But that’s my personal opinion. But it’s your blog and your call.
“And in case this wasn’t obvious, this is not investment advice. Nor am I making any trading decisions in AAL stock”
Sure, absolutely. But there is difference between making apparently definitive statements (“American remains in a more precarious financial position than its competitors”) and stimulating debate (“a cursory look at the latest quarterly financials from AAL raises some interesting questions about… “).
FWIW I’m very supportive of your follow up article reminding folk that the revenues from the loyalty program are substantial.
That in itself could be used to direct debate (the majority revenue source is (loyalty revenue) is not dependent upon rising fuel costs, or that susceptible to rising staff costs, and the AAL loyalty program lacks maturity (big opportunity) – but the way the liabilities have to be accounted for create an interesting problem for those fixated on comparing assets and liabilities in judging a company’s financial health, etc.),. Your blog – your choice – just giving an example…
Your blog has much to offer – the differentiation to others, can, in my opinion, be taken further and in some ever more exciting and engaging directions.
@platy – you were not confused at my meaning, and neither were readers who mostly reacted emotionally. and you’re willfully distorting what i am saying here (strawmanning). I stand by my assertion about the comparative financials of AAL versus major competitors, you haven’t offered anything by way of actual disagreement.
as far as comment moderation goes – could it be done well? perhaps. do i have the capacity to do it well? i doubt it. I am too rooted in the internet of the early 90s and notions that folks should be able to criticize me, and i see so many sites using editing as an excuse for sanitizing criticism of the site owner. i do zap some disgusting comments that are brought to my attention, however.
could i always be better along a number of dimensions? absolutely!
“ It’s everything the airline has underinvested in over the past 8 years.”
This is the brutal, brutal, and downright obvious truth that has ever been said against AA.
@Gary Leff
” you were not confused at my meaning”
Actually, I was. I then had to presume your own statement was incorrect to makes sense of what followed. IMHO you shouldn’t put the onus on the reader to fill in the gaps and then defend yourself that they knew what you meant to write (not what you actually wrote) all along.
“and neither were readers who mostly reacted emotionally”
Whether intentionally or not, you triggered a debate on the significance of negative SE. This is unsurprising since you appeared to headline your argument with the observation of negative SE. You appear to have back tracked on the significance of such somewhat in you subsequent article.
I can understand why readers get frustrated and misdirected when your writing is unclear and when you wantonly sensationalise issues.
“and you’re willfully distorting what i am saying here (strawmanning)”
That is not my intention, so it is disappointing to read such accusation. What exactly do you mean by such, Gary?
“I stand by my assertion about the comparative financials of AAL versus major competitors, you haven’t offered anything by way of actual disagreement.”
Yes, I have. I have debated the significance of negative SE in response to others’ comments and whether that can be relied upon to red flag trajectory to bankruptcy. That appeared to be the key concept that you were relying upon for your own argument.
I have also proposed that since the majority part of revenue is from the loyalty program, that your cited headwinds may or may not be as impactful as might superficially appear. IMHO you are right to identify and question the impact of such factors.
I have not stated such so far, but I am also attracted to the idea that certain LCCs may be vulnerable to the factors which you cite (“headwinds”) – a concept mooted by @ Tim Dunn (IIRC) – pending access to their equivalent time period data.
I have subsequently indicated to you that a pro or con position cannot be further determined without the data. Until then it’s a subjective debate. It’s your article – not mine – do the work, Gary. I am not prepared to “over reach” on a dataset that does not present the salient information.
FWIW I have previously prepared summary financials on multi-billion dollar projects at investment level – I would argue that two core chunks of information would be interesting (table showing relative selected key financial data for AAL and competitors and a spider chart of impacts of external factors (sensitivity analysis) for AAL at least).
In the meantime, I’ve also indicated support for the position of @ Reno Joe – it’s all just idle and subjective debate – the issue will only be resolved by the AAL Board deciding to file for Chapter 11 Bankruptcy and that may well be determined by the benefits implicit in wiping out certain liabilities and having certain freedoms to re-structure the business.
“as far as comment moderation goes – could it be done well? perhaps. do i have the capacity to do it well? i doubt it.”
Well it did occur that it may present some practical challenges, especially if you are stretched a little thinly with your various pursuits and family responsibilities and lack the support structure of some other travel blogs (that’s not supposed to sound negative).
“I am too rooted in the internet of the early 90s and notions that folks should be able to criticize me, and i see so many sites using editing as an excuse for sanitizing criticism of the site owner.”
Very laudable, Gary – good for you!
” i do zap some disgusting comments that are brought to my attention, however.”
Excellent news!
“could i always be better along a number of dimensions? absolutely!”
IMHO, you’re the person for that, Gary, in travel blogshere! Very small changes could well let the true brilliance shine! Be well – be excellent – travel safe!
Gary, your analysis is probably right as always. But, have/would you back this up with a short position on AAL stock?
“In fact, the price of 5 year American Airlines CDSs has traded 4-6 times as high as pre-pandemic.”
Just post the price of CURRENT CDSs compared to every 5 years.
You won’t because there is no financial evidence that AAL is at any elevated risk now
Every one of the reasons you cited as risks apply MORE to other airlines than to AAL.
JBLU and SAVE are NOT EXPECTED to be profitable at all this quarter.
AAL had a slightly higher net profit margin that UAL this quarter.
There are more airlines that will have a lower net profit margin than AAL this quarter.
UAL is taking on close to $15 billion in new aircraft over the next 4 years – if debt was a problem for AAL it surely will be for UAL. Arguing that they will lease those aircraft doesn’t work because leases are required to show up on the balance sheet.
JBLU will more than double its debt to buy SAVE if it succeeds.
Many of us are grateful this isn’t an article about some multi-colors striped senior streaking through an airport but you are out of your league talking about finances and are clearly hoping to get a bunch more clicks on this article.
NOTHING in your SECOND article proves there is any more risk for AAL now than there has been for the past 7 years.
Quit banging the keyboard and provide actual data or walk away, Gary.
Some (desparately) needed perspective here.
1. American Airlines is really the old America West Airlines. When those planes hit the World Trade Center, America West had nothing. No money in the bank. No prospects. Nothing. And they didn’t file for bankruptcy. Instead, they became the largest airline in the world.
2. The US airline industry just endured the worst black swan event possible. Not necessarily Covid, but the insane worldwide response to Covid. And then they got the UIkraine war. How many US airlines have filed for bankruptcy?
3. The US airline industry is now profitable. The inability to add many additional flights due to ongoing labor/material disruptions will keep them profitable even if the economy goes into recession. It’s called supply and demand, and demand is extremely likely to WAY outstrip supply as far as the eye can see.. Frankly, this is THE most profitable set-up for the industry. AA just made $500 million this quarter. By this time next year, they’re likely to triple that. Profitable companies don’t file for bankruptcy.
4. Travel. It’s a popular thing. And keeps getting more popular. No one in the industry has better assets than AA. They are in a sweet spot in a rising industry.
In other words, we can talk speculative numbers all day long, but the idea that AA is going to file for bankruptcy anytime soon is simply foolish,. Bookmark this thread in 2 years and let’s see what happens.
I would like to know what your beef is with American Airlines. I agree they need new management, but your constant negativity towards AA suggests that a personal experience, rather than an unbiased analysis is influencing your opinions. It also doesn’t help the thousands of employess who depend on AA to feed their families. Personally, after flying a variety of airlines for many years, I have chosen to fly American exclusively for the last 20 years.
There’s a lot of BS posters that think they know this and that. Give it a rest. Unless you are the CFO or close, you don’t know what is happening. With this kind of money, 24 hours time lag between assets and liabilities can make you on paper a profitable company or a loser. At the end of the day, chapter 11 is all about CASH period. Net quick – cash vs current liabilities! Can you pay your bills?
“What is dead may never die”
AAL management will keep looting the company unless the Fed gets some balls and finally sets rates at a positive level in real terms. Too many zombies out there
@Scott Barton – I don’t generally invest in individual stocks, let alone airline or hotel stocks. Maybe my commentary would be ‘stronger’ if I ‘put my money where my mouth is’ but usually it just leads to readers viewing commentary as disingenuous (motivated by a desire to benefit one’s own portfolio).
Although shorting the stock would certainly be one way to make a bet on bankruptcy, I’m actually not certain of a bankruptcy! I merely think American is vulnerable to it under the conditions I’ve laid out. As I say, watch the price of AAL credit default swaps.
What exactly did US taxpayers get for the $10 billion cash grant to AA and the $5 billion “loan?”
Nothing.
Congress hates the American people. They spend your money like it’s free. Someone has to pay someday.
So that post scared the ignorant away.
Years ago, I was involved in managing a very substantial Chapter 11 filing during the 2008-2009 crash. Based on that experience, my belief is that there are only two scenarios under which AAL files: either creditors lose confidence and refuse to refinance existing debt as needed or there is another crash (or similar event) that affects travel enough to exhaust existing cash resources. As noted above, it’s all about paying bills.
Who here can look into that crystal ball?
Gary,
your commentary would be stronger if you actually answered the question which YOU used as the title of this article?
What is the risk….
If you want to use credit default swaps as the indicator of bankruptcy for AAL, then you should be able to tell us what that number is and how it has changed in the past 1 month, 3 months, 1 year and 3 years (which goes back to pre-covid).
and then you should be able to do the same for other airlines or other American companies.
For days in on in you have spouted generalities which everyone knows – that AAL has no stockholder equity, that AAL doesn’t make money flyng passengers and cargo – and yet you STILL can’t ask the question of what is the real risk that AAL will file bankruptcy.
Credit default swaps are a QUANTITATIVE assessment of risk. You are the one that brought them up. You should be able to tell us what that risk is IN NUMBERs and not a bunch of gibberish that could apply to any number of companies – of which AAL is actually fairly low on the list.
I can tell you right now that CDSs on AAL are far lower than they HAVE BEEN during the pandemic and they went down FURTHER when AAL just announced they paid down $1 billion in debt.
AAL is at no more risk of filing bankruptcy today than they have been for years and they certainly aren’t at risk because they have negative stockholder equity.
and there are a whole lot of other airlines that will report financial results that are far more indicative of a DETERIORATION of their financial health than AAL. UAL will take on billions of new debt and leases which WILL make AAL’s balance sheet look pristine in comparison in 5 years.
JBLU is hellbent on buying SAVE and spending billions of dollars IN DEBT in order to not just acquire them but fund the losses that BOTH airlines are reporting right now and which will remain into the future, in part because of the horrendously disruptive acquisition process that will follow – IF all of the stars line up in JBLU’s ‘favor’
You are a day late, a dollar short and you still can’t tell your readers why even discussing the subject matters to your readers.
If you are talking about AAL stock with hopes of convincing someone to short it, you have failed at convincing anyone.
If there are other reasons that employees or customers should know about, you have yet to explain them.
Figure out why this article matters to YOUR readers and then accurately answer your own question if you are convinced that there is really any risk.
America West will go bankrupt before the other 3 because of the way they have treated their employees, their shareholders and their customers.
About 30% of these will be happy when they do and another 30% will be ecstatic.
Hopefully, the bankruptcy judge will kick out the AW cabal from the top, along with their minions who have infiltrated middle management.
As usual your just an Anti AAL hack! You spend week in and week out trashing every and any aspect OF AA you can. You are nothing more than a keyboard warrior who can talk in mindless circles, never actually backing up your lies with actual data. I hope you say the wrong thing one more time and get that big jaw of yours punched shut! It would benefit a whole lot of AA employees who are sick of being bad mouthed by a dope that consistently puts their efforts down. Do your self a favor if you hate AAL so much keep them out of your mouth and off your topic. But then you’d have nothing else to write about I suppose.
I read the article as one man’s opinion, not an auditors report. As someone in the industry for 45 years, I have flown regularly on all major US carriers. For me the worst is UA and I avoid them. My favorite was Continental, and today I use AA for points and their schedule reach.
Seems there are many complaints about the AA Board. Look at who is appointing them and if their objectives are achieved annually. If not replace them, but we all know the incestuous financial relationships between the Chairman and his board members, in any airline.
A 17% raise to the pilot group, will be followed at other majors (union parity) and makes creditors and shareholders nervous. Why so high ?
Cost of fuel is a huge culprit today but it appears to be settling lower, and Airlines are living with the receding ? Covid situation. All carriers may have to look at a fuel surcharge situation until and if fuel costs recede.
If Russia backs away from the unholy need to kill Ukrainians in the next few months, all the carriers should be able to post reasonable profits until the next Black Swan(recession?) flies in.
Ever since parker took over and now Isom the Airline has taken a nose dive I have seen it management is terrible they don’t know what they are doing they need to clean house the pilots know the mechanics and every other employee employee with 15 yrs knew what the real On time machine was like under Robert Crandell even Mr Cradell is discusted
@Tim Dunn – you think you’re scoring points regurgitating things that are literally in the post (like comparison of credit default swap pricing to both pre-pandemic and early pandemic)
Gary,
first you brought up credit default swaps, not me. you should be able to tell us what it costs to get into them for AAL if one is so inclined.
And even if you could tell us the current price of CDSs, you haven’t told us how that price has changed over any number of points in the past 3 years, INCLUDING since AAL reported its financials this past week which included paying down some debt. Newsflash – it improved.
And, finally, you haven’t told anyone why any risk to AAL matters. Your readers aren’t here for stock advice or research – other sites do that.
Given that airlines have been through chapter 11, there are a huge number of things that won’t change even if AAL filed C11.
I’m not here to score points. I’m responding to your posts with perspective that readers are entitled to read just as they are in coming to the conclusion that AAL just just die or whatever political drivel invades the comment sections of your articles.
@Tim Dunn – once again you’re making ‘arguments’ that are literally points I made in the post, eg when you write “Given that airlines have been through chapter 11, there are a huge number of things that won’t change even if AAL filed C11.” This is literally my third bullet point.
As for the changing prices of CDSs I give the order of magnitude changes in the post, so yes I have ” told us how that price has changed over any number of points in the past 3 years” but from memory when I looked this up last week Dec/Jan before the pandemic ~ 160, May 13th is was around 4600, hit a pandemic low just over 600 in late June 2021, and has hovered 750 – 1200 since then more or less and most recently ~ 760. And no, there was not a material change (‘improvement’) in pricing of credit default swaps for American after earnings reports.
“you haven’t told anyone why any risk to AAL matters. ” I’ve explained many times the myriad ways why this matters. (1) AAL has been pursuing a bad business strategy that has alienating customers, shareholders and employees – the risk is they could add to that by alienating creditors, too. In bankruptcy contracts get rewritten (I wrote about this driving union support for bailouts that pretended to be about payroll). The last bankruptcy led to a change of control. There are all sorts of downstream consequences that are relevant to customers, generally loyalty programs become briefly generous and then devalue afterward for instance.
As far as “Your readers aren’t here for stock advice or research – other sites do that” you don’t seem to realize that what this site *is* – and has been for twenty years – is a highlight of and commentary on whatever I happen to find interesting at the moment. I don’t take a survey of readers on what to write. I could have a lot more readers and generate far more revenue if that was my goal. I just write what’s on my mind and folks are welcome to read, as they’ve always been since the start in May 2002.
all of that and you still have not answered the very question you raised.
“What’s The Real Risk That American Airlines Files For Bankruptcy?”
@ Gary
How about some CDS data based on, well, actually data rather than memory? After a 30-second search on Google…
Here is an article which actually cites real data. What a difference that makes in presenting an argument! No?
https://www.ft.com/content/d0b9dc48-d7c2-4524-b469-3d365cb4f4f4
If anybody is interested, the historical CDS prices are readily available at AssetMacro. They look pretty stable to me (after the mid pandemic surge) – but I don’t claim particular insights therein (I’m a CEO type not a CFO type).
The good news is that the FT article’s content is broadly in line with @ Gary’s claims (from an investment perspective).
The bad news is that we’re still waiting for a conclusive comment from @ Gary to satisfy @ Tim Dunn’s request for “the real risk” per the title of the above article.
Are we solely relying on the CDS parameter as a numerical index of risk or not? Even then, wouldn’t that be half the story (an estimator of “probability” of C11 bankruptcy only) and not reflect “impact” of C11 bankruptcy (potentially beneficial in some regards)?
@platy – the assetmacro data is only through april, though pricing hasn’t changed a lot since then, you call it stable but it is also elevated (4-6x prepandemic levels)
reference to ‘memory’ was simply that i checked the data for the article, i didn’t go back and pull the (current, not assetmacro) data to respond to @tim dunn in the comments
@ Gary
If you actually went to the trouble of “checking the data for the article” why not simply add the reference so we can go and have look at the dataset, which you are quoting, for yourselves (since you resolutely refuse to put any substantive data in your articles)? Surely that would be much quicker that fending off the same requests over and over?!
You have raised interesting issues, successfully engaged your readers, but then avoid providing the substantiating datasets – rather than do so, you spend your time making claims about “emotional responses”, whinge about “straw men” counter arguments, dodge providing data on the basis you’d need a whole “white paper” and accuse folk of “wilfully distorting” your position!
You’re looking very evasive, fella!
You chose the topic – you chose the title – they are your thought bubbles to validate…
…do you want your readers to take your articles seriously or just regard them as tabloid trash? No problem, either way – but if it’s the latter, just let us know, so we simply skimp over your stuff…