Wednesday 30 November 2011

American Airlines Bankruptcy

American Airlines bankruptcy protection: analysts' reaction

Analysts react to the news American Airlines' parent company, AMR, has filed for bankruptcy protection in a New York court.

Michael Linenberg, Deutsche Bank

Quote The read through for the rest of the industry is that today’s bankruptcy filing is specific to AMR and a reflection of the company’s struggles to achieve a more competitive cost and debt structure. In that regard, the US airline industry is on track to generate a net profit in the seasonally-weak December quarter, something that we have observed only twice during the past decade. Furthermore, we expect that AMR’s restructuring will include further rationalization of its network which likely means some capacity cuts.



Daniel McKenzie, Rodman & Renshaw

The implications for the industry are positive; airlines in Chapter 11 generally shrink, and AMR likely comes out of Chapter 11 a merged airline with US Airways (friendly or hostile). A restructured industry is clawing back pricing power, however, with 34% of AMR’s (and the industry’s costs) continuing to get whipsawed 30-50% from excessive volatility in commodity markets, the industry needs to cut yet more capacity and park more planes, and we would expect that to be part of AMR’s restructuring plan. It’s premature, but we would argue United Airlines, Delta, US Airways, JetBlue, and Southwest Airlines should all be the largest direct and indirect beneficiaries from the reduced capacity.

Will Randow, Citi

We would not be surprised to see pursuit of an AMR-US Airways merger, as US Airways has pursued consolidation with other legacy airlines and AMR’s CEO Gerard Arpey, prior to today’s transition to new CEO Tom Horton, preferred a go-it-alone strategy.

Jamie Baker, JP Morgan

The bank previously thought it unlikely American Airlines would file for bankruptcy, but begins its note: "We were wrong."

‘The company has approximately $4.1 billion in unrestricted cash and short-term investments… [and] is anticipated to be more than sufficient to assure that its vendors, suppliers and other business partners will be paid timely and in full….’ So, this WASN’T about liquidity (liquidity is about 18% of LTM revenue).

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