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Wait, How Can AMR Go Bankrupt When 'Corporate Balance Sheets Are The Strongest In History'?
Business Insider ^ | 11/29/2011 | Henry Blodget

Posted on 11/29/2011 9:47:18 AM PST by SeekAndFind

American Airlines went bust this morning, which should have come as a surprise to no one who has followed the company and airline industry over the years.

(The company recently denied bankruptcy rumors by stating that bankruptcy was "certainly not our goal or preference," which is about as close as a corporation will ever come to saying "Of course we're going to declare bankruptcy, you idiots, why are you even bothering to ask?")

But the bankruptcy WILL come as a surprise to the millions of Americans who have repeatedly been exposed to one of the consensual hallucinations that bullish investors and pundits have been mouthing in recent months:

To wit: Corporate balance sheets are the strongest in history and companies are awash in cash.

It is true that companies have plenty of liquidity, which they didn't a few years ago.

But corporate balance sheets are in fact no "stronger" than the balance sheet of someone who borrows a million dollars and then spends only little of it.

In other words, yes, corporations have lots of cash, but this is only because they have borrowed lots of cash. And as anyone who owes more money than they have will tell you, that's not exactly the definition of "strength."

These charts from fund manager John Hussman make this clear.

First, look at corporate cash as a percentage of debt and net worth. It's up a bit from recent lows, but hardly the highest in history:






(Excerpt) Read more at businessinsider.com ...


TOPICS: Business/Economy; Society; Travel
KEYWORDS: americanairlines; amr; bankruptcy
Then, look at total debt as a percentage of net worth. See? Companies still have debt coming out of their ears.


1 posted on 11/29/2011 9:47:30 AM PST by SeekAndFind
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To: SeekAndFind

Talking about ‘companies’ is like talking about ‘houses’ or ‘consumers’. It is such a large category the statistics do not show anything meaningful.

Every investor knows that the airlines have been losing money for years, and never really made any money. Things are entirely different over at Google and Intel.


2 posted on 11/29/2011 9:51:03 AM PST by proxy_user
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To: SeekAndFind

If I were in charge of AMR, I’d use this chapter 11 filing as an opportunity to toss the commie union goons out of the company. Mob-ruled Big Labor is the primary cause of weakened performance of American companies and why so many have no choice but to outsource overseas.


3 posted on 11/29/2011 9:52:14 AM PST by re_nortex (DP...that's what I like about Texas.)
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To: SeekAndFind

The company’s huge order of planes to upgrade its aging fleet was a joke. Created a bunch of press releases for planes that will never be delivered. AMR will continue to fly old bankrupt TWA planes for the foreseeable future.

If it wasn’t for the Demonrat Wright Amendment protecting American, Southwest Airlines would have forced it into Chapter 11 years ago.


4 posted on 11/29/2011 9:52:53 AM PST by peyton randolph (B. Hussein Obama solved Bush's "problem" of a AAA credit rating)
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To: proxy_user

I really thought American would be one of the survivors in the airline industry.


5 posted on 11/29/2011 9:53:25 AM PST by Eric in the Ozarks
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To: SeekAndFind

ah, the blessings of deregulation. I just can’t feel sorry for airlines. All of them have been racing to the bottom for as long as I can remember.


6 posted on 11/29/2011 9:55:35 AM PST by DonaldC (A nation cannot stand in the absence of religious principle.)
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To: SeekAndFind

American can’t continue to appease the unions when other airlines have already taken Chap. 11 to deal with that problem. It’s a simple matter of survival.


7 posted on 11/29/2011 9:58:30 AM PST by Jedidah
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To: re_nortex

That’s exactly what this is all about.


8 posted on 11/29/2011 9:59:44 AM PST by Jedidah
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To: DonaldC

Not really. It is the “blessings” of legacy carriers. Once entrenched, unions and inefficient practices are hard to root out. United’s pilots are still living in the 1980s and fighting the union battles of the 80s.


9 posted on 11/29/2011 10:02:50 AM PST by achilles2000 ("I'll agree to save the whales as long as we can deport the liberals")
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To: re_nortex

Educate yourself before taking a simplistic view of this.

The meme in the press will be high labor costs led to Americans demise when in reality it is management failure. Airlines like Southwest who respect their workers do well. American management refers to its workers as “cost units”.

What you will not read in any of the “in depth” articles on the bankruptcy filing is the fact that American Airlines for years had labor cost advantages over the competition and squandered it.

American Airlines initiated the B-scale. For years, all new pilots hired made half what senior pilots made. That cost advantage was squandered. Did that money go to the shareholders, lower the cost of flying to the public, or grow the airline? No, it went in the pockets of AA management as bonuses.

After 9/11 when every other airline was filing for bankruptcy, the AA pilot labor group took a 23% pay cut to keep AA out of bankruptcy. This was on top of up to a 22% decrease in pay due to schedule cuts. THIS ENTIRE PAY CUT WENT DIRECTLY INTO THE POCKETS OF MANAGEMENT AS BONUSES.

How many Americans would take a 45% pay cut on top of inflation eating away their earnings? Imagine how healthy the economy would be if every government worker had their pay cut by 45% or even 23%. If the GM workers had taken a similar cut, a bailout by taxpayers would have been unnecessary.

What did management do with this cost advantage? They took it as management bonuses. Google - American Airlines management bonus - and read all the stories. This airline was done in by the INCOMPETENCE AND GREED OF ITS MANAGERS.


10 posted on 11/29/2011 10:05:29 AM PST by anonsquared
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To: SeekAndFind; All

American has always been a top-heavy organization, as far back as I can remember.

With the legacy costs (Retirements) they are eating, this isn’t surprising, or unexpected. Pilots have been cashing out retirement deals they got in the strikes of the 90’s, eating up cash.

And they have had a myriad of Unions strike threats in the last 3-4 years, all demanding mo’ money.

Combine that with the bet they made in 2009 that fuel prices would remain at about $60, allowing them to not cut capacity, and go after market share as others pulled back, and the writing was on the wall.

I could go on and on. They are saddled with old-era airport contracts, etc,etc. that drive expenses up. And frankly, American has always been known as a great place for pilots and mechanics, but not so much for customers, and service.


11 posted on 11/29/2011 10:05:38 AM PST by tcrlaf (Election 2012: THE RAPTURE OF THE DEMOCRATS)
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To: SeekAndFind

I think their share price low for the day today was $0.20.

I have dealt with the cargo side of American Airlines and I couldn’t not stand them. They had the usual union bad attitude. Not surprised to see how they are being run into the ground.

CRASH AND BURN, BABY!


12 posted on 11/29/2011 10:11:21 AM PST by Jack Hydrazine (It's the end of the world as we know it and I feel fine!)
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To: anonsquared

Every single one of the top 9 airlines in 1990 has since filed bankruptcy at least once since.

With AA saddled with huge legacy costs the others have shed, this was just a matter of time.

Alaska and Southwest are the only major airlines that have avoided bankruptcy, largely because of their vastly different cultures.


13 posted on 11/29/2011 10:14:16 AM PST by tcrlaf (Election 2012: THE RAPTURE OF THE DEMOCRATS)
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To: SeekAndFind

Hire some guy like Bob Crandall and get back to the largest cash position of any airline.


14 posted on 11/29/2011 10:18:53 AM PST by Vendome (Don't take life so seriously, you won't live through it anywaqq)
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To: SeekAndFind

I guess travelers should start ‘OCCUPY AA’. It is a bad day for fans of AA.


15 posted on 11/29/2011 10:59:57 AM PST by ExCTCitizen (Cain/West 2012....what would the RACISTS LIBERALS say???)
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To: Vendome

Wouldn’t hurt to put the mini skirts back on the stewardesses again.


16 posted on 11/29/2011 11:24:29 AM PST by taillightchaser (The last hope for America--2012)
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To: SeekAndFind

Not surprising. AA was the only so-called “legacy” carrier not to have gone through bankruptcy. They were still saddled with the cost structures (not just union contracts, but buying airplanes, terminals, route structures, etc.) that go back to the days of regulation, when they were essentially guaranteed a profit by the government.

Every other carrier had to go through bankruptcy to be able to compete in the race to the bottom that domestic air travel is undergoing. AA had just enough cash to have the luxury of picking the time they wanted to clean house.


17 posted on 11/29/2011 11:53:50 AM PST by Turbopilot (iumop ap!sdn w,I 'aw dlaH)
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To: SeekAndFind

Creative bookkeeping.

The razzle-dazzle only last for a while, then reality intrudes.

It just seems like unions do not understand the concept of “give-back” until the roof caves in, and the members suddenly have no place to go to work.

The universe is a cruel place, and the only crime which cannot ever be pardoned is stupidity.

For some, it is a lifetime sentence.


18 posted on 11/29/2011 12:30:41 PM PST by alloysteel (Are Democrats truly "better angels"? They are lousy stewards for America.)
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To: taillightchaser

If you have seen what passes as “flight attendants” these days....yes it would.


19 posted on 11/29/2011 12:40:24 PM PST by xp38
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To: taillightchaser
Wouldn’t hurt to put the mini skirts back on the stewardesses again.

First, make sure they hire 20 to 30 year old stewardesses.

20 posted on 11/29/2011 1:10:25 PM PST by hattend (If I wanted you dead, you'd be dead. - Cameron Connor)
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To: SeekAndFind

Because deregulation has turned airline customers into the same class of folk who used to take the bus or train.

Because the TSA has so effed-up the boarding process that many people refuse to fly commercially.

Because by the time I get to the airport, check bags, submit to the grope, fly, retrieve bags, and rent a car, a trip less than 800 miles can be accomplished just as rapidly by driving, AND I CAN CHOOSE MY OWN FOOD! Furthermore, I’m probably not going to lose my luggage, be ripped off by a luggage “inspector”, nor will I need to change planes or have a layover.

Any questions?


21 posted on 11/29/2011 1:38:56 PM PST by noprogs (Borders, Language, Culture....all should be preserved)
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To: noprogs
Because by the time I get to the airport, check bags, submit to the grope, fly, retrieve bags, and rent a car, a trip less than 800 miles can be accomplished just as rapidly by driving,

Can I borrow your car? ;-)

Or maybe, I'll just avoid your airport.

22 posted on 11/29/2011 1:46:46 PM PST by hattend (If I wanted you dead, you'd be dead. - Cameron Connor)
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To: hattend

My airport is in Valdosta, Georgia one hour’s drive away. I arrive about 90 minutes before the connecting flight to Atlanta. The flight to Atlanta takes another hour of flying, landing and taxiing.

Atlanta is three hours away by car.

Once in Atlanta, there is a layover of between one to three hours to board a flight (possibly) taking me to where I want to go. Usually, I have to fly to another hub, layover again and take another connector to my destination. Once arriving, there’s another hour retrieving bags and getting a car or other transport to the motel, etc.

Add it up.

Yes, it is true.

I’ll loan you a gun before I loan out the Turbo-Roadster. LOL


23 posted on 11/29/2011 2:04:37 PM PST by noprogs (Borders, Language, Culture....all should be preserved)
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