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Vaughn Cordle, CFA

 
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  • AMR And US Airways: Is Labor A Poison Pill? [View article]
    good advice from DesertGhost. There are exceptions but this is not the case with AAMRQ.
    Dec 17, 2012. 10:54 AM | Likes Like |Link to Comment
  • AMR And US Airways: Is Labor A Poison Pill? [View article]
    The shares of AAMRQ will fall to zero once AMR emerges from bankruptcy. The company has a very large negative net worth.
    Dec 14, 2012. 07:18 AM | Likes Like |Link to Comment
  • The Airline Industry Needs More Consolidation [View article]
    If the merged network airlines cannot control costs - especially labor - they will lose market share domestically and internationally.

    Many of the international airlines (ANA, JAL, Singapore, Air France, and others) are moving to segment their business with lower-cost subsidiaries to compete, grow, and remain profitable.

    The airline industry, and the individual airlines, has morphed into portfolios of business units, which include various units of capacity. The units of capacity that are not cost [and price] competitive will lose market share over time.

    The airlines that do not morph into businesses that can grow and compete, will move towards failure which can include a breakup of the business and its units of capacity.
    Dec 13, 2011. 12:23 PM | Likes Like |Link to Comment
  • The Airline Industry Needs More Consolidation [View article]
    Market share is much smaller today for the mainline-only network airlines - American, United, US Airways, and Delta.

    20+ commuter airlines provide domestic feed to the network airlines. The 7 so-called low-cost airlines and commuters represent 36% of the seat capacity...up from only 10% in 2000.

    United+Continental as a merged company, as an example, has slightly less seat share today (domestic and mainline-only) than United by itself 10 years ago.

    Unions, especially pilots, have the power to drag down or shut down an airline. As suggested, the greater the size of the airline, the greater the impact on the national air transportation system.

    However, given the inadequate earnings power of the airlines, and the fragmented nature of the industry, it's hard to imagine a labor group shutting down an airline today. And, it's likely that the NMB will not release a major airline labor group to seek self help (i.e, go on strike). Labor has enhanced negotiating leverage when the airline is profitable and wages are below peer group averages.
    Dec 13, 2011. 12:01 PM | Likes Like |Link to Comment
  • The Airline Industry Needs More Consolidation [View article]
    We examined almost 19,000 city-pairs and 600 airports. Quality of service doesn't drive profitability, nor does it have much of an impact on growth. Costs drive price and price drives market share and growth. Most "high quality" airlines fail over time because they lack scale and scope economies.

    Southwest and Jetblue were able to keep absolute and relative costs [and fares] moving down as they grew faster than the market. Virgin American is a high quality airline but loses money and Southwest - without growth and higher labor costs - earns less than United and Delta and others today.

    Industry structure [i.e., concentration] drives industry profitability over time. There is a range of profitability within the industry but the weighted average is driven by industry concentration, which drives pricing power. We employ the Herfindahl methodology to quantify pricing power and examined monthly data between 1977-2011.
    Dec 13, 2011. 11:14 AM | Likes Like |Link to Comment
  • The Airline Industry Needs More Consolidation [View article]
    AA + Reno also. I didn't include all of AA's acquisitions because the focus was on the pricing power, via increased concentration, since the recession. The concentration and mergers study included all airlines that operated during 1971-2011 Over 117 airlines were examined.
    Dec 12, 2011. 01:42 PM | Likes Like |Link to Comment
  • American Airlines' Bankruptcy: The Endgame Solution [View article]
    I don't reply to comments made by unidentified sources.
    Dec 10, 2011. 02:13 PM | Likes Like |Link to Comment
  • American Airlines' Dilemma: Creditors In The Captain's Seat [View article]
    Yes, $60m for 10% of current market cap, not the $30m we both noted.

    If the pilots want to take an equity stake, make sure the company's strategy will create value that exceeds opportunity-costs.

    Why not provide an alternative strategy to the board? The pilots can secure a material equity stake, which allows say in terms of strategy. It's important to have a good one before you buy the stock.
    Nov 21, 2011. 08:35 AM | Likes Like |Link to Comment
  • American Airlines' Dilemma: Creditors In The Captain's Seat [View article]
    UAL pilots with 20+ years can expect to get around $28,600 per year from the PBGC, slightly less than max because UAL plan assets were not enough for the max PBGC payout. The promise was around $120,000 or so.

    It should be noted that the PBGC has a funding deficit of $26 billion and that this will likely increase as SP500 companies have a deficit of $382 billion as of September.

    $30 million will buy 10% of a company today that has a negative book value of $680 million (10% of -$6.8 billion), before pension underfunding is adjusted. The credit default swaps imply a 50% bankruptcy within 12 months, 65% within three, and 88% within 5 years. These are not good odds for buying stock at it's current price.

    The best bet, in my estimation, is to think about a couple of scenarios, including one that includes a bankruptcy. The key is to secure a large stake - say 6% or more - in the new company before it emerges from bankruptcy.
    Nov 20, 2011. 06:56 PM | Likes Like |Link to Comment
  • American Airlines' Dilemma: Creditors In The Captain's Seat [View article]
    The $300-$00 million in equity mentioned is in the new post-bankruptcy company, not the current company that is priced for a bankruptcy. It represents about 6% of the market cap estimated. The higher end of the range is if the company merged with US Airways - but after it went through the car wash of a bankruptcy.

    The UAL and US Airways pilots get about 25 cents on the dollar with the PBGC. AMR's plans are about 57% funded - my estimate based on a snap shot using a more current discount rate and and current actual return on plan asset versus what was expected at the last reporting period in Dec 2010. The final numbers will not be known until the end of the year.

    Any stock options in the current company would be worthless if the company ended up in bankruptcy, a more likely scenario than not at some point in the future.
    Nov 20, 2011. 01:33 PM | Likes Like |Link to Comment
  • American Airlines' Dilemma: Creditors In The Captain's Seat [View article]
    I meant the BOD. No deal unless the BOD replaces current management. Of course new management would have to seriously consider restructuring the airline - a new "strategic" plan to move towards profitability.
    Nov 19, 2011. 09:26 AM | Likes Like |Link to Comment
  • American Airlines' Dilemma: Creditors In The Captain's Seat [View article]
    A more accurate accounting of APA's proposal:

    Given the 10% wage increase in year one, the cost to the company would be $118 million if wages (+payroll taxes) are only considered - all else held constant. Three years of 7% increase in wages equal $248 million or $82.5 million per year. Total cost over 4 years: $366 million. My rough estimate of $600 million over 4 years was apparently too rough. However, it's still a rough estimate.

    These numbers seem reasonable given what was given up in 2003. The problem of course is that the company continue to lose money and may run out of enough cash next year.
    Nov 18, 2011. 04:29 PM | Likes Like |Link to Comment
  • American Airlines' Dilemma: Creditors In The Captain's Seat [View article]
    That's a clear and reasonable response that I think people respect. Is it possible to link any contract changes to a change in management?
    Nov 18, 2011. 04:03 PM | Likes Like |Link to Comment
  • American Airlines' Dilemma: Creditors In The Captain's Seat [View article]
    Good catch. My rough approximations were simply to get a feel for the magnitude of the problem. Pilot wages-only are about $1.1 billion - 63% of the $1.78 billion total pilot costs - so this would imply $116.6 million (includes 6.3% payroll tax) for a 10% increase in productivity.

    I realized the estimates were too high but thought it approprate to lean to the high side because less head count means less personal expenses (8% of wages) and other costs associated with benefits. Sometimes it's not worth the time to get too detailed when roughing out the initial thesis or narrative.

    The compensation estimates were spread over the life of the contract, not an annual number.
    Nov 18, 2011. 04:01 PM | Likes Like |Link to Comment
  • American-US Air Merger Would Bolster The Industry [View article]
    Why is it anti-airline employee to talk about pension and health care costs, and the company's inablity to profit? SeekingAlpha is an investor site and the discussions are from the shareholders' perspective.
    Oct 31, 2011. 03:16 PM | Likes Like |Link to Comment
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