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Vaughn Cordle, CFA

 
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  • Is Bankruptcy The Best Solution For AMR? [View article]
    Management options are underwater and "may" is a function of a sensitivity analysis that includes lots of variables.

    You suggest that a "loud" analyst that doesn't work for a major research house has no credibility. Our work is paid for by buy-side funds that have used our services for 15+ years. We do not provide financial services, make a market, or underwrite securities for the airlines. THis is not the case for the major banks that do provide "sell" side research. Did you ever wonder why these research reports are always too rosy? Every single one of them had a buy rating on UAL, DAL, US Airways and Northwest a year before they filed bankruptcy.

    FYI, the CDS market is calling for a 50% bankruptcy within 12 months, 64% within two, 75% within three, 88% within four, and 88% within five years. This is what the market is saying - not any given analyst.

    AMR could avoid bankruptcy if (1) GDP rebounds, (2) industry capacity is reduced beyond what is currently planed, (3) jet fuel costs spike down, and (4) labor costs at key competitors spike up.

    Are you willing to go long AMR given the odds of not filing bankruptcy?

    I feel your pain (AMR employee?) but don't shoot the messenger because you don't like the message.
    Oct 20 06:00 AM | 1 Like Like |Link to Comment
  • Is Bankruptcy The Best Solution For AMR? [View article]
    The labor data are scaled by block hours. AMR also has a revenue problem, but this is not as large as its labor cost disadvantage - when understated pension and health care costs are properly adjusted. Moreover, ownership costs like interest expense are much higher because of the higher debt levels.
    Oct 20 05:35 AM | 1 Like Like |Link to Comment
  • Is Bankruptcy The Best Solution For AMR? [View article]
    Why talk about the potential for bankruptcy now? Cashflow projections that result in AMR's liquidity below a level required by creditors and liquidity requirements. AMR does not have more cash on hand when related to revenue. Check your facts.

    It's true that AMR's labor cost differential with Delta and United could close as these airlines renegotiate contracts. Delta's pilots contract is amendable in 2012. However, these airlines do not have the large negative net worth and cash flows as does AMR. And, it's the other airlines - with stronger balance sheets and positive earnings - that AMR has to worry about
    Oct 20 05:32 AM | 1 Like Like |Link to Comment
  • Is Bankruptcy The Best Solution For AMR? [View article]
    Those that suggest AMR should not identify various options like merging with US Airways, have not considered the most value-creating scenarios. AMR's status quo is not sustainable and when various scenarios are valued; the US Airways merger creates the most market value post-BK and merger. This is not to say it will happen, but that it should be considered, regardless of whether or not labor meshes well or dislikes the merger.
    Oct 20 05:21 AM | 1 Like Like |Link to Comment
  • Is Bankruptcy The Best Solution For AMR? [View article]
    There are several reasons AMR's costs are higher than Southwest:

    (1) Southwest does not have $12.9 billion in defined benefit pension and $3 billion in health care obligations. Pension plans are under funded by $5.5 billion as of the last full year reporting period. These funds are understated because the discount rate has fallen and plan asset returns are less than projected.

    (2) Southwest has $6.4 billion in quality equity on the balance sheet - 40% of total assets versus AMR's negative $6.8 billion net worth. The fleet is 15 years old at AMR and this means higher operating costs, in addtion to the higher ownership cost.

    (3) Southwest has higher productivity because of the point-to-point system and more relaxed labor agreements.
    Oct 20 05:16 AM | 1 Like Like |Link to Comment
  • United and Continental: Set for Take-Off, Part 2 [View article]
    I never said that after the merger there would be profits forever. Windows of opportunity open and close fairly quickly when there is
    hyper-competition. Seat capacity ebbs and flows and when long
    business cycles end in recessions, there is a natural shake out that
    occurs or consolidation in the form of mergers.

    We have made a strong case that the system can only profitably support three large networks, and, that the structural change that occurs after two mergers - UA/CO + DL/NW - is only temporary and that it's just a matter of time before excess capacity creeps back into the system.

    We have developed some interesting forecasts that address several base-case scenarios, which include addtional low-cost capacity coming back into the system.
    May 18 09:28 PM | Likes Like |Link to Comment
  • United and Continental: Set for Take-Off, Part 2 [View article]
    you make a great point about the labor and cultural differences that could kill this potential merger before it even gets off the ground. however, it may be the best option given the longer term potential for AMR ending up in bankruptcy and US slowly dying via lost market share. No value creation if US files a third bankrutcy and this is why they are keenly interested in merging
    May 7 08:35 AM | Likes Like |Link to Comment
  • United and Continental: Set for Take-Off, Part 2 [View article]
    southwest pays their labor more than the other airlines but their labor costs are lower because of the higher productivity. Unit costs, when adjusted to include net interest expense, is 25%-35% lower than the average major airline and 50% lower when fuel and cost are excluded.

    Low cost airlines are about 20% more productive than the network airlines and this results in a major labor and unit cost disadvantage for the networks, although the networks also have a unit revenue premuim. The bad news is that the revenue premium has be contracting over the years as real fares have fallen 40% over the last 10 years. costs have fallen only 17% so the result is an alarming destruction of wealth for the shareholders.
    May 5 07:44 AM | Likes Like |Link to Comment
  • Japan Airlines Likely to Join Skyteam: A Big Win for Stakeholders [View article]
    On Mon, Jan 18, 2010

    Sorry about this Vaughn. I have contacted the editor and asked her to correct the title for you.

    Our apologies,
    Boaz (Seeking Alpha)

    On Mon, Jan 18, 2010 at 11:30 PM, Vaughn Cordle > wrote:

    The original title that I submitted was different than the one that showed up in the article. Please change to properly reflect the gist of the article. The original word was Stakeholders, not Shareholders. Once JAL files for restructuring, likely Tuesday, the shareholders are likely to be wiped out. Stakeholders benefit because the airline does not shut down.
    Jan 26 01:43 PM | Likes Like |Link to Comment
  • Japan Airlines Likely to Join Skyteam: A Big Win for Stakeholders [View article]
    It's not back peddling because Seeking Apha changed the the original title. They corrected the title when i pointed it out the error.

    I said stakeholders they printed shareholders. Stakeholders in this sense is labor, creditors, and suppliers.
    Jan 19 05:12 PM | Likes Like |Link to Comment
  • Japan Airlines Likely to Join Skyteam: A Big Win for Stakeholders [View article]
    Recheck your BTS numbers and add DAL to NWA. The tables you are viewing list the two airlines separately.
    Jan 19 07:46 AM | Likes Like |Link to Comment
  • Japan Airlines Likely to Join Skyteam: A Big Win for Stakeholders [View article]
    Traffic is down because of the effects of the recession and credit bubble popping not because open skies or immunized joint ventures have not been successful.

    The reason airlines are doing joint ventures is because of cost and revenue synergies are real, and lower costs results in lower fares. Average fares are down significantly because of open skies and airlines with joint ventures benefit because the alternative would be much worse.

    The studies produced by the DOT provide evidence that immunized JVs produce significant consumer benefits that would not otherwise exist.
    Jan 18 06:33 PM | Likes Like |Link to Comment
  • Japan Airlines Likely to Join Skyteam: A Big Win for Stakeholders [View article]
    It is likely that the DOT will approve the following Joint ventures:

    AMR/BA - with some required changes
    UAL/CAL/ANA - with some required changes
    JAL/AMR/BA - easier to approve but not a likely scenario in my view
    JAL/DAL/AF - likely to end up with less than the current 60% assumed

    Consumer benefits are real with immunized joint ventures and it's not the size of the market share that matters. What matters is the concentration and over lapping routes. Not a lot of overlapping routes with DAL and JAL

    Vaughn
    Jan 18 06:23 PM | Likes Like |Link to Comment
  • Japan Airlines Likely to Join Skyteam: A Big Win for Stakeholders [View article]
    It's a matter of a much larger Skyteam alliance network - 1.4X the size of a JAL/AMR/BA network. Moreover, DAL has a U.S. domestic market share that is 1.6X that of AMR's.

    London's Heathrow [BA] is a lousy gateway for flights throughout Europe versus that offered by AF/KLM.

    One more reason. JAL will need to be in a stronger network if they are to compete against a powerhouse joint venture between UAL/CAL/ANA.

    Vaughn
    Jan 18 06:18 PM | Likes Like |Link to Comment
  • Japan Airlines Likely to Join Skyteam: A Big Win for Stakeholders [View article]
    you are right it is misleading and not the one i submited. I've asked for a correction.

    thanks,

    vaughn
    Jan 18 04:37 PM | Likes Like |Link to Comment
COMMENTS STATS
63 Comments
21 Likes