Over the last couple of years, American Airlines Group (NASDAQ:AAL) has seen the stock take a beating despite consistently strong profits. Investors fret over debt levels and stock buybacks while missing the strong income levels and ongoing airline integration. The investment thesis remains bullish as the airline enters a period of substantial cuts to capital spending allowing for American Airlines to shift cash flows to repaying debt and repurchasing extremely cheap shares.
Image Source: American Airlines website
737 MAX Impact
While Wolf Research caused American Airlines to collapse 4% on Friday, investors need to remember that analyst estimates already factor in a sizable hit from the grounding of the 737 MAX. The airline could miss targets and still have plenty of reason to invest here below $30.
For Q3, American Airlines estimated a $140 million negative impact to pre-tax income. The airline has 24 MAX in their fleet and 76 aircraft on order. Counting the five aircraft scheduled for delivery in Q3, American Airlines expected to have a fleet of 30 aircraft causing the company to cancel 9,475 flights.
The expectation is that Boeing (BA) will eventually subsidize the airline for these losses. The airline had $835 million in pre-tax income causing about a 14% hit to normalized pre-tax income of $975 million. The hit to EPS is about $0.32.
In total, the airline estimates a $540 million impact to pre-tax income in 2019 and the amount should only grow in 2020 as new aircraft isn't delivered on time. American recently pushed back the 737 MAX schedule until April 7 and this date is highly unlikely to be met.
Unleash Cash Flows
The airline has repurchased shares off and on over the last few years. The end result has been a substantial reduction in share counts, but the stock has flatlined as
