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Airline Bankruptcy / Merger / Layoffs Pt. 2

General discussions of the systemic, societal and civilisational effects of depletion.

Re: Airline Bankruptcy / Merger / Layoffs Pt. 2

Unread postby Outcast_Searcher » Sun 08 Aug 2021, 11:53:01

Newfie wrote:New normal. Something has changed in the psyche.

New normal as long as the virus persists at a dangerous level and traveling is more of a hassle and risk.

Given how few people (under 10%, STILL, despite what's happening) I see paying ANY attention to the CDC and WHO public indoor space mask recommendations (employees OR customers), I'm actually surprised airlines aren't getting more back to normal.

Maybe people are willing to take X risk in their everyday lives, but not 10X (or whatever) from flying?

The good news is that as long as it lasts, it's a net positive for AGW. The bad news is that it appears that not only is Covid-19 a long term "thing", but with the variants, it's a long term IN OUR FACE thing, which will interfere with the quality of life, whether anti-vaxxers, etc. wake up to that or not.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Airline Bankruptcy / Merger / Layoffs Pt. 2

Unread postby JuanP » Sun 05 Sep 2021, 19:04:09

"Italy’s Biggest Airline Ends Its Operations From October 15 Due to Financial & Coronavirus Crisis"
https://www.schengenvisainfo.com/news/italys-biggest-airline-ends-its-operations-from-october-15-due-to-financial-coronavirus-crisis/

“Alitalia is terminating its activity due to the lack of investment. In addition, the company was put under public administration in 2017, while the pandemic situation worsened the situation even more.”

"Philippine Airlines files for bankruptcy"
https://www.philstar.com/business/2021/ ... bankruptcy

"Philippine Airlines, Asia’s oldest carrier, has filed for Chapter 11 bankruptcy in the United States to pursue a lender-backed restructuring plan…"

"The Airline Failures and Bankruptcies So Far in the Pandemic"
https://skift.com/2021/09/04/the-airlin ... -pandemic/

"The bankruptcy filing Friday by Philippine Airlines is the latest aviation casualty of the pandemic.

Skift has compiled a list below to show you the extent of the damage. Certainly, some airlines chose the cover of the pandemic to decide to cease operations, or restructure, even though financial challenges existed long before the world knew what Covid was.

The $74 billion in aid delivered to U.S. airlines clearly helped those carriers escape their worst fates, but the threats remain deep into the pandemic as the spread and fear of the Delta variant slowed air travel in late summer and perhaps into early fall."

Flybe (UK) Files for Bankruptcy 3/2020
Trans States (U.S.) Ceased Operations 4/2020
Compass (U.S.) Ceased Operations 4/2020
CityJet (Ireland) Files for Bankruptcy 4/2020
Virgin Australia Files for Bankruptcy 4/2020
Air Mauritius Files for Bankruptcy 4/2020
Avianca (Colombia) Files for Bankruptcy 5/2020
Thai Airways Files for Bankruptcy 9/2020
TAME (Ecuador) Liquidation 5/2020
LATAM (Chile) Files for Bankruptcy 5/2020
SunExpress (Deutschland) Announces Ceasing Operations 6/2020
One Airlines (Chile) Ceased Operations 6/2020
NokScoot (Thailand) Ceases Operations 6/2020
LIAT (Antigua) Ceases Operations 6/2020
Jet Time (Denmark) Files for Bankruptcy 7/2020
Virgin Atlantic (UK) Files for Bankruptcy 8/2020
AirAsia (Japan) Ceases Operations 10/2020
Cathay Dragon (Hong Kong) Ceases Operations 10/2020
Ravn Air (U.S.) Files for Bankruptcy 10/2020
Norwegian Air Files for Bankruptcy 11/2020
InterJet (Mexico) Files for Bankruptcy 4/2021
Philippine Airlines Files for Bankruptcy 9/2021
"We are on the right path" Joe Alzheimer, 2022
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Re: Airline Bankruptcy / Merger / Layoffs Thread (merged)

Unread postby Subjectivist » Wed 22 Sep 2021, 15:17:59

Tanada wrote:Island Air Bankruptcy, regional Hawaiian airline.

LINK

In a surprise twist to the Island Air bankruptcy case, the trustee overseeing the liquidation filed a last-minute motion this morning disclosing that Hawaiian Airlines’ parent company has agreed to purchase the operating certificate and other assets of the failed company for $750,000.

Hawaiian Holdings Inc. said it would buy the operating certificate for $450,000 and immediately provide cash advances to pay for Chapter 7 administrative expenses. Hawaiian said it would buy other assets, such as ground-service equipment, furniture and frequent-flier lists, for $300,000.

Bankruptcy Judge Robert Faris said he was prepared to grant the motion to dismiss the case until the trustee came through with the surprise buyer. Faris gave preliminary approval to the sale. A hearing on the sale is set for Jan. 5.

Hawaiian spokesman Alex Da Silva said the decision to buy the operating certificate was a way to bring in-house the company’s turboprop airline, ‘Ohana by Hawaiian, rather than outsource the contract as it is now to Idaho-based Empire Airlines.

Da Silva said the state’s largest carrier formed a new wholly-owned subsidiary, Elliott Street Holdings, to purchase the stock of Island Air and assume ownership of Island Air’s Federal Aviation Administration operating certificate as well as other assets. ‘Ohana by Hawaiian, which launched service in March 2014 and now has three 48-seat ATR-42s, flies between Honolulu and Molokai, Honolulu and Lanai, Kahului and Kona, Kahului and Molokai, Kahului and Hilo and Lanai and Molokai.

“If approved, the sale will allow ‘Ohana by Hawaiian to assume oversight of operations currently provided under contract by Empire Airlines,” Da Silva said. “Those operations would include the hiring of pilots, flights attendants, and customer service and maintenance crews (who now are all Empire employees). We believe that assuming the FAA certificate will greatly benefit our guests by improving the efficiency and reliability of ‘Ohana by Hawaiian.”

If the sale is approved, then the trustee’s attorney, Simon Klevansky, said he would reconvert the case to a Chapter 11 reorganization bankruptcy and Hawaiian would buy new shares of what essentially would be a shell company.

Klevansky said the trustee is still working on trying to enable the more than 400 Island Air employees to gain access to their 401(k) retirement accounts.

Island Air filed for Chapter 11 bankruptcy on Oct. 16 and ceased operations on Nov. 10. It converted the case to Chapter 7 on Nov. 15.


Hawaiian Air Assets Sold


This seems like the most logical place for this news.

Guy Noris wrote:Regional Turboprops Offer Growth For Bevy Of Technologies | Aviation Week Network

Credit: GE Aviation

For its future turboprop engines, GE Aviation may ultimately combine technologies evaluated in its RISE Open Fan program—jointly conducted with CFM partner Safran—with hybrid-electric capabilities also under development. An early example of this technology included a 2016 demonstration of a megawatt-class, high-power-density and high-efficiency electrical motor/generator driving an 11-ft.-dia. propeller on a test stand at the company’s Peebles Test Operation in Ohio.

Representing an early opportunity for the application of lower emissions hybrid-electric and fuel-cell propulsion systems, the regional turboprop market is now the focus for a growing number of innovative technology programs. Some operators and manufacturers are signing up for conversions of turboprops to hydrogen-electric power trains, while others are waiting to see results from several hybrid-electric turboprop demonstrator programs now getting underway.

Guy is a Senior Editor for Aviation Week, based in Colorado Springs. Before joining Aviation Week in 2007, Guy was with Flight International, first as technical editor based in the U.K. and most recently as U.S. West Coast editor. Before joining Flight, he was London correspondent for Interavia, part of Jane's Information Group.
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Re: Airline Bankruptcy / Merger / Layoffs Pt. 2

Unread postby Tanada » Thu 21 Jul 2022, 16:20:47

American Airlines is in trouble, a couple significant graphs are at the link below the quote.
Will American Airlines Survive The Next Recession?

I'll start by saying I like American Airlines (NASDAQ:AAL). Sure, the seat rows seem to have magically gotten closer together over the years, and post-COVID flying has not been the same experience. But I've also received unexpected kindness from gate agents, ticket counter agents, and flight attendants across America. As much as people complain about airline customer service, as a frequent AAL customer, I can say that I've been pleasantly surprised on several occasions, especially when something initially goes wrong. Since April, alcohol service is back and masks are optional! The world is getting back to normal. But during the pandemic, major airlines lost billions of dollars. Thanks to the quantitative easing policies of the Federal Reserve, American Airlines was able to borrow tens of billions of dollars that it needed to continue operating. But now, as the Fed pulls its blanket support from the bond market, there are questions about whether American Airlines will be able to continue refinancing its debt at viable interest rates. The stock has held its own as consumers continue to spend on summer travel. But winter is coming.

American Airlines' Debt Load

One basic test for whether a stock is a viable investment is to compare the total assets of a company with the total liabilities. If a company has liabilities exceeding its assets, then the company is considered insolvent. As of their last quarterly report, American Airlines has roughly $76.3 billion in liabilities and $67.4 billion in assets.

This isn't always a deal-breaker as sometimes companies will have unusual amounts of depreciation that cause them to hold assets on their books for less than their economic value. But when I checked peers Delta (DAL), United (UAL), and Southwest, (LUV), American is the only airline with a negative net worth. I checked smaller peers Spirit Airlines (SAVE) and JetBlue (JBLU) as well and they're considered solvent. It's pretty clear from comparing American to competitors that they're in the weakest financial position of the major airlines. The credit rating agencies agree, rating AAL's debt at B-.

This doesn't mean in itself that American is done for, but what it means is that the company needs to earn its way out of the hole that they're in. This quarter, they'll be OK with COVID revenge travel in full swing. But after the summer is over, it's not clear if business demand and off-season demand will continue to be strong in the absence of continued government stimulus. Additionally, American needs to be able to refinance the debt that they do have.

This is from their most recent 10-Q, showing their principal and interest obligations, lease obligations, aircraft purchase obligations, and other stuff that isn't as talked about like pension and medical obligations.

The idea here is that credit spreads on junk bonds are widening, and rates are rising as well. So when AAL goes to refinance all of this debt, they're going to be paying more interest because they're in a weak financial position and the Fed/Treasury is no longer backstopping debt the way it was.

There's a path for American to turn this around, but they need everything to go right. The path to success for American Airlines is pretty simple. They need demand to stay strong while supply pressures like fuel ease. Additionally, they need the capital markets to stay easy enough for them to refinance their debt. It feels like betting on a parlay with the risks they face. Analysts expect AAL to lose $1.15 for 2022, but make $1.94 in 2023.
Operational Risks

There are many risks to AAL's return to full-year 2023 profitability.
Fuel Costs

On page 44 of their 10-Q, American notes that they don't have any fuel hedging in place. Delta actually owns an oil refinery in Pennsylvania (this makes DAL look really smart). I don't think airlines should generally hedge fuel, as they don't have a great track record of making money at it, but what this means is that American likely needs oil prices to go down to see their margins expand. If fuel keeps going higher, then it's much less likely that AAL can make what they need to dig out of their debt load.
Labor Costs

The general position of the pilots union is that the airlines' debt isn't their problem, and if they want to continue to use the union, then they need to pay in line with cost of living increases. American offered a 17% pay raise to pilots, and as far as I know, they have yet to reach a deal. AAL's margins are already thin, so a 17% pay raise for pilots over the next two years is not going to help the stock.
Pandemic Risk

AAL is among the stocks most exposed to a new variant or resurgence in the pandemic. COVID deaths are chugging along in the US at roughly the same pace that they were in the summer of 2021, so if this winter ends up being like last winter with more mask mandates and regulations, then pleasure travel is not likely to hold up.
Recession Risk

So far, the story with airlines is that business travel still hasn't recovered, but pleasure travel has. Delta's CEO expressed confidence in business travel returning, but this is by no means a sure thing. If we continue sliding into a recession, my guess is that pleasure travel will drop, while business travel stays somewhat low. Healthy airlines normally can survive recessions because input costs like fuel drop. The worst-case scenario for airlines is if a recession happens, but oil prices stay high (i.e., stagflation).
Will American Airlines Survive A Recession?

It's not clear at this point whether American Airlines would be able to survive a recession. AAL's ability to survive a recession would depend on how deep the recession is, how wide credit spreads go, and how it affects air travel. These would affect AAL's ability to refinance its debt. The debt load doesn't leave much margin for error, as the company is at the mercy of credit markets. A ray of hope: The news on the bonds has been good lately, as both the secured and unsecured bonds have been trading higher for AAL. My educated guess based on the credit rating, balance sheet, and junk bond yields is that if we enter a recession, American Airlines likely will be forced to massively dilute shareholders, and has a 50% chance or higher of bankruptcy. Of course, selling a ton of stock into a weak market could save the company from its debt, but it likely drives the share price to well under $5 per share.

To be clear, AAL is in a lot of distress. If I owned any stock in AAL, I would swap it for the bonds, as I think that the equity in the company probably isn't worth much with the book value so deeply negative. $0 is a distinct possibility. It's possible for AAL to earn their way out, but the risk-reward on the common equity is quite weak in my opinion. I actually believe buying LEAP puts on stocks like American is a useful hedge for investors, not because I have a personal grudge against airlines, but because they're heavily indebted and very sensitive to the state of the economy. A well-known asset pricing anomaly is that the junk-rated debt of companies has a far better risk-adjusted return than the corresponding equity. The bond market is much more rational than the stock market when it comes to companies like airlines, which is why I would consider investing in airline bonds rather than airline stocks. In many cases, unsecured bonds pay 10% or more in interest.

We'll find out more about the company's prospects when the company reports earnings this week. AAL earnings will provide a window into consumer spending on travel and on the direction of the broader economy. For the quarter, analysts expect AAL to earn $0.75, before returning to losses this winter.
Bottom Line

American Airlines is set to report earnings this week, but the real test is how they do over the next few years. With a brutal debt load, the company needs everything to go right to get out of the danger zone. I believe AAL has a roughly 50% chance of going bankrupt if the US economy slides into recession and an 80%-90% chance of having to heavily dilute shareholders. While there is a path to turn the company around, it's narrow and fraught with risks. For these reasons, I'd sell AAL stock and consider moving your investment into the bonds if you believe in the company.


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Re: Airline Bankruptcy / Merger / Layoffs Pt. 2

Unread postby jato0072 » Thu 21 Jul 2022, 23:28:32

Image

I thought this chart was interesting. (Click for entire image)
"On a long enough time line, the survival rate for everyone drops to zero."
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Re: Airline Bankruptcy / Merger / Layoffs Pt. 2

Unread postby Tanada » Fri 22 Jul 2022, 09:41:00

Interesting chart but it stops mid 2021 before crude prices really took off back up to the 2010-2014 levels and above. Delta Airlines has some advantage in that they purchased their own oil refinery a decade ago so they get their jet fuel at cost and make a profit on the sale of products the airline doesn't consume like asphalt, petroleum coke and gasoline.

For Northwest, United and other carriers the sharp increase in fuel costs has a huge impact. Back when oil first settled in the $100/bbl+ range for the early 2010's a significant number of airlines merged or went outright bankrupt. I think this warning article on Northwest is just the precursor to another round of bankruptcies and mergers over the next 5 years or longer.
Alfred Tennyson wrote:We are not now that strength which in old days
Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.
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Re: Airline Bankruptcy / Merger / Layoffs Pt. 2

Unread postby Doly » Fri 22 Jul 2022, 13:11:37

Maybe people are willing to take X risk in their everyday lives, but not 10X (or whatever) from flying?


I don't think that it's about risk perception, so much as it is about a lot of flying happening for business reasons. A couple of years of business flights not happening made a lot of people realise how many of their business flights weren't needed at all.

The bad news is that it appears that not only is Covid-19 a long term "thing", but with the variants, it's a long term IN OUR FACE thing, which will interfere with the quality of life, whether anti-vaxxers, etc. wake up to that or not.


Most people aren't thinking about covid at all these days, except a few conspiracy nutters. So it hasn't been a long term thing at all. The main worry is that the anti-vax attitude could persist long-term.
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Re: Airline Bankruptcy / Merger / Layoffs Pt. 2

Unread postby jato0072 » Fri 22 Jul 2022, 14:30:40

The main worry is that the anti-vax attitude could persist long-term


Don't worry. After the events of the last 2 years, the anti-vax attitude will persist for a very, very long time. At least in my geographical area. YMMV.
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