7 ms·

American Air’s $1 Price Target at Evercore Implies 92% Collapse

39 points by boredgamer2 6y ago

tyingq 6y ago
~$29 on January 1st, 2020. A $1 target is pretty brutal. Though, for airlines, bankruptcy isn't all "bad". It invalidates their labor contracts, and allows them to renegotiate in an environment where they have a lot more leverage.
- formercoder 6y ago
  Bankruptcy is simply a tool in the restructuring toolbox.
- deleted 6y ago
  [deleted]
- turbinerneiter 6y ago
  Awesome, another industry that was paying living wages will now stop doing that. Minimum wage aircraft mechanics and pilots. I guess flight attendants are already there.
  - 0xfaded 6y ago
    Pretty much every entry level pilot job is near minimum wage.
    - tyingq 6y ago
      It's a pretty interesting space. Pilots can make good money with seniority, but if they switch to another airline, they start at the very bottom again. On the other hand, they do have collective leverage, as airlines can't quickly replace them.
    - fennecfoxen 6y ago
      My understanding is that American Airlines doesn't actually hire many entry-level pilots, and by the time you're experienced enough to be hired by any major passenger airline, you'll be making okay money. The regional airlines, on the other hand — the ones running those little connector flights with CRJs and the like, branded "American Eagle" or "Delta Connection", with a four-digit codeshare and inferior snacks and entertainment — those are a lot less picky, and their pay is a lot more questionable.
      - LargeWu 6y ago
        This is absolutely true. The university I went to is known for its commercial aviation program, and draws students from all over the nation and world to learn to be airline pilots. So many of them end up with huge debts, because flight school is crazy expensive, and eventually take non-aviation related jobs out of school because they just can't afford not to. Only those that were probably already very well off, or have connections, or are extremely driven, will ever sit behind the stick of a commercial jetliner for one of the bigs.
  - fennecfoxen 6y ago
    According to Glassdoor, American Airlines flight attendants paid hourly average $30/hr, and $38,500 when salaried. (Their pilots average ~$167,000 a year. The mechanics make ~$70,500. Reviews say the health insurance is pretty good, there is a modest 401(k) match, and of course you get to fly free on standby). Please bring only meaningful in-depth critiques to HN, and leave the fact-free axe-grinding elsewhere.
    - tyingq 6y ago
      "paid hourly average $30/hr" I wouldn't make a direct comparison of that with other jobs. There are many work hours they aren't paid for, or are paid at a lower rate. Oversimplified, but they are paid nothing or almost nothing for waiting around for late flights, security, etc. Full pay for "block hours" where the plane has pushed back, less for pre/post flight work. And lower seniority f/a folks can have a harder time getting hours at all, and they are well below average pay. Seniority is everything. It's not a bad job considering the fairly low qualifications, but it's not really $30/hour. New flight attendants generally end the year around $20k gross. And that's at the majors.
      - fennecfoxen 6y ago
        Maybe not! However, our poster upthread said that he guessed flight attendants were already at minimum wage it would need to take literally half their time before we're even to the $15/hr level that was pitched as a "living wage" in New York City, their hub city with the most expensive cost of living. (Other AA hubs: Charlotte, Chicago, Dallas, LA, Miami, Philadelphia, Phoenix, Washington, DC/Arlington. Some of these are cheaper than others.)
    - slumdev 6y ago
      This is technically correct but dishonest. These numbers are true only for American Airlines. Every time you step on to an "American" plane that is "operated by xyz", you are not flying American Airlines. You are flying an American Eagle branded subcarrier like Republic or SkyWest. These subcarriers fly a very large percentage of "American" flights. The pay and benefits at the subcarriers are dismal.
- anthony_r 6y ago
  Bankruptcy is only really bad to whoever is the "bagholder". This pretty much always includes share-holders, and then depending on the extent of the event, may also include less-secured debt-holders.
dilandau 6y ago
The fed bailed out the fucking junk bond market, but we'll see lots of legit companies go bankrupt in the next few years as this plays out. Politicians have confused the shutdown. It was intended to reduce the likelihood of overwhelming the hospitals, but it seems it's been interpreted as protecting people from getting infected. That was never going to happen, but nobody wants to talk about it.
- treyfitty 6y ago
  What do you mean? Hospitalizations are a function within the funnel. As more people get infected, more people get hospitalized. So, by protecting people from getting infected, you’re protecting from hospitalization. Idk what you’re trying to get at.
  - jackcviers3 6y ago
    Flattening the curve doesn't reduce the total number of infections over the entire period of the pandemic. It just reduces the rate at which people get infected so that resources can be manageable [1]. This does reduce the total number of deaths, however, as more resources are available to help the infected. 1. https://www.wired.com/story/the-promising-math-behind-flattening-the-curve/ https://www.wired.com/story/the-promising-math-behind-flatte...
    - treyfitty 6y ago
      I see what you mean now. I think the sense of urgency placed by politicians is in the right place- some understand that hospitalizations at time t (now) need to be controlled, and they've simplified the language to seem as if they are concerned about infections at this very instance for the sake of brevity. It wouldn't be a stretch to say that reducing infections RIGHT NOW directly leads to reducing hospitalizations, so I can't blame politicians for mixing up the language.
- deleted 6y ago
  [deleted]
cymbeline 6y ago
IMO: transportation bailouts should be focused on essential everyday services (e.g. public transit, which is currently hemorrhaging money) and not for a mode whose purpose is to facilitate business trips and vacations
- chrisseaton 6y ago
  > a travel mode used for vacations and élites Normal line workers everywhere have to travel for business and don't have any choice about it. These people aren't travelling for fun and aren't elite by any stretch of the imagination.
  - monsieurgaufre 6y ago
    Normal line workers mostly take a plane for vacation or family reasons. Specialized workers, i'll give you that, but it's way less than you imply.
    - chrisseaton 6y ago
      Who do you think is filling the hundreds of economy seats on flights between regular cities? It isn't holiday makers, and it isn't executives. It's normal people like you and me trying to get around for work.
  - toomuchtodo 6y ago
    Let Them Use Zoom. /s Seriously though, we’ve become extremely accustom to a mode of travel (air travel costs have deflated over the last several decades) that generates ~3% of the world’s CO2 emissions. Anything that scales that back so essential travel is the majority of air travel is a good thing. High level, we’re forced by COVID to re-evaluate what we perceive as needs, and what actual needs are. Again, this is a good thing, and pushes back against cultural inertia (open office plans, face to face for biz travel, commuting to work when you could just as easily work from home, etc).
  - fennecfoxen 6y ago
    If you have to travel for business, the business should be paying for it, not taxpayers.
didgeoridoo 6y ago
Airlines have always been a pretty crap business to be in. Older (hilariously formatted but still good) thoughts here: https://www.mcgill.ca/iasl/files/iasl/ASPL614-Airline-Financial-Woes.pdf https://www.mcgill.ca/iasl/files/iasl/ASPL614-Airline-Financ...
- echelon 6y ago
  This is fantastic. Lots of insight into the industry. Thank you for sharing!
fennecfoxen 6y ago
Obligatory joke: How do you make a million dollars in the airline business? Well, you see, you start with a billion dollars... (real talk, who actually buys these stocks? they keep going so very bankrupt...)
- paulie_a 6y ago
  The last time I bought AAL I profited heavily after they announced bankruptcy. They were pink sheet eventually and went from 17 cents to 12 dollars in a matter of a few years. If that happens again with most airlines I personally will put as much in as I can and wait for a merger after a bailout Edit to be fair I profited heavily based on an original buy that was 70 dollars total
  - bitcoinmoney 6y ago
    Which airline stocks are you eyeing for?
    - paulie_a 6y ago
      United, American airlines and delta. Maybe Southwest and JetBlue, I wouldn't be all that surprised if they get bought up when the dust settles. These are my picks because they may go bankrupt but they will get a bailout or cash infusion like always. They are not going to cease to exist.
      - bitcoinmoney 6y ago
        At what price target are you going to buy them? And will they still be available in traditional brokers: vanguard/Fido/schwab when they tank all the way to 50cents?
OscarCunningham 6y ago
Why is one analyst's opinion news? The market still thinks their stock is worth $10.
- albertshin 6y ago
  Good question. Here's two reasons why this particular one report is making the rounds: 1) It's unexpected. Sell-side analysts inherently have a conflict of interest as the parent company's bread and butter is investment banking/M&A advisory deals. They try not to issue "sell" reports since who wants to do business with a bank that is pessimistic about their future. 2) It's shocking. I don't think I have ever seen a bank issue a $1 price target on any (non-penny/non-fraud) stock. The last time I saw this was by a short seller (betting against Peleton). For a stock that's trading at $10+, saying this is akin to telling management, "we will probably never see you again so it's fine for us to say our goodbyes with working with you ever again." So what's in it for Evercore (the investment bank here)? If Evercore is correct, they just got some good PR in the investing community as the first ones to "call it" once the dust settles (and maybe fame under the "Financial Troubles (2020-)" section of American Airlines wiki page). Another related question though would be why the stock market jumps around in response to these "news" items if you trust that there is no new information that equity analysts get that isn't otherwise publicly accessible. Seems like people think that's bullshit though, or, they believe the analysts are smarter than them in terms of processing this public information. Regardless, whenever Goldman issues some report on a FAANG stock, expect some pretty big vol...
ovslylegit 6y ago
stonks.
zebrafish 6y ago
I was thinking the other day about how American companies have continually gorged themselves on debt even after so many crises have been made so much worse by unhealthy balance sheets. I guess the taxpayer has always got their back. These are state owned enterprises in sheep’s clothing.
- deleted 6y ago
  [deleted]
look_lookatme 6y ago
Buying a debt-laden airline and trimming the fat + increasing yield while getting leverage on partners and expanding logistic capacity sounds like the ultimate Amazon move right now. Probably not AA, but I don't know... Southwest?
- pletsch 6y ago
  I'd be disappointed if it was Southwest, I always have a great experience with them. Wouldn't surprise me if they went with a budget airline and used the extra capacity that people don't fill with overpriced baggage to ship Prime products. It sounds like a nightmare to coordinate but I'm sure they could do it.
cascom 6y ago
These bailouts need to be punitive to investors or behavior doesn’t change. We need these bailouts to keep people employed and to maintain the infrastructure/service, but if you take a government bailout, it should be automatic chapter 11, automatic equity wipeout, and government $’s should look like DIP financing...or something like that... watch balance sheets become more conservative in industries that need a bailout every ten years
- eganist 6y ago
  An argument can be made that you risk losing the talent to lead these companies to much more economically viable industries. I'm not sure I completely subscribe to the argument, but I think to some degree corporate welfare is as necessary as general welfare to help give a leg up to industries that are necessary but would otherwise have a harder time being successful. Hot take, I know. That said, I do agree with your premise and think a disproportionately high government stake in a bailed out company makes a ton of sense.
forgingahead 6y ago
I have no particular opinion on what the share price "should be", but apparently the analyst (MD) making this prediction is ranked here: https://www.tipranks.com/analysts/duane-pfennigwerth https://www.tipranks.com/analysts/duane-pfennigwerth I quite like this idea of ranking people based on their prior predictions! Again, no idea about any of the specific subject matter or the people covering it, but certainly an interesting site.
- altarius 6y ago
  That's an interesting idea. I just looked at the top 25 analysts, 23/25 are specialized in the tech sector - maybe something of a "rising tide lifts all boats" effect there at the top.

39 points by boredgamer2 6y ago

~$29 on January 1st, 2020. A $1 target is pretty brutal. Though, for airlines, bankruptcy isn't all "bad". It invalidates their labor contracts, and allows them to renegotiate in an environment where they have a lot more leverage.

formercoder 6y ago
Bankruptcy is simply a tool in the restructuring toolbox.
deleted 6y ago
[deleted]
turbinerneiter 6y ago
Awesome, another industry that was paying living wages will now stop doing that. Minimum wage aircraft mechanics and pilots. I guess flight attendants are already there.
- 0xfaded 6y ago
  Pretty much every entry level pilot job is near minimum wage.
  - tyingq 6y ago
    It's a pretty interesting space. Pilots can make good money with seniority, but if they switch to another airline, they start at the very bottom again. On the other hand, they do have collective leverage, as airlines can't quickly replace them.
  - fennecfoxen 6y ago
    My understanding is that American Airlines doesn't actually hire many entry-level pilots, and by the time you're experienced enough to be hired by any major passenger airline, you'll be making okay money. The regional airlines, on the other hand — the ones running those little connector flights with CRJs and the like, branded "American Eagle" or "Delta Connection", with a four-digit codeshare and inferior snacks and entertainment — those are a lot less picky, and their pay is a lot more questionable.
    - LargeWu 6y ago
      This is absolutely true. The university I went to is known for its commercial aviation program, and draws students from all over the nation and world to learn to be airline pilots. So many of them end up with huge debts, because flight school is crazy expensive, and eventually take non-aviation related jobs out of school because they just can't afford not to. Only those that were probably already very well off, or have connections, or are extremely driven, will ever sit behind the stick of a commercial jetliner for one of the bigs.
- fennecfoxen 6y ago
  According to Glassdoor, American Airlines flight attendants paid hourly average $30/hr, and $38,500 when salaried. (Their pilots average ~$167,000 a year. The mechanics make ~$70,500. Reviews say the health insurance is pretty good, there is a modest 401(k) match, and of course you get to fly free on standby). Please bring only meaningful in-depth critiques to HN, and leave the fact-free axe-grinding elsewhere.
  - tyingq 6y ago
    "paid hourly average $30/hr" I wouldn't make a direct comparison of that with other jobs. There are many work hours they aren't paid for, or are paid at a lower rate. Oversimplified, but they are paid nothing or almost nothing for waiting around for late flights, security, etc. Full pay for "block hours" where the plane has pushed back, less for pre/post flight work. And lower seniority f/a folks can have a harder time getting hours at all, and they are well below average pay. Seniority is everything. It's not a bad job considering the fairly low qualifications, but it's not really $30/hour. New flight attendants generally end the year around $20k gross. And that's at the majors.
    - fennecfoxen 6y ago
      Maybe not! However, our poster upthread said that he guessed flight attendants were already at minimum wage it would need to take literally half their time before we're even to the $15/hr level that was pitched as a "living wage" in New York City, their hub city with the most expensive cost of living. (Other AA hubs: Charlotte, Chicago, Dallas, LA, Miami, Philadelphia, Phoenix, Washington, DC/Arlington. Some of these are cheaper than others.)
  - slumdev 6y ago
    This is technically correct but dishonest. These numbers are true only for American Airlines. Every time you step on to an "American" plane that is "operated by xyz", you are not flying American Airlines. You are flying an American Eagle branded subcarrier like Republic or SkyWest. These subcarriers fly a very large percentage of "American" flights. The pay and benefits at the subcarriers are dismal.
anthony_r 6y ago
Bankruptcy is only really bad to whoever is the "bagholder". This pretty much always includes share-holders, and then depending on the extent of the event, may also include less-secured debt-holders.

dilandau 6y ago

The fed bailed out the fucking junk bond market, but we'll see lots of legit companies go bankrupt in the next few years as this plays out. Politicians have confused the shutdown. It was intended to reduce the likelihood of overwhelming the hospitals, but it seems it's been interpreted as protecting people from getting infected. That was never going to happen, but nobody wants to talk about it.

treyfitty 6y ago
What do you mean? Hospitalizations are a function within the funnel. As more people get infected, more people get hospitalized. So, by protecting people from getting infected, you’re protecting from hospitalization. Idk what you’re trying to get at.
- jackcviers3 6y ago
  Flattening the curve doesn't reduce the total number of infections over the entire period of the pandemic. It just reduces the rate at which people get infected so that resources can be manageable [1]. This does reduce the total number of deaths, however, as more resources are available to help the infected. 1. https://www.wired.com/story/the-promising-math-behind-flattening-the-curve/ https://www.wired.com/story/the-promising-math-behind-flatte...
  - treyfitty 6y ago
    I see what you mean now. I think the sense of urgency placed by politicians is in the right place- some understand that hospitalizations at time t (now) need to be controlled, and they've simplified the language to seem as if they are concerned about infections at this very instance for the sake of brevity. It wouldn't be a stretch to say that reducing infections RIGHT NOW directly leads to reducing hospitalizations, so I can't blame politicians for mixing up the language.
deleted 6y ago
[deleted]

cymbeline 6y ago

IMO: transportation bailouts should be focused on essential everyday services (e.g. public transit, which is currently hemorrhaging money) and not for a mode whose purpose is to facilitate business trips and vacations

chrisseaton 6y ago
> a travel mode used for vacations and élites Normal line workers everywhere have to travel for business and don't have any choice about it. These people aren't travelling for fun and aren't elite by any stretch of the imagination.
- monsieurgaufre 6y ago
  Normal line workers mostly take a plane for vacation or family reasons. Specialized workers, i'll give you that, but it's way less than you imply.
  - chrisseaton 6y ago
    Who do you think is filling the hundreds of economy seats on flights between regular cities? It isn't holiday makers, and it isn't executives. It's normal people like you and me trying to get around for work.
- toomuchtodo 6y ago
  Let Them Use Zoom. /s Seriously though, we’ve become extremely accustom to a mode of travel (air travel costs have deflated over the last several decades) that generates ~3% of the world’s CO2 emissions. Anything that scales that back so essential travel is the majority of air travel is a good thing. High level, we’re forced by COVID to re-evaluate what we perceive as needs, and what actual needs are. Again, this is a good thing, and pushes back against cultural inertia (open office plans, face to face for biz travel, commuting to work when you could just as easily work from home, etc).
- fennecfoxen 6y ago
  If you have to travel for business, the business should be paying for it, not taxpayers.

didgeoridoo 6y ago

Airlines have always been a pretty crap business to be in. Older (hilariously formatted but still good) thoughts here: https://www.mcgill.ca/iasl/files/iasl/ASPL614-Airline-Financial-Woes.pdf https://www.mcgill.ca/iasl/files/iasl/ASPL614-Airline-Financ...

echelon 6y ago
This is fantastic. Lots of insight into the industry. Thank you for sharing!

fennecfoxen 6y ago

Obligatory joke: How do you make a million dollars in the airline business? Well, you see, you start with a billion dollars... (real talk, who actually buys these stocks? they keep going so very bankrupt...)

paulie_a 6y ago
The last time I bought AAL I profited heavily after they announced bankruptcy. They were pink sheet eventually and went from 17 cents to 12 dollars in a matter of a few years. If that happens again with most airlines I personally will put as much in as I can and wait for a merger after a bailout Edit to be fair I profited heavily based on an original buy that was 70 dollars total
- bitcoinmoney 6y ago
  Which airline stocks are you eyeing for?
  - paulie_a 6y ago
    United, American airlines and delta. Maybe Southwest and JetBlue, I wouldn't be all that surprised if they get bought up when the dust settles. These are my picks because they may go bankrupt but they will get a bailout or cash infusion like always. They are not going to cease to exist.
    - bitcoinmoney 6y ago
      At what price target are you going to buy them? And will they still be available in traditional brokers: vanguard/Fido/schwab when they tank all the way to 50cents?

OscarCunningham 6y ago

Why is one analyst's opinion news? The market still thinks their stock is worth $10.

albertshin 6y ago
Good question. Here's two reasons why this particular one report is making the rounds: 1) It's unexpected. Sell-side analysts inherently have a conflict of interest as the parent company's bread and butter is investment banking/M&A advisory deals. They try not to issue "sell" reports since who wants to do business with a bank that is pessimistic about their future. 2) It's shocking. I don't think I have ever seen a bank issue a $1 price target on any (non-penny/non-fraud) stock. The last time I saw this was by a short seller (betting against Peleton). For a stock that's trading at $10+, saying this is akin to telling management, "we will probably never see you again so it's fine for us to say our goodbyes with working with you ever again." So what's in it for Evercore (the investment bank here)? If Evercore is correct, they just got some good PR in the investing community as the first ones to "call it" once the dust settles (and maybe fame under the "Financial Troubles (2020-)" section of American Airlines wiki page). Another related question though would be why the stock market jumps around in response to these "news" items if you trust that there is no new information that equity analysts get that isn't otherwise publicly accessible. Seems like people think that's bullshit though, or, they believe the analysts are smarter than them in terms of processing this public information. Regardless, whenever Goldman issues some report on a FAANG stock, expect some pretty big vol...

ovslylegit 6y ago

stonks.

zebrafish 6y ago

I was thinking the other day about how American companies have continually gorged themselves on debt even after so many crises have been made so much worse by unhealthy balance sheets. I guess the taxpayer has always got their back. These are state owned enterprises in sheep’s clothing.

deleted 6y ago
[deleted]

look_lookatme 6y ago

Buying a debt-laden airline and trimming the fat + increasing yield while getting leverage on partners and expanding logistic capacity sounds like the ultimate Amazon move right now. Probably not AA, but I don't know... Southwest?

pletsch 6y ago
I'd be disappointed if it was Southwest, I always have a great experience with them. Wouldn't surprise me if they went with a budget airline and used the extra capacity that people don't fill with overpriced baggage to ship Prime products. It sounds like a nightmare to coordinate but I'm sure they could do it.

cascom 6y ago

These bailouts need to be punitive to investors or behavior doesn’t change. We need these bailouts to keep people employed and to maintain the infrastructure/service, but if you take a government bailout, it should be automatic chapter 11, automatic equity wipeout, and government $’s should look like DIP financing...or something like that... watch balance sheets become more conservative in industries that need a bailout every ten years

eganist 6y ago
An argument can be made that you risk losing the talent to lead these companies to much more economically viable industries. I'm not sure I completely subscribe to the argument, but I think to some degree corporate welfare is as necessary as general welfare to help give a leg up to industries that are necessary but would otherwise have a harder time being successful. Hot take, I know. That said, I do agree with your premise and think a disproportionately high government stake in a bailed out company makes a ton of sense.

forgingahead 6y ago

I have no particular opinion on what the share price "should be", but apparently the analyst (MD) making this prediction is ranked here: https://www.tipranks.com/analysts/duane-pfennigwerth https://www.tipranks.com/analysts/duane-pfennigwerth I quite like this idea of ranking people based on their prior predictions! Again, no idea about any of the specific subject matter or the people covering it, but certainly an interesting site.

altarius 6y ago
That's an interesting idea. I just looked at the top 25 analysts, 23/25 are specialized in the tech sector - maybe something of a "rising tide lifts all boats" effect there at the top.