More Bad News For American Airlines

Over the last 4 months I’ve shown you several reasons to Avoid American Airlines stock to keep your investment portfolio safe…

Today, I want to give you an update on its stock after it released its latest earnings.

If you want to read the earlier American Airlines articles in full use the links above.

Here’s a brief recap of what I said in the previous two articles about avoiding its stock before we get to an update about its latest earnings report. 

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From Article #1 Linked Above

  1. It’s The Most Indebted Airline

As a percentage of its balance sheet, American Airlines (AAL) is the most indebted of the major 4 major US based airlines.

As of the most recent quarter its balance sheet is made up of 104.5% of total liabilities.  And its debt to equity ratio is unavailable due to the company’s enormous debt load.

The 104.5% total liabilities as a percentage of the balance sheet… That means the company has more debt than assets.  With no money left over for equity

In other words, after subtracting total liabilities from total assets there’s a negative number.  This means after subtracting debt from assets that the stocks equity has a negative value.

This is rare when you see this at an operating company.  But it’s horrible.

I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term.  And, to help insure I lose as little money as possible over time.

Typically, this means I invest in companies that have little to no debt compared to their cash and equity.

American is the most indebted company of the 4 major US based airline stocks.  And this makes it enormously risky.

But there’s another reason to stay away from its stock.

2. It’s the Most Unprofitable Airline

In the most recent quarterly data American was unprofitable on a net income and a free cash flow basis.

These both due to increased costs related to the coronavirus.  And an almost complete stoppage in their business since then.

As of its most recent financial release on April 30th, 2020 American was losing $70 million per day.

That means from mid-March to July 8th it lost an estimated $8.3 billion due to fewer flights and higher costs related to combatting the coronavirus.

Ouch.

And there’s still one more reason to avoid American’s stock in the coming months.

3. Uncertainty Related To The Coronavirus

This all circles back to the beginning and the entire hospitality industry getting hammered by the coronavirus.

Air travel, hotels, and restaurants are still getting hammered.

Airline traffic is down 96% in April 2020 compared to April 2019 as of the most recently available airline traffic data in the US.

An estimated half of all airplanes are parked at airports and not flying.

And 1/3rd of all seats on most domestic flights remains unfilled due to social distancing restrictions.

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From Article #2 Linked Above

American Airlines (AAL) stock hit its 2020 high of $30.47 per share on February 12th, 2020.

As of this writing its stock is worth $13.59 per share.

This is an 55.4% drop in a matter of months.

On August 25th, 2020, a letter written by American Airlines Chairman and CEO Doug Parker and President Robert Isom was released publicly essentially said…

If the US government doesn’t bail American Airlines out by October 1st… It will have to lay off another 19,000 employees.

But the issues at American Airlines are the fault of no one other than the same executives who are threatening to fire 19,000 employees if they don’t get bailed out.

  • It’s the executive’s fault that American Airlines is so inefficient.
  • It’s the executive’s fault that American Airlines is so unprofitable.
  • It’s the executive’s fault that American Airlines has an enormous amount of debt that is unsustainable in good times… But could lead the company to bankruptcy in crisis times like we’re dealing with now.

These issues are the fault of the executives running the company…

Not the employees they’re threatening to fire.

And certainly not the American Public who will be on the hook for this loan the company is begging for.  The past loan it already got.  And the potential full bail out it will need in the future.

I want to invest in companies where I can trust executives and managers have the best interests of the entire company and its shareholders at heart… Not just their own self-interest.

This blaming of issues they created on others isn’t just a bad look.

It’s a gigantic red flag that they’re just looking to cover their own butts instead of doing what’s best for the entire company…  They could have largely solved this issue long ago for example by not having so much debt.

For the 3 reasons in the previous article and the one today of management and executives essentially begging and threatening that if they don’t get what they want they’re going to fire 19,000 people you need to continue avoiding American Airlines

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The thesis in both past articles to avoid American Airlines stock continued to play out after it released its most up to date quarterly earnings on October 22nd, 2020.

  • Revenue was down 73% on a year to year quarterly basis to $3.2 billion.
  • It was forced to remove more than 150 planes from its fleet due to far lower flight traffic.
  • In the 9 months so far in 2020 it lost a total of $7.9 billion in operating profit and $6.7 billion in net income.
  • It expects to lose $25 to $30 million per day in the 4th quarter of 2020.
  • And it expects 4th quarter travel capacity “to be down more than 50% on a year to year basis.”

The 4th quarter is typically the busiest quarter of the year for airlines due to the many holidays.

This crash in business now 7+ months into this pandemic is horrific.

Combine this with the issues I brought up in article #1…  huge debt, unprofitability, and uncertainty related to the coronavirus, and the issue I brought up in article #2 and it’s bad enough…

But coronavirus cases are now exploding again to all time highs in the US and Europe… And many cities, states, and countries are locking things down again and it’s even worse.

This is a horrible combination of factors facing American Airlines that aren’t going away anytime soon.

For all the reasons in the now 3 articles on American Airlines… Continue avoiding its stock.

Click the links below to see the stocks we recommend to Depression Proof Your Portfolio and earn safe investment returns.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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