Spekulatius Posted October 1, 2019 Share Posted October 1, 2019 Is AAL cheaper than DAL? I don’t think so, based on the metrics I am seeing, except EV/sales. DAL seems to be much better managed, so why would one chose AAL over DAL at this point? DAL vs AAL. This is a fun comparison! The top half of their Income statements are very similar. Revenue's are even ($44b), AAL have slightly higher gross margins and SG&A's are even. The bottom half is different, AAL has a massive "Other Operating Expense" (not sure what's in this bucket), higher interest costs, lower taxes & net income. Cash flow statements is where the real differences are though. Over 2014 - 2018, DAL averaged FCF = $2.8b/yr, compared to AAL's negative Free Cash Flow of -$500m/yr. Both have prioritized returning capital to shareholders. AAL funded their buybacks through asset sales ($2.3b) and raising debt ($6b). DAL funded their's through FCF ($14b). Having said all this, in the 2019 Q2 conference call the AAL CEO said he expects to "generate significant free cash flow in 2020 and 2021." How much is "significant"? I don't know. Also, the AAL fleet has an average age of 10.6yrs, compared to DAL's 16 years. Average fleet ages have remained relatively constant for both DAL and AAL over the past 5 years, so I'm not sure how much this affects valuation. Yes, I am aware that AAL’s fleet is younger. This should reduce their operating expenses (fuel, maintenance) compared to DAL, because newer planes are more efficient, except I find no evidence that this is actually happening in the numbers. For example , DAL breaks out their fuel expenses for 2018 at 23%, while AAL’s are 23.6%. So there are other things going on. Overall, DAL looks much more appealing to me than AAL. That’s also what Buffet thinks apparently. How attractive is DAL. FCF per lastest investor presentation will be $3-4B, that’s an 8-11% yield on $47B market cap give or take. This is cheap, but it’s not extremely cheap. There are a lot of stocks with less volatile in their business with similar or higher FCF yields (FOX is one I own) or even BERY at ~13%. They all have some warts, but so have the airlines. Anyways, unless I’d have further insight, I would diss AAL and buy DAL and go along with Buffet who certainly has looked at these business in much more detail than I have. Link to comment Share on other sites More sharing options...
vince Posted October 1, 2019 Share Posted October 1, 2019 Is AAL cheaper than DAL? I don’t think so, based on the metrics I am seeing, except EV/sales. DAL seems to be much better managed, so why would one chose AAL over DAL at this point? DAL vs AAL. This is a fun comparison! The top half of their Income statements are very similar. Revenue's are even ($44b), AAL have slightly higher gross margins and SG&A's are even. The bottom half is different, AAL has a massive "Other Operating Expense" (not sure what's in this bucket), higher interest costs, lower taxes & net income. Cash flow statements is where the real differences are though. Over 2014 - 2018, DAL averaged FCF = $2.8b/yr, compared to AAL's negative Free Cash Flow of -$500m/yr. Both have prioritized returning capital to shareholders. AAL funded their buybacks through asset sales ($2.3b) and raising debt ($6b). DAL funded their's through FCF ($14b). Having said all this, in the 2019 Q2 conference call the AAL CEO said he expects to "generate significant free cash flow in 2020 and 2021." How much is "significant"? I don't know. Also, the AAL fleet has an average age of 10.6yrs, compared to DAL's 16 years. Average fleet ages have remained relatively constant for both DAL and AAL over the past 5 years, so I'm not sure how much this affects valuation. Yes, I am aware that AAL’s fleet is younger. This should reduce their operating expenses (fuel, maintenance) compared to DAL, because newer planes are more efficient, except I find no evidence that this is actually happening in the numbers. For example , DAL breaks out their fuel expenses for 2018 at 23%, while AAL’s are 23.6%. So there are other things going on. Overall, DAL looks much more appealing to me than AAL. That’s also what Buffet thinks apparently. How attractive is DAL. FCF per lastest investor presentation will be $3-4B, that’s an 8-11% yield on $47B market cap give or take. This is cheap, but it’s not extremely cheap. There are a lot of stocks with less volatile in their business with similar or higher FCF yields (FOX is one I own) or even BERY at ~13%. They all have some warts, but so have the airlines. Anyways, unless I’d have further insight, I would diss AAL and buy DAL and go along with Buffet who certainly has looked at these business in much more detail than I have. How did you come up with 47 market cap? Delta is a much better operation than AAL and the rest of them and more importantly, based on initiatives, they will widen the gap going forward. However, it's too early to just look at their financials and compare them. AAL is still integrating their merger whereas Delta finished theirs up a few years ago. In addition, AAL has had some bad luck (Max grounding). There is no reason why AAL's financials shouldn't look like DAL's in the near future, but certainly not quite as good. If you believe that the industry has truly changed for the better, then you should believe that AAL will be able to meet their obligations in the next downturn. And if those 2 judgements are accurate then AAL stock is going to provide excellent returns going forward, and in all likelihood, the return will be higher than DAL. However, looking forward from today, DAL is the better bet.....they are better managed, have more advantages, and most certainly will be able to meet their obligations which makes them a safer double digit return, even with no multiple expansion. To sum up, Delta is the way to go (Their true free cash flow is closer to 4 billion but I think you could safely add another 500-800 million for extra capex that they are gladly incurring because of positive value creation) with 10% plus fcf yields today (market cap is 38 billion roughly) and a much healthier balance sheet BUT if the industry is past their historical kamikaze pricing and capacity behavior, AAL will give you a better return (price to earning power is just way too low) but with more risk. Link to comment Share on other sites More sharing options...
gfp Posted October 1, 2019 Share Posted October 1, 2019 Yeah I see vince beat me to it, but yeah - Delta only has 650 million shares out there. And they are projecting $6 Billion of pretax income for 2019. AAL may be cheap. I think AAL was Ted Weschler's pick for the airlines, but Warren might have purchased some as well to top up the position. Link to comment Share on other sites More sharing options...
Spekulatius Posted October 1, 2019 Share Posted October 1, 2019 DAL‘s market cap is ~$37B roughly, the $47B was simply a typo. I agree with your post DAL looks like a better bet right now, risk adjusted. Link to comment Share on other sites More sharing options...
UK Posted October 1, 2019 Share Posted October 1, 2019 I think AAL was Ted Weschler's pick for the airlines, but Warren might have purchased some as well to top up the position. This is interesting and seems to be true: https://www.theglobeandmail.com/globe-investor/investment-ideas/why-buffetts-berkshire-gained-enthusiasm-for-airlines/article33908349/ "The analysis prompted Ted Weschler, one of Buffett's investing deputies, to take a closer look at airlines, the people said. Before joining Berkshire, Mr. Weschler's hedge fund had backed Mr. Parker in his successful 2005 bid to combine America West with US Airways. Through that process, the two men built a rapport." Link to comment Share on other sites More sharing options...
vince Posted October 1, 2019 Share Posted October 1, 2019 I think AAL was Ted Weschler's pick for the airlines, but Warren might have purchased some as well to top up the position. This is interesting and seems to be true: https://www.theglobeandmail.com/globe-investor/investment-ideas/why-buffetts-berkshire-gained-enthusiasm-for-airlines/article33908349/ "The analysis prompted Ted Weschler, one of Buffett's investing deputies, to take a closer look at airlines, the people said. Before joining Berkshire, Mr. Weschler's hedge fund had backed Mr. Parker in his successful 2005 bid to combine America West with US Airways. Through that process, the two men built a rapport." the press claimed that it was the 2016 JP morgan conference that Parker was speeking at that convinced weschler. And whats crazy is shortly after i read that in the press, the call was taken down by JP morgan. But i found the transcript to try and see if there were any clues that tipped weschler off to buy it. and i couldnt find anything noteworthly different but it was kind of surprising Link to comment Share on other sites More sharing options...
rogermunibond Posted October 1, 2019 Share Posted October 1, 2019 The gist was the same thing that other airlines had been talking about and also bullish analysts. Industry had restructured and they had 2-3 years of good financial data showing it. But it wasn't different from any other airline bullish pitch. Link to comment Share on other sites More sharing options...
UK Posted October 11, 2019 Share Posted October 11, 2019 https://www.cnbc.com/2019/10/09/pressure-mounts-on-american-airlines-ceo-doug-parker-after-stock-slide.html WFC of airlines:) Link to comment Share on other sites More sharing options...
ander Posted February 28, 2020 Share Posted February 28, 2020 Has anyone done a stress test on AAL's balance sheet? or have a view on which airline is the most attractive risk/reward? Link to comment Share on other sites More sharing options...
Spekulatius Posted February 28, 2020 Share Posted February 28, 2020 You can’t go wrong with Buffets largest position, which is DAL. I think airports may get interesting too. Sold mine off in a selling frenzy, but FRA.DE ( Frankfurt) is trading at a multiyear low and we know it will be there once we return to normal. Link to comment Share on other sites More sharing options...
kab60 Posted February 28, 2020 Share Posted February 28, 2020 DAL looks good, also has a large and valuable MRO biz. Like Spirit for the open ended growth. Agree on Airports, had a position in Vienna Airport before, but still quiet pricy. Link to comment Share on other sites More sharing options...
Broeb22 Posted February 28, 2020 Share Posted February 28, 2020 https://www.cnbc.com/2019/10/09/pressure-mounts-on-american-airlines-ceo-doug-parker-after-stock-slide.html WFC of airlines:) +1 American Airlines is the worst. Link to comment Share on other sites More sharing options...
Gregmal Posted February 28, 2020 Share Posted February 28, 2020 https://www.cnbc.com/2019/10/09/pressure-mounts-on-american-airlines-ceo-doug-parker-after-stock-slide.html WFC of airlines:) +1 American Airlines is the worst. No, Doug Parker is the worst. I have literally watched this thing crush earnings and be up 10% pre market, only to see Doug open his fat mouth and have the stock trading 5-10% in the red by the end of the call, more times than I can remember. Guy is a total putz. If there is a will there is a way. If there is a Doug, there is a drop is my saying on this one. Only thing they had going for them was the unhedged fuel and the buybacks. Sincerely, Someone who made a small fortune buying the bankruptcy shares and then gave most of it back seeing it through as a buy and hold investment. Link to comment Share on other sites More sharing options...
Fly Posted March 1, 2020 Share Posted March 1, 2020 AAL has too many employees and not enough revenue. Dougweiser needs to go. I'd rather go with DAL or UAL Link to comment Share on other sites More sharing options...
walkie518 Posted March 4, 2020 Share Posted March 4, 2020 AAL has too many employees and not enough revenue. Dougweiser needs to go. I'd rather go with DAL or UAL unfortunately, I think AAL declares bankruptcy (again) within a couple years... Link to comment Share on other sites More sharing options...
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