AAL - Valens Credit Report - 2021 10 04
Credit markets are grossly overstating credit risk, with a cash bond YTW of 6.913% and a CDS of 696bps, relative to an Intrinsic YTW of 2.723% and an Intrinsic CDS of 182bps. Meanwhile, Moody's is overstating the firm's fundamental credit risk, with its B2 credit rating four notches lower than Valens' XO- (Ba1) credit rating.Incentives Dictate Behavior™ analysis highlights mostly positive signals for credit holders. Specifically, AAL's compensation metrics should focus management on all three value drivers: asset efficiency, margins, and leverage, which should lead to Uniform ROA expansion and increased cash flows available to service obligations. Additionally, management members are material owners of AAL equity relative to their average annual compensation, indicating they are well-aligned with shareholders for long-term value creation. Moreover, all management members have low change-in-control compensation, implying they are not likely to accept a buyout or pursue a sale of the company, decreasing event risk for creditors.
Earnings Call Forensics™ of the firm's Q2 2021 earnings call highlights that management generated an excitement marker when saying they will use their excess liquidity to accelerate deleveraging plans for the foreseeable future. In addition, they are confident fleet harmonization will increase available seat miles (ASMs) and lower costs per available seat miles (CASM) and are encouraged by trends in business travel. Moreover, they are confident a return to school will lead to an acceleration in leisure travel demand and their codeshare agreements with JetBlue have been a success.
American Airlines Group is a holding company. Through its subsidiaries, the company's business activity is the operation of a primary network carrier, providing scheduled air transportation for passengers and cargo. The company's regional carriers provide scheduled air transportation under American Eagle. The American Eagle carriers include the company's regional carriers Envoy Aviation Group Inc., PSA Airlines, Inc. and Piedmont Airlines, Inc., as well as third-party regional carriers including Republic Airline Inc., Mesa Airlines, Inc., SkyWest Airlines, Inc. and Compass Airlines, LLC. The company's cargo division provides freight and mail services, with facilities and interline connections available across the globe.
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