I listen to Mark Streeter.
For those of you who don’t know Mark, he is the debt side analyst for the airline group at JP Morgan. He runs around with equity analyst Jamie Baker.
In the first quarter earnings call, both Baker and Streeter delivered a one-two “are we really hearing this?” punch to United Airlines’ CEO Glenn Tilton and CFO Jake Brace, after the possibility was brought up that United might just reward its stockholders with a dividend before the end of the year.
(This response, of course, was in response to the question of what the airline was going to do with all that cash it is now spinning off. You know — that cash that used to help fund employee pension funds.)
So anyway — Jake first brings up the issue of possibly doing a dividend — and then Glenn gets in on the act.
To say that Streeter was having a hard time believing what he was hearing would be an understatement.
Of course, the other interesting factoid here is that JP Morgan, the employer of both analysts — has a pretty big hunk of United debt. So much so that we have referred to United Airlines as “JP Morgan Airways” in the past.
Streeter, of course, thinks that the right thing to do here would be for United to start paying down some of its debt instead.
Worthy idea. (And I say that even though United Airlines owes me nothing.)
As the year has gone along, both Jamie and Mark have continued to harp on this issue. On the flip side, an argument was then also made by both (along with others) that American was the airline to lean towards more — especially if you were on the debt side. Why? Because the airline was more apt to start paying down its debt.
This week, American took the hint. They announced they were prepaying $545 million in debt. The prepayment is in addition to the $1.3 billion in regularly scheduled principal payments that AMR has made in 2007. AMR, parent of American, expects that the additional payment will eliminate about $25 million in annual interest expenses.
But before we start handing out roses to American for being more fiscally responsible than their peers in Chicago, (and yes, they deserve at least one for being more attuned to the future health of their balance sheet), remember that American is also in the middle of three major employee contract negotiations.
What does that have to do with things?
Pretty simple. The airline doesn’t want to be sitting around with “too much” cash in the bank. Makes it too easy for unions to think that perhaps some of that cash should be headed in their direction.
Ticker: (NYSE:UAUA), (NYSE:AMR)
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