In a note this morning, analysts Jamie Baker and Mark Streeter from JP Morgan give their assessment of a potential AMR bankruptcy. Good read. Note also their mention of the fact AMR did the right thing by not foolishly (our words) give back cash to shareholders, ala United Airlines.

What a stupid move on the part of United Airlines’ management. We said it was stupid then, but man, does it look even dumber today.

But back to AMR. This is a good summary of AMR’s cash situation.

From Jamie and Mark:

“Assessing the Chapter 11 Risk For AMR – Unlike some carriers with less to gain from the Chapter 11 process, AMR remains a reluctant candidate under certain circumstances. Specifically, labor costs are higher than others, there is some (albeit manageable) pension exposure, aircraft savings perhaps are available in Chapter 11 given recent trends, and some unsecured debt remains in the cap structure. Yet much more relevant, in our view, is AMR’s liquidity situation as that is likely still the only real trigger for an embracement of the Chapter 11 option. Absent a sharp decline in jet kero prices and/or a material economic improvement and/or additional capital raises and/or no increase in credit card holdback, current jet kero prices imply that unrestricted cash could approach $2 billion in 2009 (inclusive of today’s Beacon sale and the associated proceeds). We consider this level to closely approximate AMR’s minimum bankruptcy filing threshold. Of the aforementioned caveats, we consider capital raising and the absence of holdbacks to be of critical importance. Beacon is a welcome surprise in terms of timing (we expected a 2H08 announcement) but proceeds were in line with our expectations. Next up could be an Eagle sale or perhaps a British Air lifeline or Heathrow slot-supported borrowings. Keep in mind that AMR likely triggers the >1.4x fixed charge covenant on its $440 million term loan later this year if oil and/or the economy don’t cooperate, with early repayment to avoid a default or onerous consent fees a potential use of liquidity. While AMR has thus far failed to disclose any information in regard to its credit card processors, owners of the company are likely to compel management to revisit this policy, in our view. Also keep in mind that if AMR embraces consolidation, that may also pave the way for a positive liquidity event (e.g. an infusion of capital). Our base case remains that AMR avoids a bankruptcy fate, but we simply cannot ignore the potential realities of current fuel and economic conditions in which the company may be forced to operate for a sustained period of time. It wasn’t long ago that some were calling for AMR to return cash to shareholders ala United’s move earlier this year. Fortunately, AMR’s fiscal prudence has given management the benefit of time…for now.”

Ticker: (NYSE:AMR), (NYSE:UAL)

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