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American Airlines Group Inc AAL

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American Airlines' Debt Burden and Historical Cost Structure Will Make a Turnaround Difficult

Burkett Huey, CFA Equity Analyst

Analyst Note

| Burkett Huey, CFA |

No-moat-rated American Airlines reported a difficult third quarter, as the pandemic continues to severely depress travel demand. After reassessing our assumptions on capacity recovery and the company’s cost structure, we’re reducing our fair value estimate to $13.50 from $14.50 to better reflect a more gradual recovery and a slightly lower midcycle margin from increased labor expense. While government loan availability eases immediate risks, we think the company’s historically unfavorable cost structure will make the company’s turnaround operationally difficult, and the bloated balance sheet greatly widens the dispersion of potential equity values.

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Company Profile

Business Description

American Airlines is the world’s largest airline by scheduled revenue passenger miles. The firm’s major hubs are Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C. After completing a major fleet renewal, the company has the youngest fleet of U.S. legacy carriers.

1 Skyview Drive
Fort Worth, TX, 76155
T +1 817 963-1234
Sector Industrials
Industry Airlines
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 110,500