
American Air’s $1 Price Target at Evercore Implies 92% Collapse - boredgamer2
https://www.bloomberg.com/news/articles/2020-05-01/american-air-stock-price-target-falls-to-just-a-buck-at-evercore
======
forgingahead
I have no particular opinion on what the share price "should be", but
apparently the analyst (MD) making this prediction is ranked here:
[https://www.tipranks.com/analysts/duane-
pfennigwerth](https://www.tipranks.com/analysts/duane-pfennigwerth)

I quite like this idea of ranking people based on their prior predictions!
Again, no idea about any of the specific subject matter or the people covering
it, but certainly an interesting site.

~~~
altarius
That's an interesting idea. I just looked at the top 25 analysts, 23/25 are
specialized in the tech sector - maybe something of a "rising tide lifts all
boats" effect there at the top.

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cascom
These bailouts need to be punitive to investors or behavior doesn’t change. We
need these bailouts to keep people employed and to maintain the
infrastructure/service, but if you take a government bailout, it should be
automatic chapter 11, automatic equity wipeout, and government $’s should look
like DIP financing...or something like that... watch balance sheets become
more conservative in industries that need a bailout every ten years

~~~
eganist
An argument can be made that you risk losing the talent to lead these
companies to much more economically viable industries. I'm not sure I
completely subscribe to the argument, but I think to some degree corporate
welfare is as necessary as general welfare to help give a leg up to industries
that are necessary but would otherwise have a harder time being successful.

Hot take, I know. That said, I do agree with your premise and think a
disproportionately high government stake in a bailed out company makes a ton
of sense.

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cymbeline
IMO: transportation bailouts should be focused on essential everyday services
(e.g. public transit, which is currently hemorrhaging money) and not for a
mode whose purpose is to facilitate business trips and vacations

~~~
chrisseaton
> a travel mode used for vacations and élites

Normal line workers everywhere have to travel for business and don't have any
choice about it. These people aren't travelling for fun and aren't elite by
any stretch of the imagination.

~~~
fennecfoxen
If you have to travel for business, the business should be paying for it, not
taxpayers.

~~~
chrisseaton
Should we make all roads toll roads as well? Or how about society works
together to support basic infrastructure like roads and air routes.

~~~
lotsofpulp
What is the problem with making all roads toll roads? If anything, the unseen
costs of driving due to lack of tolls causes significant issues such as
traffic, road wear and tear (resulting in pollution), and mid allocation of
the public’s resources into infrastructure for private vehicles rather than
public transportation.

Government is already reading license plates, might as well attach it to a
billing system and charge people accordingly. Want to travel during high
demand hours? Pay more. Watch businesses and people adjust their habits
automatically to better use the shared resource.

And if the concern is that poorer people get shafted, then give them a certain
amount of cash or credits for road usage.

~~~
fennecfoxen
Tolls were once difficult to enforce — collection infrastructure was expensive
and slowed down traffic. Modern technology offers new ways forward, at the
price of destroying privacy.

Or you could just impose a gasoline tax as a proxy for travel (oh hey that's
exactly what they did.)

~~~
vsareto
It seems better to just tax something instead of setting up toll
infrastructure

~~~
fennecfoxen
It really depends.

The free market is only efficient when transaction costs are low. For many
forms of travel, the cost of monitoring such travel makes tracking far too
expensive. Even just understanding a toll scheme has its own cost; you don't
want to be too worried about misestimating the cost of every drive down to the
grocery store.

For long-distance interstate travel, however, toll roads make a lot of sense.
This is particularly the case where trucks are involved. You charge
proportionally to axle weight, so the companies doing the shipping pay for the
damage they are doing to the roads.

In other congested areas, tolls can serve as an effective form of rationing,
particularly over bridges or through tunnels. This encourages more efficient
resource usage, e.g. by making carpooling more worthwhile. This also makes
more sense for city centers with congestion-charge fees. The alternative
rationing scheme here, "sitting in traffic", is a very bad way to pay for
things and imposes its own very high transaction costs.

------
tyingq
~$29 on January 1st, 2020. A $1 target is pretty brutal. Though, for airlines,
bankruptcy isn't all "bad". It invalidates their labor contracts, and allows
them to renegotiate in an environment where they have a lot more leverage.

~~~
turbinerneiter
Awesome, another industry that was paying living wages will now stop doing
that. Minimum wage aircraft mechanics and pilots. I guess flight attendants
are already there.

~~~
fennecfoxen
According to Glassdoor, American Airlines flight attendants paid hourly
average $30/hr, and $38,500 when salaried.

(Their pilots average ~$167,000 a year. The mechanics make ~$70,500. Reviews
say the health insurance is pretty good, there is a modest 401(k) match, and
of course you get to fly free on standby).

Please bring only meaningful in-depth critiques to HN, and leave the fact-free
axe-grinding elsewhere.

~~~
tyingq
_" paid hourly average $30/hr"_

I wouldn't make a direct comparison of that with other jobs. There are many
work hours they aren't paid for, or are paid at a lower rate.

Oversimplified, but they are paid nothing or almost nothing for waiting around
for late flights, security, etc. Full pay for "block hours" where the plane
has pushed back, less for pre/post flight work. And lower seniority f/a folks
can have a harder time getting hours at all, and they are well below average
pay. Seniority is everything.

It's not a bad job considering the fairly low qualifications, but it's not
really $30/hour. New flight attendants generally end the year around $20k
gross. And that's at the majors.

~~~
fennecfoxen
Maybe not! However, our poster upthread said that he guessed flight attendants
were _already at minimum wage_ it would need to take literally half their time
before we're even to the $15/hr level that was pitched as a "living wage" in
New York City, their hub city with the most expensive cost of living. (Other
AA hubs: Charlotte, Chicago, Dallas, LA, Miami, Philadelphia, Phoenix,
Washington, DC/Arlington. Some of these are cheaper than others.)

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zebrafish
I was thinking the other day about how American companies have continually
gorged themselves on debt even after so many crises have been made so much
worse by unhealthy balance sheets. I guess the taxpayer has always got their
back. These are state owned enterprises in sheep’s clothing.

------
OscarCunningham
Why is one analyst's opinion news? The market still thinks their stock is
worth $10.

~~~
albertshin
Good question.

Here's two reasons why this particular one report is making the rounds:

1) It's unexpected. Sell-side analysts inherently have a conflict of interest
as the parent company's bread and butter is investment banking/M&A advisory
deals. They try not to issue "sell" reports since who wants to do business
with a bank that is pessimistic about their future.

2) It's shocking. I don't think I have ever seen a bank issue a $1 price
target on any (non-penny/non-fraud) stock. The last time I saw this was by a
short seller (betting against Peleton). For a stock that's trading at $10+,
saying this is akin to telling management, "we will probably never see you
again so it's fine for us to say our goodbyes with working with you ever
again."

So what's in it for Evercore (the investment bank here)? If Evercore is
correct, they just got some good PR in the investing community as the first
ones to "call it" once the dust settles (and maybe fame under the "Financial
Troubles (2020-)" section of American Airlines wiki page).

Another related question though would be why the stock market jumps around in
response to these "news" items if you trust that there is no new information
that equity analysts get that isn't otherwise publicly accessible. Seems like
people think that's bullshit though, or, they believe the analysts are smarter
than them in terms of processing this public information. Regardless, whenever
Goldman issues some report on a FAANG stock, expect some pretty big vol...

------
didgeoridoo
Airlines have always been a pretty crap business to be in. Older (hilariously
formatted but still good) thoughts here:
[https://www.mcgill.ca/iasl/files/iasl/ASPL614-Airline-
Financ...](https://www.mcgill.ca/iasl/files/iasl/ASPL614-Airline-Financial-
Woes.pdf)

~~~
echelon
This is fantastic. Lots of insight into the industry. Thank you for sharing!

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look_lookatme
Buying a debt-laden airline and trimming the fat + increasing yield while
getting leverage on partners and expanding logistic capacity sounds like the
ultimate Amazon move right now. Probably not AA, but I don't know...
Southwest?

~~~
pletsch
I'd be disappointed if it was Southwest, I always have a great experience with
them. Wouldn't surprise me if they went with a budget airline and used the
extra capacity that people don't fill with overpriced baggage to ship Prime
products. It sounds like a nightmare to coordinate but I'm sure they could do
it.

------
fennecfoxen
Obligatory joke: How do you make a million dollars in the airline business?
Well, you see, you _start_ with a _billion_ dollars...

(real talk, who actually buys these stocks? they keep going so very
bankrupt...)

~~~
paulie_a
The last time I bought AAL I profited heavily after they announced bankruptcy.
They were pink sheet eventually and went from 17 cents to 12 dollars in a
matter of a few years.

If that happens again with most airlines I personally will put as much in as I
can and wait for a merger after a bailout

Edit to be fair I profited heavily based on an original buy that was 70
dollars total

~~~
bitcoinmoney
Which airline stocks are you eyeing for?

~~~
paulie_a
United, American airlines and delta. Maybe Southwest and JetBlue, I wouldn't
be all that surprised if they get bought up when the dust settles.

These are my picks because they may go bankrupt but they will get a bailout or
cash infusion like always. They are not going to cease to exist.

~~~
bitcoinmoney
At what price target are you going to buy them? And will they still be
available in traditional brokers: vanguard/Fido/schwab when they tank all the
way to 50cents?

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dilandau
The fed bailed out the fucking junk bond market, but we'll see lots of legit
companies go bankrupt in the next few years as this plays out.

Politicians have confused the shutdown. It was intended to reduce the
likelihood of overwhelming the hospitals, but it seems it's been interpreted
as protecting people from getting infected. That was never going to happen,
but nobody wants to talk about it.

~~~
treyfitty
What do you mean? Hospitalizations are a function within the funnel. As more
people get infected, more people get hospitalized. So, by protecting people
from getting infected, you’re protecting from hospitalization. Idk what you’re
trying to get at.

~~~
jackcviers3
Flattening the curve doesn't reduce the total number of infections over the
entire period of the pandemic. It just reduces the rate at which people get
infected so that resources can be manageable [1]. This does reduce the total
number of deaths, however, as more resources are available to help the
infected.

1\. [https://www.wired.com/story/the-promising-math-behind-
flatte...](https://www.wired.com/story/the-promising-math-behind-flattening-
the-curve/)

~~~
treyfitty
I see what you mean now. I think the sense of urgency placed by politicians is
in the right place- some understand that hospitalizations at time t (now) need
to be controlled, and they've simplified the language to seem as if they are
concerned about infections at this very instance for the sake of brevity.

It wouldn't be a stretch to say that reducing infections RIGHT NOW directly
leads to reducing hospitalizations, so I can't blame politicians for mixing up
the language.

