Is American Airlines About to Go Belly Up?

AMR’s (NYSE:AMR) ability to continue is a concern after unearthing new liquidity information from comments made during the American earnings call yesterday afternoon. The company noted it has no unencumbered assets left on its balance sheet. AMR expects to release roughly $800 million worth of assets during 2012 to use for new secured transactions.

AMR (NYSE:AMR) is contractually obligated to contribute $560 million to its pension plan next year. Given AMR’s strained credit metrics, we doubt a willing investor would loan the company money without requiring collateral backing. If AMR (NYSE:AMR) remains cash-flow neutral next year, these cash requirements would reduce AMR’s (NYSE:AMR) cash balance by 43% (or $1.6 billion) to $2.7 billion.

Another contention was that AMR (NYSE:AMR) experienced a $250 million reduction in cash due to the redemption of frequent flyer miles. “While an airline could alter the redemption policy of its frequent flyer miles that would decrease the liability on AMR’s (NYSE:AMR) books today, we believe making frequent flyer miles more expensive would simply cause demand to shift to another, cheaper airline, since we view flying as a commodity product,” according to MSN Money.