BOTBS Version 2.0: Getting Closer to the “Buy the Survivor” Call Airline Industry Investors Are Waiting For


It’s Friday, and that means yours truly is working on this week’s issue of Plane Business Banter. Actually for the last hour or so I’ve been going through the latest effort by Jamie Baker and Mark Streeter, analysts at JP Morgan. Yesterday the duo put out what they call v2.0 of their BOTBS.

Got that?

BOTBS stands for Battle of the Balance Sheets.

Yesterday the dynamic duo updated the first version of the BOTBS they put out last week — and I’m going to be taking an updated look at some of their comments in this week’s issue of PBB. The whole point of the exercise is to take a comprehensive view of the potential severity of the cash burn rates from airline operations, as well as identify capital raising options for those same airlines.

Last week’s version was probably most noteworthy for the pair’s “ranking” of what it considered to be each airline’s bankruptcy risk.

As Jamie and Mark said in the report,

“Last week’s Battle Of The Balance Sheets report generated welcome feedback from managements and investors alike.  Managements, for the most part, felt our revenue inputs were too draconian.  We hope that turns out to be the case, though would still argue on behalf of our methodology.  We’ve generously given the industry only half- credit for a potential U.S. recession.  Demand trends consistently reverse 10 – 15% during recessions, whereas we assume a gentler 5 – 6% reversion this time.  And some managements (as well as investors) felt we did our liquidity analysis a disservice by not incorporating abundant capital raising progress.  But of course, that  was by design.  Our report is deliberately intended to highlight where needs are greatest, as well as broadly identify the capital steps managements are likely to seek in hopes of bolstering rapidly declining cash balances.  We readily concede that the liquidity projections in this report will likely never come to fruition – one can’t actually run an airline with a negative cash balance.  But timing of cash flows is  paramount in this war of attrition, where managements appear fixated on outliving one another rather than taking the requisite steps to generate acceptable returns.  We continue, for example, to expect a flurry of press releases announcing European aircraft bank deals that raise cash against currently-or-soon-to-be unencumbered aircraft…and/or pre-delivery deposit facilities that free up cash being held by manufacturers…and/or convertible issues…and/or frequent flier mileage forward sales…and/or sale-leasebacks, vendor lifelines, non-core asset sales and the like. As these efforts play out, it will hopefully bring us closer to making the “buy the survivors” type call that investors increasingly appear to be clamoring for, now that the magnitude of projected losses is finally beginning to settle in.”

Were there any changes to the pair’s “bankruptcy rankings” in this version?


Southwest, Alaska, Delta, and AirTran remain at the top of the list as those airlines having the least amount of Chapter 11 risk.

But after that, we had some moving around.

With the announcement of its debt offering, JetBlue moved up into fifth spot, behind AirTran, while Continental got knocked down to sixth place.

American moved up to seventh, from its former ninth place position, based on capacity cuts announced, while United Airlines moved up to eighth place from last place. Northwest dropped from sixth to next to last, and US Airways dropped from eighth to number ten — last on the list.

But the news for US Airways was not all bad in this week’s updated report. Like I said, more in this week’s PlaneBusiness Banter, for those of you who are subscribers.