American AirlinesVS.
Lufthansa
By “Chapter 11”Jameson Bass, David Hodge, Andrew Thompson, Matt Reagan
Getting to know American Airlines...
Basic Info...• Ceo: Gerald Arpey
• Headquarters: Ft. Worth Texas
• Architecture: Hub and Spoke
• Fleet Size: 752
• Destinations: 158 (USA
• Slogan: “We know why you fly. We’re American Airlines”
AA Interesting Information
• Airline Deregulation ACT of 1978 and “Legacy Carriers”
• Flirtation with bankruptcy
• Cost Cutting Techniques
• “More room through Coach”
• The Effects of 9/11
• Oldest Fleet in USA
• FAA and Middle managers (Current Event)
Getting to know Lufthansa
Basic Info...• Ceo: Wolfgang Mayrhuber
•Headquarters: Cologne, Germany
• Architecture: Hub and Spoke
• Fleet Size: 529
•Destinations: 209 (81 Countries)
• Slogan: “There’s no better way to fly”
Lufthansa Interesting Information
• Descendent of first German airline
• Lesser Effects from 9/11
• Founding member of STAR Alliance (Co-member with United Airlines)
• Eats up many smaller airlines
• Constant aircraft modernization
Issues in the Industry
•Difficulty assessing future costs
•Rising Gas Prices hurting growth
•Increasing Regulations...FAA Current Event
Lufthansa - Higher Sales In 2008 et. Al.
Marketwatch
Revenue Recognition “Revenue and other operating income are recognized in the income statement when the service has been provided or when the risk has passed to the customer. COGS - Fuel for Aircraft major expense
Where are they getting most of their money?• Outside Germany, Lufthansa is also adding capacity and
routes to better compete against larger European rival Air France-KLM (003112, FR). Lufthansa said 2008 capacity would rise 7.3%.
• Traffic revenue in the passenger transportation and logistics segments is recognized once a passenger coupon or airfreight document has been used.
Cont’d
• LSG Skychefs
• Other revenue from companies, consolidated in 2007 for the first time, totaled EUR 181m, of which MRO services accounted for EUR 16m. Catering services for EUR 29m and other services for EUR 123m.
Where are they losing money?
• COGS
• "As long as financial or other crises do not confound the forecast economic development, and higher fuel prices can be compensated as in the previous years, Lufthansa expects further improvements in the revenue and operating result for 2008," the airline said in a statement.
• Lufthansa has imposed a series of fuel surcharges over the past two years. The charges now stand at 154 euros on long-haul return flights and 34 euros on domestic and intra-European return tickets. Fuel expenses at Lufthansa rose 15.1% in 2007, to 3.9 billion euros.
• Staff Costs - Even though it is the largest expense, Lufthansa still sees profit.
Fuel Costs
• 2006: Lufthansa in USD = 4,352 mil (https://www.ditco.disa.mil)
• 2006: AMR in USD = 6,402 million
American Airlines Not Doing So Well…
• “American Airlines freezes hiring” et. Al. Associated Press.
• American Airlines put a freeze on hiring management and support staffers this week as the nation's largest carrier grapples with high fuel costs and a slowing economy
Any luck anywhere for AMR?
Lufthansa = (USD) 2,118.4
American = (USD) 6,035.0
Expenses•2006 - First Positive Net Earnings
Statement of Cash Flow
•Operating
•Investing
•Financing
Operating (AMR on top, Lufthansa on Bottom)
Investing
Financing
What Do You Think?
Balance Sheet ComparisonLufthansa:
Accounts Receivable: Lufthansa
€1= $1.21 (USD) 2006
Beg. Bal.
Bad Debt Exp.
End. Bal.
Write-off:
Rev. (Sales): 19,849
Write-off:
Beg. Bal. 784
Cash Collected:
End Bal. 836
Allowance for Bad Debt Accounts Receivable
Accounts Receivable: Lufthansa
€1= $1.21 (USD) 2006
•Accounts Receivable Turnover
=
•Days outstanding for receivables
= days
PP&E: Lufthansa 2006€1= $1.21 (USD)
Accumulated Depreciation PP&E
Beg. Bal.: 1,112Dep. Expense: 1,051
End Bal.: 1,127
Disposal: 1334
Beg. Bal.:3415
Purchases: 1655
End Bal.: 6404
Disposal: 892
PP&E: Lufthansa 2006 €1= $1.21 (USD)
Average life on PP&E for 2006 = 10.6 years
PP&E purchased in 2006 = 16,550
Cash 1,332,143,000
Accumulated Depreciation
892,000
Gain 1,045,000
PP&E 1,334,080,000
AMR Balance Sheet
Accounts Receivable: AMR
2006Allowance for Bad Debt Accounts Receivable
Beg. Bal. 60
Bad Debt Exp. 78
End. Bal. 45
Write-off: 93Rev. (Sales) 22,563
Write-off: 93
Beg. Bal. 510
Cash Collected: 22512
End Bal. 468
Accounts Receivable: AMR 2006
•Accounts Receivable Turnover
= 46.1 (Higher value shows efficiency of money receipt)
•Days outstanding for receivables
= 7.92 days (365 / ART)
PP&E: AMR 2006Accumulated Depreciation PP&E
Beg. Bal.: 7,648
Dep. Expense: 1,022
End Bal.: 8,408
Beg. Bal.: 2080
Purchases: 530
End Bal.: 1,961
Disposal: 649Disposal: 262
PP&E: AMR 2006
Cash 521
Accumulated Depreciation
262
Loss 134
PP&E 649
PP&E purchased in 2006 = 530 (mil)
Average life on PP&E for 2006 = 7.85 years
Depreciation
•Extension of airplane lifespan
•Pressurization count determines lifespan
•Many means of manipulation
Lufthansa Accounting Standards
•IAS 23 (Now)ObjectiveRecognition2007 Revision•IFRS 8 (January 1, 2009)OverviewRequirementsDifferences with US GAAPEffective Date
IAS 23
•Objective
•Prescribe the accounting treatment for borrowing costs.
•Recognition
•Borrowing Costs
•Revision
IFRS 8• Overview
•Applies to separate or individual statements of an entity
• Requirements
•Requires entity to report operating segments that meet specific criteria
• Differences With US GAAP
• Effective Date
AMR Financial Standards
• Accounting Standard Financial Statement No. 109
•Objective/ Basic Principals
•Effective Date
AMR
• Recognition
• Accounting For Income Taxes
• Deferred Tax Liabilities
• Deferred Tax Assets
A.A. 2007 2006
Return on assets 1.746% 0.787%
Return on O.E. 49.146% -22.16%
Profit margin ratio 0.02193 0.0102
Gross profit margin
26.313% 26.503%
Total assets turnover
79.5% 76.9%
Current ratio 85.2% 81.2%
Quick ratio 75.5% 72.3%
Leverage ratio 28.140 -28.138
Debt-equity ratio 0.907 1.021
Interest coverage 48.9% 24.1%
Lufthansa 2007 2006
Return on assets 14.5% 13.1%
Return on O.E. 25.5% 18.3%
Profit margin ratio 0.172 0.156
Gross profit margin
34.2% 32.9%
Total assets turnover
84.1% 84.0%
Current ratio 99.7% 97.1%
Quick ratio 30.0% 11.9%
Leverage ratio 3.028 3.726
Debt-equity ratio 0.691 0.748
Interest coverage 831.4% 411.4%
The End
By “Chapter 11”Jameson Bass, David Hodge, Andrew Thompson, Matt Reagan