AAL — American Airlines Group

Will it survive?

• Can it pay its interest? 0.7×
  Does not cover its interest
  Operating income $1.5B ÷ interest expense $2.1B

  A full year of operating profit didn't cover the interest bill. This is the zombie zone: the business depends on refinancing, asset sales, or forbearance to service its debt.

• How heavy is the debt? 7.1×
  High
  Total debt $10.4B ÷ operating income $1.5B

  Years of operating profit it would take to repay all debt. A first read, not a credit rating: it's gross debt (not netted against cash) over EBIT (not EBITDA), and a cyclical year distorts it.

• How long is cash tied up? —
  Not enough data

  The filing data didn't include the inputs for this check.

Is it a good business?

• Return on invested capital 16%
  High
  NOPAT $857M ÷ invested capital $5.5B (debt + equity − cash)

  The rate the business earns on the money tied up in it — Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high — pair this with Owner Earnings.

• Owner Earnings (free cash) margin -1%
  Consumes cash
  Owner Earnings ($680M) = operating cash $3.1B − capex $3.8B

  What an owner could take out without starving the business. That's -1% of revenue. Treating stock comp as the real expense it is (less $57M of SBC) leaves ($737M). Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).

• Are earnings backed by cash? 27.92×
  Cash-backed
  Cash from ops $3.1B ÷ net income $111M

  How much of reported profit showed up as operating cash. Above 1× is reassuring; well below suggests earnings lean on accruals. One year is noisy — growth and working-capital swings distort it, and this is operating cash, not free cash. Watch the multi-year trend.

How is the cash used?

• Where do the earnings go? —
  No surplus to allocate

  The business didn't generate positive Owner Earnings this year, so any distributions came from the balance sheet or borrowing — not from operations.

• Investing or harvesting? 1.72×
  Expanding
  Capex $3.8B ÷ depreciation $2.2B

  Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth — or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency — or a melting asset base). The ratio won't tell you which; the filings will.

Durability — 2018–2025

A moat is high return that doesn’t fade. Here are the quality metrics across a full cycle — judge the consistency, not the latest dot.

• Return on invested capital ≥15% in 3 of 3 years
  157%
• Operating margin
  3%
• Owner Earnings margin
  -1%