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