AAL – CDS 627bps, Base Case iCDS 185bps, Negative Case iCDS 222bps, 2025 3.750% Bond YTW of 6.023%, iYTW of 2.633%, B2 Rating from Moody’s, XO- (equivalent to Ba1) Rating from Valens, Moderate Refinancing Need

• Credit markets are grossly overstating credit risk with a YTW of 6.023% and CDS of 627bps relative to an Intrinsic YTW of 2.633% and Intrinsic CDS of 185bps. Furthermore, Moody’s is overstating AAL’s fundamental credit risk with its B2 credit rating four notches lower than Valens’ XO- (Ba1) credit rating
• Incentives Dictate Behavior™ analysis highlights favorable signals for credit holders. Management’s compensation framework should focus management on all three value drivers: asset efficiency, margins, and top-line growth, which should lead to Uniform ROA expansion and increased cash flows available to service obligations. Additionally, management has low change-in-control compensation, indicating they may not be incentivized to seek a sale or accept a buyout of the company, reducing event risk. Moreover, most management members are material owners of AAL equity, indicating they may be well-aligned with shareholders for long-term value creation
• Earnings Call Forensics™ analysis of the Q1 2021 earnings call (4/22) highlights that management is confident they are starting to see signs of a strong economic recovery and that they will pay down debt once they see sustainable cash generation. They are also confident they will do more to reach their goal of net-zero carbon emissions by 2050 and that they are taking the right steps to mitigate 737 MAX concerns