Give me a break!
YRC is in trouble because they took on way to much debt at absolutely the wrong time.
Now they want the front line worker to bail them out for a second time with concessions.
YRC is another company that needs to clean house in the managerial ranks.
Give
me a break--there is no such thing as "too much debt'
IF you have sufficient earnings to make the interest and prinicipal obligations. Debt becomes an issue when you default on those payments. And
that is an earnings issue. The fact of the matter is that the compensation and benefits line item at YRCW is/was approximately 60% of revenues. Again--be objective without preconception and look at the numbers. Looking at YRCW's debt obligations--interest payments and current portion due of long-term debt as % of revenues vs. its compensation/benefits line:
2005 interest 1% current portion of LT debt 3% compensation/benefits 58%
2006 interest 1% current portion of LT debt 4% compensation/benefits 58%
2007 interest 1% current portion of LT debt 2% compensation/benefits 60%
2008 interest 1% current portion of LT debt 5% compensation/benefits 59%
2009 interest 3% current portion of LT debt 8% compensation/benefits 70%
Looking at those line items (debt-related expenses vs. compensation-related expenses) can you honestly and seriously blame the
debt for YRCW's problems? What I think you're mistakenly doing is blaming the default of the debt obligations triggering bankruptcy for the bankruptcy itself vs. instead of looking at the reason(s) behind the default (i.e., non-payment) to begin with--i.e., an unsustainable cost-structure.
Let's take a theoretical look at YRCW had they had a cost structure in terms of the compensation expense more in-line with FDX--IOW, 40% of revenues. This is how the numbers would've looked:
2005 compensation 40%
net income 22% (vs. compensation 58%
net income 3%)
2006 compensation 40%
net income 21% (vs. compensation 58%
net income 3%)
2007 compensation 40%
net income 13% (vs. compensation 60%
net income -7%)
2008 compensation 40%
net income 8% (vs. compensation 59%
net income -11%)
2009 compensation 40%
net income 18% (vs. compensation 70%
net income -12%)
Pretty clear YRCW's risk of default would've been non-existent--even with
the same amount of debt.
...This makes no sense? Yes, in our lives, 95% of our pay is quite a bit of money. BUT, when you have a salary of billions, upon billions of dollars, getting to keep that 5% could add up to quite a bit of money (which it does, in this case.)
Of course it makes sense--the use of percentages puts things in context vs. simply looking at absolute numbers devoid of context and perspective. The net income provides a cushion for when things go wrong--if you're operating on a razor thin profit margin, you have far less of a cushion than if that margin in more substantial. With low profit margins, any significant change in any expense line could easily turn profits into losses. Additionally, if these margins are eroding, this is a red flag--it is a trend which is not sustainable in the long run.