Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
American Airlines Group Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2023 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,815 – 8.88% × 30,476 = 109
The financial performance from 2019 to 2023 is characterized by a severe operational contraction followed by a phased recovery in value creation. The transition from a positive economic profit in 2019 to significant value destruction during the 2020-2022 period, and the subsequent return to positive economic profit in 2023, indicates a volatile but recovering economic trajectory.
- Net Operating Profit After Taxes (NOPAT)
- A precipitous decline in NOPAT is observed between 2019 and 2020, falling from 3,350 million to -10,143 million. This operational loss narrowed in 2021 to -736 million before returning to positive territory in 2022 at 2,040 million and further increasing to 2,815 million by the end of 2023. The trajectory suggests a V-shaped recovery in operating profitability.
- Invested Capital and Cost of Capital
- Invested capital peaked in 2019 at 35,495 million and experienced a downward trend through 2021, reaching a low of 29,074 million. A slight recovery occurred in 2022 to 30,859 million, with values stabilizing at 30,476 million in 2023. The cost of capital remained relatively stable throughout the period, fluctuating between a low of 7.91% in 2021 and a high of 8.88% in 2023, indicating a consistent requirement for returns on invested capital despite operational volatility.
- Economic Profit and Value Creation
- Economic profit mirrors the volatility of NOPAT, shifting from a positive 258 million in 2019 to a significant deficit of -12,791 million in 2020. While the losses diminished progressively in 2021 (-3,035 million) and 2022 (-680 million), the entity successfully returned to a state of positive economic value added in 2023 with a profit of 109 million. This indicates that the operating returns finally exceeded the cost of the capital employed by the end of the observed period.
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Net Operating Profit after Taxes (NOPAT)
American Airlines Group Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in equity equivalents to net income (loss).
3 2023 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 7,761 × 7.60% = 590
4 2023 Calculation
Tax benefit of interest expense, net = Adjusted interest expense, net × Statutory income tax rate
= 2,735 × 21.00% = 574
5 Addition of after taxes interest expense to net income (loss).
6 2023 Calculation
Tax expense (benefit) of investment income = Investment income, before tax × Statutory income tax rate
= 591 × 21.00% = 124
7 Elimination of after taxes investment income.
The financial performance from 2019 to 2023 is characterized by a severe contraction followed by a steady multi-year recovery. Both net income and net operating profit after taxes (NOPAT) exhibit a synchronized V-shaped trajectory, reflecting a period of extreme volatility in operational profitability.
- NOPAT Trend Analysis
- A significant decline in operational profitability occurred between 2019 and 2020, with NOPAT falling from US$ 3,350 million to a deficit of US$ 10,143 million. This represents a substantial erosion of value creation. Recovery commenced in 2021, as the NOPAT deficit narrowed to US$ 736 million, eventually returning to positive territory in 2022 at US$ 2,040 million and continuing upward to US$ 2,815 million by the end of 2023. Despite this growth, the 2023 NOPAT remains below the pre-pandemic level established in 2019.
- Correlation Between NOPAT and Net Income
- A consistent divergence is observed between NOPAT and net income, particularly in profitable years. In 2019, 2022, and 2023, NOPAT exceeded net income, indicating that interest expenses and other non-operating costs reduced the final bottom-line results. The magnitude of losses in 2020 was similarly reflected in both metrics, with NOPAT showing a more pronounced negative value (US$ -10,143 million) compared to net income (US$ -8,885 million), highlighting the scale of operational losses before the impact of financial structuring or tax adjustments.
- Operational Recovery Velocity
- The rate of recovery accelerated between 2021 and 2023. The transition from a negative NOPAT of US$ 736 million in 2021 to a positive US$ 2,815 million in 2023 suggests a restoration of operational efficiency and demand. The trajectory indicates a stabilization of core business operations, although the company has not yet fully regained its 2019 operational profit peak.
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Cash Operating Taxes
American Airlines Group Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
An analysis of the tax expenditures from 2019 to 2023 reveals a significant divergence between accrual-based income tax provisions and actual cash operating tax outflows. While the income tax provision exhibited extreme volatility, cash operating taxes remained relatively stable and trended upward for the majority of the period.
- Income Tax Provision Trends
- The income tax provision transitioned from a positive expense of 570 million USD in 2019 to substantial tax benefits in 2020 and 2021, peaking at a benefit of 2,568 million USD in 2020. This shift indicates significant tax losses or the recognition of deferred tax assets during those years. A return to positive tax provisions began in 2022 at 59 million USD and increased to 299 million USD by 2023, signaling a recovery in taxable income.
- Cash Operating Tax Analysis
- In contrast to the accounting provisions, cash operating taxes showed a consistent upward trajectory from 2019 to 2022. Payments rose from 303 million USD in 2019 to a peak of 485 million USD in 2022. A slight contraction occurred in 2023, with cash taxes decreasing to 450 million USD. The absence of negative values in this category confirms that the company continued to make cash tax payments regardless of the tax benefits reported on the income statement.
- Comparative Divergence and EVA Implications
- The discrepancy between the tax benefit reported in 2020 and 2021 and the actual cash paid during those years suggests that the tax benefits were non-cash in nature. For the purpose of calculating Economic Value Added (EVA), the use of cash operating taxes provides a more accurate representation of the actual cash leakage from the business. The steady increase in cash taxes through 2022 indicates a persistent cash requirement for tax obligations that was not offset by the accounting tax benefits recognized during the pandemic recovery period.
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Invested Capital
American Airlines Group Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of equity equivalents to stockholders’ deficit.
4 Removal of accumulated other comprehensive income.
5 Subtraction of short-term investments.
The financial structure from 2019 to 2023 is characterized by a period of significant expansion in liabilities and a simultaneous erosion of equity, followed by a gradual phase of stabilization and deleveraging starting in 2022.
- Debt and Lease Obligations
- A substantial upward trend in total reported debt and leases is observed between 2019 and 2021, with values rising from 33,444 million US dollars to a peak of 46,177 million US dollars. This peak was followed by a consistent decline, reducing the total obligations to 40,663 million US dollars by December 31, 2023, indicating a strategic effort to reduce leverage.
- Shareholders' Equity Position
- The company experienced a severe deterioration in its equity position, moving from a negligible deficit of 118 million US dollars in 2019 to a maximum deficit of 7,340 million US dollars in 2021. A recovery trend emerged after 2021, with the stockholders' deficit narrowing to 5,202 million US dollars by the end of 2023, although the position remains significantly negative.
- Invested Capital Trajectory
- Invested capital followed a U-shaped trajectory over the analyzed period. An initial contraction is evident from 2019, where invested capital stood at 35,495 million US dollars, falling to a low of 29,074 million US dollars in 2021. This was followed by a moderate increase to 30,859 million US dollars in 2022, before settling at 30,476 million US dollars in 2023.
The convergence of increasing debt and a deepening equity deficit through 2021 suggests a period of high financial stress. However, the subsequent reduction in total debt and the gradual improvement in the stockholders' deficit indicate a shift toward financial stabilization and capital restructuring in the most recent two years of the period.
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Cost of Capital
American Airlines Group Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 9,684) | 9,684) | ÷ | 50,261) | = | 0.19 | 0.19 | × | 23.94% | = | 4.61% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 32,816) | 32,816) | ÷ | 50,261) | = | 0.65 | 0.65 | × | 6.47% × (1 – 21.00%) | = | 3.34% | ||
| Operating lease liability4 | 7,761) | 7,761) | ÷ | 50,261) | = | 0.15 | 0.15 | × | 7.60% × (1 – 21.00%) | = | 0.93% | ||
| Total: | 50,261) | 1.00 | 8.88% | ||||||||||
Based on: 10-K (reporting date: 2023-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 10,136) | 10,136) | ÷ | 51,490) | = | 0.20 | 0.20 | × | 23.94% | = | 4.71% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 33,330) | 33,330) | ÷ | 51,490) | = | 0.65 | 0.65 | × | 6.24% × (1 – 21.00%) | = | 3.19% | ||
| Operating lease liability4 | 8,024) | 8,024) | ÷ | 51,490) | = | 0.16 | 0.16 | × | 7.40% × (1 – 21.00%) | = | 0.91% | ||
| Total: | 51,490) | 1.00 | 8.81% | ||||||||||
Based on: 10-K (reporting date: 2022-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 11,315) | 11,315) | ÷ | 58,736) | = | 0.19 | 0.19 | × | 23.94% | = | 4.61% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 39,304) | 39,304) | ÷ | 58,736) | = | 0.67 | 0.67 | × | 4.93% × (1 – 21.00%) | = | 2.61% | ||
| Operating lease liability4 | 8,117) | 8,117) | ÷ | 58,736) | = | 0.14 | 0.14 | × | 6.30% × (1 – 21.00%) | = | 0.69% | ||
| Total: | 58,736) | 1.00 | 7.91% | ||||||||||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 11,508) | 11,508) | ÷ | 50,962) | = | 0.23 | 0.23 | × | 23.94% | = | 5.41% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 31,026) | 31,026) | ÷ | 50,962) | = | 0.61 | 0.61 | × | 4.77% × (1 – 21.00%) | = | 2.29% | ||
| Operating lease liability4 | 8,428) | 8,428) | ÷ | 50,962) | = | 0.17 | 0.17 | × | 5.60% × (1 – 21.00%) | = | 0.73% | ||
| Total: | 50,962) | 1.00 | 8.43% | ||||||||||
Based on: 10-K (reporting date: 2020-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 12,070) | 12,070) | ÷ | 46,377) | = | 0.26 | 0.26 | × | 23.94% | = | 6.23% | ||
| Long-term debt and finance lease liabilities, including current maturities3 | 25,178) | 25,178) | ÷ | 46,377) | = | 0.54 | 0.54 | × | 4.08% × (1 – 21.00%) | = | 1.75% | ||
| Operating lease liability4 | 9,129) | 9,129) | ÷ | 46,377) | = | 0.20 | 0.20 | × | 4.70% × (1 – 21.00%) | = | 0.73% | ||
| Total: | 46,377) | 1.00 | 8.71% | ||||||||||
Based on: 10-K (reporting date: 2019-12-31).
1 US$ in millions
2 Equity. See details »
3 Long-term debt and finance lease liabilities, including current maturities. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
American Airlines Group Inc., economic spread ratio calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 109) | (680) | (3,035) | (12,791) | 258) | |
| Invested capital2 | 30,476) | 30,859) | 29,074) | 31,408) | 35,495) | |
| Performance Ratio | ||||||
| Economic spread ratio3 | 0.36% | -2.20% | -10.44% | -40.73% | 0.73% | |
| Benchmarks | ||||||
| Economic Spread Ratio, Competitors4 | ||||||
| FedEx Corp. | -6.56% | -6.19% | -3.65% | — | — | |
| Uber Technologies Inc. | -3.67% | -73.67% | -22.83% | — | — | |
| Union Pacific Corp. | -3.36% | -1.44% | -2.31% | — | — | |
| United Airlines Holdings Inc. | 0.88% | -3.34% | -10.26% | — | — | |
| United Parcel Service Inc. | 0.74% | 11.71% | 17.54% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 Invested capital. See details »
3 2023 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 109 ÷ 30,476 = 0.36%
4 Click competitor name to see calculations.
The financial performance from 2019 to 2023 is characterized by a severe contraction in economic value followed by a progressive multi-year recovery. The transition from a positive economic spread in 2019 to a deep deficit in 2020, and the subsequent return to positive territory in 2023, indicates a volatile cycle of value destruction and restoration.
- Economic Profit Trends
- A substantial decline is observed between 2019 and 2020, where economic profit shifted from a positive $258 million to a deficit of $12,791 million. A consistent recovery pattern emerged thereafter, with losses narrowing to $3,035 million in 2021 and $680 million in 2022. By December 31, 2023, economic profit returned to a positive state, reaching $109 million.
- Invested Capital Fluctuations
- Invested capital showed a downward trend during the initial phase of the observed period, decreasing from $35,495 million in 2019 to a minimum of $29,074 million in 2021. In the following two years, the capital base stabilized, ending the period at $30,476 million in 2023, suggesting a period of balance sheet adjustment and consolidation.
- Economic Spread Ratio Analysis
- The economic spread ratio experienced an extreme contraction in 2020, dropping from 0.73% to -40.73%, which signifies that the return on invested capital fell drastically below the cost of capital. The ratio demonstrated a steady upward trajectory over the ensuing three years, improving to -10.44% in 2021 and -2.20% in 2022. The recovery culminated in 2023 with a positive ratio of 0.36%, indicating that the entity has once again begun generating returns in excess of its cost of capital.
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Economic Profit Margin
American Airlines Group Inc., economic profit margin calculation, comparison to benchmarks
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Economic profit1 | 109) | (680) | (3,035) | (12,791) | 258) | |
| Operating revenues | 52,788) | 48,971) | 29,882) | 17,337) | 45,768) | |
| Performance Ratio | ||||||
| Economic profit margin2 | 0.21% | -1.39% | -10.16% | -73.78% | 0.56% | |
| Benchmarks | ||||||
| Economic Profit Margin, Competitors3 | ||||||
| FedEx Corp. | -5.06% | -4.40% | -2.79% | — | — | |
| Uber Technologies Inc. | -1.54% | -37.76% | -21.03% | — | — | |
| Union Pacific Corp. | -8.56% | -3.47% | -6.17% | — | — | |
| United Airlines Holdings Inc. | 0.74% | -3.05% | -21.62% | — | — | |
| United Parcel Service Inc. | 0.37% | 5.23% | 8.01% | — | — | |
Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).
1 Economic profit. See details »
2 2023 Calculation
Economic profit margin = 100 × Economic profit ÷ Operating revenues
= 100 × 109 ÷ 52,788 = 0.21%
3 Click competitor name to see calculations.
The financial trajectory between 2019 and 2023 demonstrates a period of extreme volatility characterized by a severe contraction followed by a systematic recovery in both revenue generation and economic value creation.
- Operating Revenue Performance
- Operating revenues experienced a precipitous decline in 2020, falling from US$ 45,768 million to US$ 17,337 million. Following this contraction, a consistent upward trend was observed, with revenues surpassing 2019 levels by 2022 and reaching a peak of US$ 52,788 million by the end of 2023.
- Economic Profit Evolution
- Economic profit shifted from a positive US$ 258 million in 2019 to a substantial deficit of US$ 12,791 million in 2020. A trend of sequential improvement followed, with losses narrowing to US$ 3,035 million in 2021 and US$ 680 million in 2022, eventually returning to a positive value of US$ 109 million in 2023. This indicates a restoration of the ability to generate returns exceeding the cost of capital.
- Economic Profit Margin Analysis
- The economic profit margin reflects the scale of value destruction and subsequent recovery. The margin plummeted from 0.56% in 2019 to -73.78% in 2020, signaling a period where operating returns were vastly insufficient to cover the capital charge. The margin improved steadily to -10.16% in 2021 and -1.39% in 2022, before returning to a positive threshold of 0.21% in 2023, confirming a return to positive economic value added.
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