Ford Attacks Debt, Unveils 2011 Explorer

Ford, like American Airlines, has aggressively shed debt after avoiding bankruptcy. But American, unlike Ford, gets no credit from customers.
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DETROIT (

TheStreet

) -- Not only did

Ford

(F) - Get Report

bust past Wall Street estimates on Friday, but the automaker also reinforced its commitment to pay down debt.

>>Ford Sees Best Quarter in Six Years

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By the end of 2011, Ford said, it expects to move from an automotive net debt position to a net cash position -- in other words, it will have more cash than debt. "It's clearly a really positive development," said CEO Alan Mulally, on the earnings conference call Friday. "We will be able to continue to improve the balance sheet and pay down debt."

Ford ended the quarter with $21.9 billion of automotive gross cash and automotive debt of $27.3 billion, after retiring $7 billion of debt during the quarter. As Mulally has said previously, the best way to address the issue that the company has more debt than its competitors is to produce profits. Ford made $2.6 billion in the quarter.

The company also plans to unveil the new 2011 Ford Explorer later this morning, a new-generation SUV that, less boxy-looking than its predecessor, will feature a V6, 290-horsepower engine that's expected to deliver 20% better fuel economy than the 2010 model.

Joe Phillippi of Auto Trends Consulting said the ability to further strengthen its balance sheet reflects Ford's continuing success. "They've had cost reductions, they're seeing growth, they expect improvement in Europe and an improvement in mix with the new Explorer," he said. "That's why they can reach

a cash positive position."

Ford's debt moves reflect a similar effort by

American Airlines

(AMR)

which, like Ford, competes in a world where peers reduced costs and debt in bankruptcy court. As American CEO Gerard Arpey said on the company's earnings call on Wednesday, speaking of his competitors, "You have all these guys who went bankrupt, hammered peoples' pensions and hammered their retiree medical benefits

and stuck the taxpayers so they can charge less for their product."

Unlike American, Ford has gotten a lot of credit from its customers for distinguishing itself by avoiding bankruptcy and eschewing the government loans that accompanied it. "We are paying a bit more interest now because we have a little bit more debt," Mulally said in a 2009 interview. "But you think of all the positive things because we didn't

file bankruptcy and accept buyouts. People love us, we have a strong business and positive cash flow, and we'll accelerate the improvements of the balance sheet."

Unfortunately for American, airline passengers tend to prefer lower fares to inspirational corporate sagas, especially when the product itself often shows minimal variation from one network carrier to the next.

As a result, for American, the benefit so far has been largely confined to a better balance sheet. At year-end 2005, the carrier had total debt of $20.1 billion and net debt (total debt less unrestricted cash and liquid investments) of $16.3 billion. On June 20, 2010, American had total debt of $16.1 billion and net debt of $11 billion, despite taking delivery of 31 new aircraft in 2009. Last week, CFO Tom Horton, who oversaw the improvement, was promoted to president.

-- Written by Ted Reed in Charlotte, N.C

.