American Airlines Adds $3.5 Billion in Liquidity to Survive COVID-19
American Airlines Group Inc. (NASDAQ: AAL) announced over the weekend that it plans to raise additional cash through a secondary offering of stock and convertible notes valued at $1.5 billion, a privately placed $1.5 billion offering of senior secured notes due in 2025, and a new $500 million term loan due in 2024.
Airlines have been one of the industries hit hardest by the COVID-19 pandemic, and even though domestic passenger traffic has picked up recently, planes are flying with far less than full loads. International traffic remains nearly completely shut down.
American’s underwritten secondary offering includes $750 million in new stock plus a $112.5 million overallotment option for the underwriters and $750 million in senior convertible notes due in 2025. The airline said it plans to use the proceeds for general corporate purposes and “to enhance the Company’s liquidity position.”
The $1.5 billion in senior secured notes and the term loan are being secured “by a diverse pool of certain slots, gates and routes collateral that the Company uses to provide non-stop scheduled air carrier services” between both domestic and international airports.
Part of the proceeds for the senior notes will be used to refinance a $1 billion term loan that American took out in March. The company has depended since then largely on $5.8 billion in employee payroll support from the U.S. government because of the pandemic. That support runs out at the end of July, and there is no guarantee that Congress and the president will authorize more spending.
American is also in talks for a separate $4.75 billion federal loan it expects to close this month. If the airline secures the loan, it will have total liquidity of $11 billion at the end of June.
United Airlines Holdings Inc. (NASDAQ: UAL) last week received committed financing of $5 billion backed by its MileagePlus loyalty program and expects to receive $4.5 billion as a loan under the provisions of the federal CARES Act. United expects to have available liquidity of around $17 billion by the end of the third quarter.
The major airlines can burn through as much as $45 million a day with little or no revenue to offset those costs.
American Airlines stock traded down about 7.8% at $14.76 in Monday’s premarket session. The stock’s 52-week range is $8.25 to $34.99 and the consensus 12-month price target is $14.18. The airline’s dividend yield is 2.5%.