Fort Worth, Texas-based American Airlines, has today announced the proposed sale of 38.5 million shares of its common stocks. The airline is looking to boost its liquidity amid the continued slump in ticket sales caused by the coronavirus pandemic.
Airline issues shares to cut losses
American Airlines issued a press release on Tuesday, November 10, that it is proposing a public offering of 38.5 million shares of its common stock. The company says that the sale’s net proceeds will be used for general corporate purposes and to enhance the airline’s liquidity position.
The Bank of America is the sole underwriter of the offering, and the shares have been priced at $13 each. According to Reuters’ sources, the share price represents a 1.5% discount over the airline’s closing price on Monday. The company also intends to offer BofA Securities a 30-day option to buy an additional 5,775,000 shares in whole or in part.
American Airlines expects to finish the fourth quarter with over $14.5 billion in available liquidity. That’s an increase from the $13.6 billion reported at the end of the third quarter. By the close of business on Monday, stock in the airline had fallen by 54% this year.
America Airlines’ second share issue this year
The share issue from American Airlines is the second such sale since the beginning of the worldwide COVID-19 crisis. In June 2020, the company issued $750 million worth of stock and bonds in a deal worth $3.6 billion. In October, the airline announced that it was planning to authorize the issue of up to $1 billion in shares as the ongoing crisis eats into revenue and profitability. The company’s chief financial officer, Derek Kerr, said,
“We view this as another lever that the company has available at any time.”
The airline has been cutting costs wherever possible to maintain its liquidity. However, it reported losses of $2.4 billion for the third quarter of 2020. Revenue was down 73% to $3.2 billion year on year.
Through its cost-cutting efforts, American Airlines has cut its workforce by 39,000, including the 19,000 who went on furlough on October 1, when government aid to avoid job cuts ended. The reduction in employee numbers made up around $1 billion of the $17 billion in capital and operating expenditure cuts.
The carrier has deferred the delivery of 18 Boeing 737 MAX aircraft from 2021/22 to 2023/24. American has also completed a sale-and-leaseback deal for its delivery of Airbus A321 aircraft due to take place next year. In a move to operate an all-Boeing long-haul fleet, the airline has retired all of its Airbus A330s.
American Airlines CEO, Doug Parker, said last month that he thought a six-month extension of the government’s payroll support program (PSP) would be the last round of aid required. Without an extension, he believes the aviation industry won’t have the necessary infrastructure to cope with the rise in demand as the crisis comes to an end.
He has also said that American Airlines would have to cut services to several smaller US cities without any further assistance. He called for the PSP to be extended to March 2021.
Will American Airlines be a much smaller entity when it emerges from the current crisis?