American Airlines announced on June 21st that it would be working to raise $1.5 billion. The airline will be selling secured senior notes due 2025. In addition, the airline has also announced proposed underwritten public offerings of $750 million. Another $750 million will be in convertible senior notes. In total, this will equate to $3 billion in new financing for the carrier.
Selling notes and stocks
American Airlines announced separately that it was selling both shares, senior secured notes, and convertible senior notes in a bid to earn new funding. American intends to grant the underwriters of the offerings a 30-day option to purchase up to $112.5 million of shares or the same amount in convertible notes. Lastly, American also plans to enter a new $500 million Term Loan B Facility due 2024 concurrently with the closing of the offering of the notes.
The notes and the Term Loan will be secured using slots, gates, and routes. The routes collateral is used by the airline for nonstop scheduled commercial flights between the United States and Australia, Canada, the Caribbean, Central America, China, Hong Kong, Japan, Mexico, South Korea, and Switzerland.
A second lien basis also includes slots, gates, and routes collateral for flights between the United States and the European Union and the UK. This collateral, however, does not include all points on either end. Instead, it is for select points in the United States and select airports abroad.
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The money from both offerings will be used for general corporate purposes to enhance the airline’s liquidity position, according to the carrier.
Boosting the company’s liquidity
The airline is currently focused on ensuring it has the cash it needs to survive the current crisis. While American has seen higher loads and announced systemwide capacity increases, it is still burning through a significant amount of cash per day. Further, to support its cash reserves, the carrier is pledging revenues from the AAdvantage credit card for a government loan.
After posting a massive loss in the first quarter of 2020, many eyes were turned on the airline to see how it would come out of the crisis. The company’s executives prioritized streamlining the airline’s operations and reducing expenditures. This saw the airline retire older aircraft types and push on with cabin retrofits to reduce operational complexity.
A full understanding of how the team’s efforts turned out will be available once the airline releases its second-quarter results. The airline has put out some guidance that it expects revenue to be down 90% this quarter compared to the same period last year.
When will the situation return to normal?
American’s team is planning for a multi-year recovery period. Niche routes will not come back for the next few years as international demand is expected to return slowly. Meanwhile, domestically, the carrier is focusing on rebuilding its network.
It is unlikely that American will see record profits at any point this year. That may have to wait for the next year or two. In the meantime, however, cargo is helping pay some of the airline’s bills. Many in the industry have been optimistic that once the current health crisis has subsided, and there are safeguards in place, such as a vaccine, then demand will start to rise. This prospect remains to be seen and is resting on many complex variables.
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