American Airlines is seeking to boost its liquidity further with a new $1bn equity issuance, led by underwriters Goldman Sachs, Credit Suisse, Deutsche Bank, Morgan Stanley and BNP Paribas. This is the second time the airline sold equity, after the sale of $750million of equity in June along with bonds and convertible bonds in a $3.6bn deal.
American does have a strong liquidity cushion already in place – reaching $15.6bn (including the additional $2bn just finalised through the CARES program) at the end of the third quarter. American does not have any debt amortisations due in the short-term, and has confirmed that it has approximately $4bn of unencumbered assets and $7 billion of first lien capability remaining should it need to raise more funds.
With international and business travel remaining depressed, pressure on earnings is set to continue for the long haul and the airline continues to burn cash despite making deep cuts. In an earnings call, Doug Parker confirmed that the airline had removed $17bn in costs from the business and cut its cash burn further in the third quarter to $44 million per day, down from $58 million per day in Q2. That burn rate is expected to decline further, said Parker, in the four quarter to between $25-30 million per day – with savings made primarily from the furloughing of 19,000 employees after the CARES Act payroll support program ended on October 1.
American posted a third quarter, pre-tax loss of $3.6bn, and a 73% drop in revenue on a 59% reduction in total capacity. The airline reported a GAAP net loss of $2.4 billion for the third quarter. Although revenue was down significantly, American Q3 revenue was nearly double that posted for the second quarter.
During the quarter, American recognised $540 million of pretax net special items, which included a $2.1 billion credit resulting from the payroll support program (PSP), which was offset in part by $875 million of severance costs associated with its voluntary and involuntary headcount reductions and $742 million fleet impairment charge. Excluding these special items, the airline’s reported net loss was $2.8 billion or $5.54 per share.
American has also announces that it has secured deferral rights with Boeing on the delivery of 18 737 MAX aircraft – eight due in 2021 and 10 due in 2022. If exercised, American would be able to defer these aircraft to H2 2023-Q1 2024, avoiding these deferrals, the airline says, would require “substantial improvement in the demand environment”. Commenting on the MAX return to service, the airline says if the aircraft is re-certified in November, it would expect to have the aircraft up in service a month or so after, which potentially could be by the very end of December.
The airline further confirmed on the earnings call that it has also been working with Airbus on “respreading the delivery stream’, having moved some aircraft due for delivery in 2021 to 2022.
During Q3, American finalised a series of sale-leaseback transactions to finance its remaining A320 aircraft deliveries in 2021.
American has now removed more than 150 aircraft from its fleet through early retirements or by placing aircraft into temporary storage. This week, the airline announced the permanent retirement of its 15 A330-200s – accounting for the fleet impairment charge – which leaves it with just four aircraft types in its mainline fleet: 737, the A320 family, 787 and 777. The airline further notes that it has the option to reduce its fleet further when 51 aircraft leases expire through to the end of 2022 and can even part out some 200 older aircraft from its mainline and regional fleet if “conditions deteriorate”.
American has also acted to further reduce its non-aircraft capital expense — by $700 million in 2020 and another $300 million in 2021 — through reductions in fleet modification work, the elimination of all new ground service equipment purchases, and pausing all noncritical facility investments and IT projects.
Despite the pressure on passenger revenue, American has benefitted from an uptick in demand for cargo flights. The airline more than doubled its cargo only flying from August to September, operating more than 1,900 flights, serving 32 destinations during the third quarter, which has helped cargo revenue remain flat year-over-year despite a nearly 60% reduction in system capacity in Q3.
American expects its fourth quarter system capacity to be down slightly more than 50% year-over-year with long-haul international capacity down approximately 75% year-over-year. Q4 revenue is expected to be down 65%.