A recent article from But that doesn’t necessarily mean the stocks of major airlines will survive. All rights reserved.Airlines are racking up billions in debt to get through COVID-19. Scarola said mergers are less likely today because debt loads are so high across the industry.Duane Pfennigwerth, an analyst with Evercore ISI, downgraded American’s stock and put a $1 target price on it, down about 90% from its current price and more than 97% from the price that it was trading at in February, before the pandemic.
American Airlines Group long term debt from 2006 to 2020. The company has approached unions asking for cost-cutting ideas, a move labor leaders interpreted as preparation for concessions down the road.Southwest has also continued to ask for voluntary leave from employees and is working on early retirement programs to get smaller.
Nasdaq Moreover, there has been very little change in the month of May.For example, in the past week ending May 15, the number of airline passengers is down 91.7% from last year. “I don’t know too many people who say things are going to bounce back for airlines in September.”Warren Buffett’s Berkshire Hathaway dumped its 10% share in airlines at the end of April.
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With that in mind, it makes sense to hold off on buying shares of American Airlines at the moment.In my May 4 article, I pointed out that the company has a For example, at the end of March, American Airlines had over So if you add in another three quarters of cash burn, there will be at least $15 billion to $18 billion in additional debt or convertible equity. The company cut 2020 expenditures by about $12 billion, including all building projects.The company expects to have about $11 billion in cash on hand by the end of June, including $5.8 billion in government grants and loans. That doesn’t include the value of its AAdvantage frequent-flyer program.After American, Atlanta-based Delta Air Lines has the most debt, with about $24 billion at the beginning of April. The Dallas-based carrier has about $9.3 billion in cash and has been just as aggressive in asking banks for money as any other airline.It’s burning through about $30 million of cash a day with 60,000 employees. … That would be the only way they would lower their total amount of debt or interest rates at American Airlines.For those investors that believe in the turnaround story with AAL stock, there is one very good real-time way to track the company’s revenue. Still, to stop that, it will need to see passenger levels rise or continue to cut costs.Southwest CEO Gary Kelly said the company has been building its cash stockpile in case it needs it but might end up using a lot of it to pay back creditors or the federal government for the $1 billion in loans it took as part of the CARES Act.“Cash in this environment is an asymmetrical risk,” Kelly said in a call with investors in late April. AAL stock is simply not able to recover from the debt on its balance sheet.Article printed from InvestorPlace Media, https://investorplace.com/2020/05/american-airlines-aal-stock-crushing-debt-pile/.Financial Market Data powered by FinancialContent Services, Inc. All rights reserved. “Not enough, that is a huge problem. And carriers will have to use more of that profit to pay off loans taken due to the COVID-19 pandemic.One analyst said American won’t get through without significantly more help from the government or bankruptcy, an experience its leaders are all too familiar with.
It has also applied for another $4.75 billion in government loans.Most of those loans and credit lines tapped by American won’t come due for at least two years, Parker said. American and Southwest airlines have taken on billions in new debt from private and government sources, burning through $30 million to $70 million a day in order to get through the depths of the COVID-19 pandemic when virtually no one is flying.Airlines had few choices, but what happens when the bills come due for all the new borrowing?For Fort Worth-based American, its debt load totals around $40 billion. That should buy American time to start making money again before all those loans come due.“We need to get back to a point where we’re generating free cash flow in the future, and as we do that, we’ll be using that to pay down the debt over time,” he said.American also has about $10 billion in “unencumbered assets," property such as airplanes and airport gate contracts that does not have a loan against it. Investors should be extremely cautious with companies like American Airlines. Source: GagliardiPhotography / Shutterstock.com How so? It also invested in airports across the country.American has the lowest profit margin of any of the major airlines and the most employees and planes.But American’s revenue nearly doubled in 2019 to $45.8 billion compared to previous highs before the Great Recession and more passengers than ever were flying. Firstly, one could argue that low-cost carriers like Southwest (NYSE:LUV) are better airline recovery plays.
Kelly said the company is trying to avoid furloughs but said he won’t make any promises. It also represents over twice the net income American Airlines generated in 2018.So what is likely to happen is that note and bondholders will demand a large, if not the complete amount of a newly reorganized company. By the end of 2020, American will likely have more net debt than annual revenue, Pfennigwerth said. 1125 N. Charles St, Baltimore, MD 21201.