Although more people are deciding to start traveling now that the worst of this pandemic seems to have passed (for now), tourism-related industries might see a much-needed influx in revenue. With a significant recovery seeming unlikely for the industry right now, most experts think that major airlines around the world could still see the majority of their now-diminished market value decline even further. In order to stay afloat, one of America’s top airlines is taking on billions in financing to stay in business while air travel recovers.
American Airlines (NASDAQ:AAL) announced on Sunday that the company would end up taking on an extra $3.5 billion in financing to help shore up its financial position. Around $1.5 billion of this total figure would come from selling shares and senior convertible notes, alongside an extra $1.5 billion in senior secured notes, followed up by an additional $500 million loan. All of these, except for the new shares, will be due around 2024 or 2025. All the biggest investment banks on Wall Street, from Goldman Sachs, Citigroup, JP Morgan, and others, will be underwriting the arrangement.
It’s good news for American Airlines, especially since other airlines have been struggled to raise cash in this environment. Historical value investors that love investing in distressed times, like Warren Buffett, have uncharacteristically decided to sell most of their aviation-related holdings. As such, many companies are finding themselves hard-pressed to secure fresh financing. Billionaire Richard Branson had previously offered up his own private island as collateral for a much-needed loan for his airline earlier this year.
Some analysts expect shares of major airline companies to continue to plummet in the near future. Earlier this month, analysts from Jefferies wrote in a note that “North American carriers are demonstrating improvement with July down ~55% vs. an estimated 74% cut in June and 78% in May.” They went on to argue that global airline capacity could easily fall by a substantial amount, with shares of the top airlines tumbling significantly as well.
On Friday, shares of American Airlines ended up falling by around 3%, with the company’s stock tumbling an extra 3% over the weekend in after-hours trading. Shares are still trading near their earlier lows seen back in May.
Many top industry experts have predicted a wave of bankruptcies from the aviation industry in the months to come. While there were rumors circulating that American Airlines could be one of those companies to go out of business due to this lockdown, it seems that the aviation giant will be able to tough things out for a while longer still. The next question that many of these companies will need to ask is whether or not there will be a second major outbreak of COVID-19, and whether they can survive another decline in global air traffic.
American Airlines Company Profile
American Airlines operates almost 7,000 flights per day to more than 350 destinations in 50 countries from hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington, D.C. The company generated roughly $45 billion in revenue during 2018. – Warrior Trading News
