US airlines roll in cash despite huge losses

US airlines roll in cash despite huge losses

by
The country’s four largest airlines – American (AAL), Delta (DAL), United (UAL) and Suidwes (LUV) – between them had $ 31.5 billion in cash on their balance sheets at the end of 2020. That was higher than $ 13 billion a year before, before the pandemic. ‘Liquidity’ has become a favorite buzzword of airline executives discussing their financial condition. Including the cash and still unutilized credit lines, the airlines have access to nearly $ 65 billion.

“Liquidity is at record levels,” said Philip Baggaley, chief credit analyst for the airline industry at Standard & Poor’s. “It’s good, and it’s one of the few strengths they have at this point.”

The lion’s share of the loans and cash then come from banks and Wall Street. Like a struggling family flooded with credit card offers, the airlines have many people who would like to give cash.

The airlines sold bonds and borrowed money, mortgaged their aircraft, regular flight programs and other assets, and even sold additional shares, an extraordinary step for an industry in this position.

The loans added about $ 40 billion in long-term debt to the balance sheets of the country’s airlines.

“I think the general feeling is that they are injured, but they are going to get it right,” Baggaley said. The low interest rate environment helped the airlines as investors and banks seeking returns were willing to lend to the airlines, he added. All the transport companies except Suidwes have credit ratings for junk mortgages.

They also made deep cost cuts, even with government assistance preventing them from doing permanent, involuntary job cuts.

The airlines bought out and used early retirement to cut about 16% of the staff they had at the beginning of 2021. In the past few weeks, American and United have sent out dismissal notices between 27,000 employees saying they could be feared again unless there is third round of government assistance before April 1st.

Many of the workers were laid off in October when the first round of federal wage support ran out, and were called back to work in December when the second Covid aid package provided $ 17 billion to the industry. Last week, airline unions were again on Capitol Hill asking for another round of help to keep their members employed.

The cost cuts reduced the rate at which airlines burned through cash by about half between the second quarter and the fourth quarter last year, even with air travel and revenue remained a fraction of what they were before the pandemic.

But even though they rounded out the pace of cash burning, the four airlines together have been blowing $ 115 million a day in the last nine months of 2020. half of 2021. Building a substantial cash reserve is the only sure way to get through this unprecedented financial crisis, airlines say.

“Our industry still has a long way to go to recover,” Doug Parker, the U.S. chief executive, said in a recent phone call with investors. He said the accumulation of cash, coupled with cost savings, “builds our confidence that we are well positioned for the coming year and the long term.”

With the exception of Suidwes, which has just suffered its first annual loss since 1973, the country’s other major airlines all have at least one bankruptcy in their history. The current strong cash position in the industry raises the hope that they can avoid this fate this time. But it depends on when traffic returns, and even the airlines are not sure when it will be.
Southwest Airlines reports first loss in 48 years

“I have ten consecutive months of data that says people are ready to travel within six months. It keeps saying the same thing,” American Parker said in a recent interview with CNBC. “What I do believe is that once people are comfortable, it will come back relatively quickly. There is a huge pent-up demand to travel. We hear it everywhere we go. But no one is going to travel until there are things to do when you travel, and until the vaccine is spread and the pandemic is largely eradicated. ‘

S & P’s Baggaley believes airlines “are the worst of it over,” he said. None of them filed for bankruptcy, and he believes the odds will not be.

But he warns that, unlike the series of retail bankruptcies early last year that took place weeks or months into the crisis, airline bankruptcies could historically occur years after a financial crisis. Delta and North West only submitted in 2005, years after 9/11. American only filed in 2011, far after the Great Recession.

“It’s pretty worrying that they’ll come out of this with a lot more debt,” he said.

.Source