The coronavirus has handed airlines their biggest crisis since the Sept 11th 2001 terrorist attacks.
Fears about the coronavirus epidemic have disproportionately hurt the travel industry, with airlines announcing a drastic fall in bookings. According to CCN, American Airlines, with its high debt, now faces the prospect of filing for bankruptcy. American Airlines (AAL) has lost more than 50% of their value, since their 2020 high.
In 2011, a highly leveraged American Airlines filed for Chapter 11 bankruptcy protection. Many of the issues that were present in 2011 – high debt and ongoing labour disputes are still impacting the airline today.
American is now more leveraged than nine years ago. When filing for bankruptcy in 2011, American Airlines reported liabilities of $29.55 billion. This time round, American has more than $34 billion in debt.
This contrasts sharply with the $20 billion held by United Airlines Holdings Inc, $17.4 billion by Delta Air Lines Inc and $4.6 billion held by Southwest Airlines Co.
According to CCN, AAL bonds are near distressed levels. This elevates bond investors’ worries over the carrier’s ability to repay debt. Last week some of the firm’s bonds were yielding over 12%. At time of low or negative interest rates, a double-digit yield suggests high levels of default.
Instead buying down the debt, American Airlines authorised $2 Billion in stock buybacks to be completed by December 31st 2020.
Airlines Biggest Crisis Since Sept 11
United Airlines on Tuesday reported a 70% drop in domestic demand in the last few days. They have said that they will have to make more deep cuts to flights in the coming months, as the coronavirus keeps travellers at home.
United’s net bookings, which include new reservations minus cancellations, have collapsed in Asia and Europe, said Scott Kirby, the airline’s president who is scheduled to take over as CEO from Oscar Munoz in May. While domestic net bookings are down 70%, gross bookings are down 25%; which Kirby said is a better measure of current demand.
Global airlines stand to lose up to $113 billion in sales due to the coronavirus, the International Air Transport Association estimated in early March, up from the $30 billion loss the trade group had forecast just two weeks earlier.
As COVID-19 sinks demand, crude oil prices have tanked; offering some relief on costs, as fuel is the most expensive input for airlines.
H/T CCN
American Airlines has fought its employees every step of the way since deregulation began. The American Airlines employee expects generally the worst from AA management and is rarely disappointed. To AA management, the AA employee is clearly the enemy and an obstacle to be overcome. AA employees return this sentiment in spades. AA may just barely survive. Survive or not, AA will try every way possible to take its pound of flesh from the employee pensions. Bet on it.
10b in cash sounds good. But let’s see how long things take to get back to where they were. And what the cash burn looks like getting there. If some one has a crystal ball. Use it we need it Asap.
And the corporate bonus structure will still survive in bankruptcy. If we continue allow management to take bonuses when companies are performing poorly or failing there is little incentive for management to perform in the most responsible manner to their employees and outside contactors.
Considering how damaging bankruptcies are to a huge number of other businesses fanning far out into communities we should legislate how much management can profit from this type of destruction,
Obviously positive incentives to keep such companies running profitably are not enough. Negative incentives that only allow top brass their salaries until a company is returned to profitability would help the economy
Actually this is likely to bankrupt virtually all airlines, worldwide. Of course AA chairman had to arrogance to say a year or 2 ago, “AA will never lose money again.” 🙈 so we know what happens to braggarts. 🌨️
This is a black swan event. It will likely change bau worldwide.
You need to have all of your facts and figures straight! The Coronavirus redoubtably has a major negative impact on all carriers including American, but it definitely is not at the magnitude that you used/described in your headline. I respect you as a popular aviation blogger but this is an irresponsible piece without solid financial backing and it is spreading fear across the airline and travel industry unnecessarily!
I will ask you wait for a few weeks to see how this all plays out. If you read through the article, there are several facts on AA’s high leverage debt. Judging by Wall St’s reaction, AAL stock fell much more than its counterparts this week.
Huh? Pay attention. Nothing is moving… Nothing.
Bret – damn I hope you’re right !
The hysteria continue.. A lot of fear mongering going on. U.S. airline industry totally different these days and set up to weather this storm. Not to mention AAL has more liquidity than any other airline in the world, and 10B in unencumbered assets…
GRAPEVINE, Texas (AP) — The CEO of American Airlines says the once-volatile industry has changed so radically that his company will never lose money again. Even in a bad year, Doug Parker says, the world’s biggest airline should earn about $3 billion in profit before taxes.Sep 28, 2017
famous last words,” We’ll never lose money again!” LMAO