Close

American Airlines (AAL) expects its second quarter 2020 revenue to be down approximately 90%

June 12, 2020 8:05 AM EDT

American Airlines (NASDAQ: AAL) disclosed:

In light of the current operational environment during the COVID-19 pandemic (the “pandemic”), American Airlines Group Inc. (“AAG”) and American Airlines, Inc., a wholly owned subsidiary of AAG (“AAI” and, together with AAG and its other consolidated subsidiaries, the “Company”), are providing an update on recent performance.
Financial Performance Update
Due to the recent decline in demand caused by the COVID-19 pandemic, the Company expects its second quarter 2020 revenue to be down approximately 90% versus the second quarter of 2019, with total system capacity down approximately 75% versus the second quarter of 2019.
To preserve its liquidity position, the Company has taken significant cost reduction actions that have removed more than $13.5 billion from its operating and capital budgets for 2020. These savings are achieved through reductions in maintenance expense, marketing expense, event and training expenses, airport facilities expense, salaries and benefits expense, and other volume-related expense reductions, including fuel. Along with these cost-saving actions, the Company has recently experienced improving demand conditions and has passed the peak in cash refund activity. As a result, the Company’s cash burn rate has decelerated from a peak of over $100 million per day in April to approximately $40 million per day forecasted for the month of June. This marks a $10 million per day improvement for the month of June when compared to the Company’s previous forecast of $50 million per day. The Company seeks to reduce its cash burn rate to approximately zero by the end of 2020 as expected demand conditions continue to improve and its cost initiatives continue to gain traction. The Company defines cash burn as the sum of all net cash receipts less all cash disbursements but excluding the effect of new financings and new aircraft purchases.
The Company continues to expect that its liquidity, assuming the secured CARES Act loan of $4.75 billion is funded in June, will amount to approximately $11 billion as of June 30, 2020 without giving effect to any additional financing transactions that may be completed.
Demand and Capacity Update
In mid-March, the Company first observed negative net bookings, where cancellations exceeded new bookings. To better align its capacity with lower expected demand, the Company reduced its capacity through a combination of schedule reductions and close-in flight cancellations. This negative net booking trend persisted until late April.
The Company’s flown system capacity was down approximately 75% year-over-year in April, and down approximately 80% year-over-year in May. The Company’s June system capacity is expected to be down approximately 75% year-over-year.
As state and local shelter in place restrictions were relaxed, the Company observed improved passenger demand, particularly in its domestic network. Since the first week of May, the Company’s net bookings have been consistently positive and have shown continued signs of improvement. Since the middle of May, the Company has observed positive net bookings in each of the seven advanced purchase windows that it regularly monitors. These windows include tickets purchased between 1 to 6 days, 7 to 13 days, 14 to 30 days, 31 to 60 days, 61 to 90 days, 91 to 150 days, and 151 to 331 days prior to departure. The Company believes these trends are an indication of improving passenger demand although at levels significantly below those experienced in the same period in 2019.
In response to the improving trends in demand, the Company announced on June 4, 2020 that it is planning to fly 55% of its domestic schedule and nearly 20% of its international schedule in July 2020 compared to the same period last year. The Company's July system-wide capacity amounts to approximately 40% of July 2019 flying.
The table below summarizes recent domestic capacity, load factor and customer data:
Domestic
April
May
June*
July
Capacity
(Year over Year)
Down 70%
Down 75%
Down 70%
Down 45%
Load Factor
15%
47%
62%
Passengers per Day
31,000
85,000
129,000
* June Load Factor and Passenger data MTD as of June 8, 2020

CARES Act Loan Update and Unencumbered Assets Available for Financing
The Company has applied for a secured loan in the amount of approximately $4.75 billion through the loan program under the CARES Act. Pursuant to this program, the loan is expected to be a five-year, senior secured obligation at a variable interest rate of LIBOR plus 3.50% and prepayable at any time without premium. It is the Company’s current intention to pledge its domestic AAdvantage Program assets as security for this loan. The most recent third-party appraisal has estimated the value of the AAdvantage program to be between $19.5 billion and $31.5 billion, a significant portion of which will be pledged as collateral to support the CARES Act loan. Based on this appraisal, the Company believes there is sufficient collateral to support the CARES Act loan and potentially additional financings, subject to compliance with the ultimate terms and conditions of the CARES Act loan.
Also in connection with this loan, AAG would issue to the U.S. Department of the Treasury additional warrants to purchase approximately 38.0 million shares of AAG common stock of the Company (assuming a loan of $4.75 billion) at an exercise price of $12.51 per share. The loan program warrants will be issued in addition to, and have the same terms and conditions as, the approximately 13.7 million warrants expected to be issued under the Payroll Support Program upon receipt by the Company of the full $5.8 billion of payroll assistance to be provided by the U.S. Treasury thereunder. Because these warrants provide for exercise on a “net exercise” basis, the ultimate dilutive impact of these warrants will be dependent on the market price of the Company’s common stock at the time the warrants are exercised. As of April 24, 2020, AAG had 422.9 million shares of common stock outstanding.
The U.S. Treasury loan program continues to progress, and the Company presently expects to close the loan in June 2020. However, the Company has not yet entered into a definitive agreement related to this loan, and thus final terms and conditions and closing remain subject to ongoing negotiation, entry by the parties into definitive documentation and satisfaction of closing conditions.
Beyond the value of the AAdvantage program, the Company retains assets that could be used as collateral for additional secured debt as detailed below. Except as otherwise noted by footnote, the values expressed below are based on the most recent third party appraisals received by the Company.
Other Unencumbered Assets Available for Financing
Asset Type
Value ($mil)
Notes
Aircraft, Parts, and Equipment
$ 2,100
Includes aircraft, ground service equipment, flight simulators, spare engines, regional spare parts
Slots, Gates, and Routes
Caribbean
2,520
Asia and Australia
310
Canada and Non EU
380
Central America and Mexico
4,240
Currently encumbered by 364-day Delayed-draw Term Loan
Total Slots, Gates, and Routes
$ 7,450
Corporate Real Estate
1,130
Other
450
Other corporate investments and assets1
Total Unencumbered Assets
$ 11,130
First Lien Available Capacity under Current Credit Facilities
Available Capacity ($mil)
2014 Atlantic SGR
$ 1,180
2013 South America SGR
430
Apr 2016 Mainline Spare Parts2
425
Dec 2016 LGA/DCA Slots
218
1
Based on Company estimates
2
Preliminary 2020 appraised value

EETC C Tranche Availability
Capacity for incremental debt is available on 2019-1, 2016-1, 2016-2, 2016-3, 2014-1, and 2015-2 existing EETCs.




Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

Corporate News, Guidance, Hot Corp. News, Hot Guidance