American Airlines announced that the company is looking to raise as much as $3.5 billion in order to improve the airline‘s liquidity. The airline plans to use some of the newly raised cash to refinance a loan facility from March 2020.

The airline will privately offer $1.5 billion of secured senior notes that will be due by 2025, sell $750 million worth of shares, and raise an additional $750 million of convertible senior notes that are also due by 2025. In addition, it will also use a $500 million loan facility, indicated the company on June 21, 2020.

American Airlines has applied for the CARES Act, which would provide the Dallas/Fort Worth International Airport (DFW)-based carrier with an additional $4.75 billion of liquidity. It expects to receive the United States government guaranteed loan by June 30, 2020. The loan would boost the carrier‘s liquidity to about $11 billion.

Slowly recovering demand

On June 12, 2020, American Airlines indicated that it expects its Q2 2020 revenues would be 90% lower than in the previous year. Its capacity is also 75% lower when compared to the corresponding period. However, domestic demand has slowly recovered: from a load factor of 15% in April to 62% in June 2020 (as of June 8, 2020). Daily passenger numbers have also increased from 31,000 to 129,000 during the same period. 

In response to the current demand crunch, the airline sought to cut costs. Its total expenses budget was slashed by $13.5 billion, as American cut wages, maintenance and training expenses, marketing expenditures and “other volume-related expense reductions, including fuel,” stated the company’s financial update. In addition to the fact the peak of customer cash refunds has passed, American Airlines now burns $40 million per day in June, rather than $100 million it did in April 2020.

The company anticipates to break-even its cash burn by the end of the year. It estimates that the demand will continue improving and its “cost initiatives continue to gain traction.” In July 2020, American Airlines is set to fly 55% and 20% of its domestic and international schedules, respectively, compared to the same month in 2019.

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