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American Airlines to raise $3.5bn to shore up finances

Mohit Oberoi
Author: Mohit Oberoi

Last Updated: June 22, 2020

American Airlines said it plans to raise $3.5bn billion to shore up its balance sheet as a result of the coronavirus pandemic.

The company will issue $750m each in common shares and convertible notes due in 2025 in said on Sunday. It has also announced a private bond offering of $1.5bn that will  mature in 2025. It also intends to enter into a new $500m term loan facility due in 2024.

American is the most heavily indebted among the major US airlines, partly because of aggressive share buybacks in recent years. It had $34bn in debt at the end of the first quarter

In a press release, American Airlines said, “The Company expects to use the net proceeds from the common stock offering and the convertible notes offering for general corporate purposes and to enhance the company’s liquidity position.”

According to American Airlines, it is burning $40m in cash per day. Previously it had forecast a daily cash burn of $50m . By the end of the year, the company expects to wipe off its cash burn.

The airline sector has been among the worst hit from the pandemic as aircraft globally were grounded to prevent the spread of infections. American Airlines stock has recouped some of its losses after a 52% rally this month. However, it is still down 44% for the year.

According to Transportation Security Administration, the number of people passing through checkpoints at airports is down 81% year-over-year. However, the number of travelers has gradually increased for American Airlines.

Until 8 June, American Airlines has flown an average of 129,000 passengers a day this month, up from 85,000 passengers a day in May.

Legendary value investor Warren Buffett disclosed in May that he has sold his stake in all airline companies. However, retail investors invested in airline stocks after they crashed.

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Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.