American Airlines Group Inc (NASDAQ:AAL) is seeking to raise new financing to ward off the economic effect caused by the drop in travel demand during the pandemic. According to sources familiar with the matter, American Airlines is in talks with Citigroup Inc (NYSE:C) to offer a junk bond, which the airline will secure using collateral, including airport slots and gates.
To weather the impact of COVID-19, several American carriers among them JetBlue Airways Corporation (NASDAQ:JBLU), Southwest Airlines Co (NYSE:LUV), and Delta Air Lines, Inc. (NYSE:DAL) are turning to debt to add liquidity in the business; following the fall in travel demand caused by the pandemic. On its part, American Airlines has received federal payroll support amounting to $5.8 billion in addition to a $1 billion 364-day term loan from banks.
Earlier this month, Delta issued a five-year unsecured bond raising $1.25 billion. The airline also issued a five-year secured bond in April in which it raised $3.5 billion using domestic slots at New York airports and those at Heathrow in London as collaterals. Southwest has issued three bonds since the start of the Year, while JetBlue raised $750 million from a leveraged loan sale.
American Airlines Seeking to halt daily cash burn by the end of Year
American Airlines recently announced that it is banking on cost-cutting measures and an improvement in travel demand to halt its daily cash burn by the end of 2020. The company’s heavy debt has raised concerns about its short-term liquidity. Its shares, which has been performing below, is peers rose 18% to $17.06 following the announcement. In addition to American Airlines, Delta Air Lines is also seeking to halt its daily cash burn by the end of 2020.
Airlines in the U.S are collectively spending around $10 billion every month to remain in operation following a drop in travel demand due to the coronavirus pandemic. The pandemic prompted many passengers to seek refunds than book new travel. In a document filed with the U.S. Securities and Exchange Commission, the company noted that it has seen an increase in bookings and recently passed the peak in cash refunds.