US Airlines Have Large Cash Stocks Despite Huge Losses

Despite making a combined $32 billion loss excluding special items, the airline industry of the United States stull ended 2020 with a lot of cash at hand.

At the end of 2020, there was $31.5 billion in cash on their balance sheets of the four largest airlines of the country – American, Delta, United and Southwest. That is higher than last year when the companies together ended the year with $13 billion of cash prior to the pandemic hit.

For airline executives discussing their financial condition, the favorite buzzword has now become “liquidity”. The US airlines have access to nearly $65 billion including the cash and yet untapped credit lines.

“The liquidity is at record levels,” said Philip Baggaley, chief credit analyst for the airline industry at Standard & Poor’s. “That’s good, and it’s one of the few strong points they have at this point.”

While the airlines were awarded significant financial help from the US federal government, most of that money was spent by the airlines to pay for the salaries of employees temporarily.  

Banks and Wall Street are the primary sources for the lion’s share of the borrowing and cash. There are a lot of people and institutions that are willing to give the airlines cash and the airlines face the situation of a struggling family that is flooded with credit card offers.

During the pandemic, the airlines have raised money by selling bonds as well as borrowed money or mortgaged their planes or frequent flyer programs and other assets. Few of the airlines even sold additional shares of stock which is a significantly unusual strategy for an industry that finds itself in this current position.

About $40 billion in long-term debt has been added to the balance sheets of the US’s airlines by borrowing.

“I think the general feeling is they’re wounded but they’re going to make it,” said Baggaley. He added that the airlines have benefitted from the low interest rate environment as investors and banks were more than willing to lend to the airlines in their search for yields.

All the carriers except Southwest have junk bond credit ratings.

The airlines have also implemented deep cost cuts even though they were helped in not making permanent, involuntary job cuts because of the financial help from the government.

About 16 per cent compared to the 2019 levels of the staff at the airlines were reduced by the airlines with the help of buyouts and early retirement schemes.

The airlines were able to slow down the burning of cash be about 50 per cent by the fourth quarter compared to the second quarter last year helped by the deep cost cuts in the face of the airlines’ revenues from air travel being only a fraction of what they were prior to the pandemic.

“Our industry still has a long path to recovery ahead,” said American CEO Doug Parker on recent conference call with investors. He said the accumulation of cash, combined with cost cutting, built up “gives us confidence that we are well positioned for the year ahead and the long term.”

(Adapted from CNN.com)



Categories: Economy & Finance, Geopolitics, HR & Organization, Regulations & Legal, Strategy, Sustainability

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