American Airlines Pulls $2.7 Billion from Credit Lines as It Prepares for Lean Months Ahead
Fort Worth-based American Airlines withdrew more than $2.7 billion from credit accounts Wednesday, hoarding cash as it prepares for some of the most challenging months in its history.
American pulled the cash from three different credit funds it created as long ago as 2014 with Barclays, Deutsche Bank and Citibank. It had already withdrawn $1 billion from a credit account created in March.
American and other airlines are under increasing pressure not only to cut expenses but also to find liquidity as demand for air travel drops to the lowest level in decades. On Tuesday, air traffic was down more than 93% year over year, according to data from the Transportation Security Administration.
American said last month that it had about $8.4 billion in “available liquidity,” including $4.2 billion in unrestricted cash to get it through the tough months ahead.
The airline’s executives said this week that they plan to apply for $12 billion in government aid available through the stimulus bill passed by Congress last week.
However, much of that aid will have to go for wages and benefits, which cost American about $12.6 billion in 2019 for 130,000 employees. And it would come with a requirement that the airline stay at current employment levels through the end of September.
American, Southwest and other airlines have already started preparing by offering workers unpaid and partially paid short-term leave.
Without the stimulus money, American would run out of cash in two months at current spending levels, Bernstein analyst David Vernon wrote in a note to clients this week.
“That is not to say if we are in lockdown mode for another two months [American and United airlines] will go out of business,” Vernon wrote. “It looks to us like United and American are more likely to take more government relief given they are relatively short on liquidity, making the risk of equity dilution greater at those carriers.”
Other airlines, such as Dallas-based Southwest, have not said whether they will seek government aid. Vernon estimated that Southwest and Delta could go five or six months before running out of cash.
Bloomberg News contributed to this report.
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