American Airlines pledges brand and slots to secure $1.2bn loan

American Airlines pledged its brand and hard-to-get take-off and landing rights in New York and Washington to secure a $1.2bn loan, as it tries to weather the sharp downturn in travel due to the coronavirus pandemic.

The Fort Worth, Texas, airline on Thursday said it had reached a deal with the merchant banking division of Goldman Sachs for $1bn in senior notes, secured by a first lien on the “American Airlines” trademark and “aa.com” domain name in the US and some foreign jurisdictions. Another $200m in senior notes will be secured by a second lien on certain slots at New York’s LaGuardia Airport and Washington’s Reagan National Airport.

Derek Kerr, American’s chief financial officer, said the company’s intellectual property was worth approximately $10bn.

The airline, which has been the most aggressive of the three largest US carriers to add back capacity after the pandemic devastated demand, ended the second quarter with a higher cash burn than its rivals.

American averaged a $55m daily cash burn for the quarter, going from a high of $100m a day down to $30m by June. Still, Delta Air Lines reduced its average daily cash burn to $43m, while United Airlines’ burn declined to $40m a day over the same period.

American added more flights in May and June when demand for air travel improved from its April nadir, and investors sent the stock upward. Yet rising Covid-19 cases in southern and western US states stalled the travel rebound, which remained a fraction of 2019 passenger numbers.

Doug Parker, chief executive, said he was pleased with the results of the airline’s strategy to fly more than competitors. “Our revenue in June was six times what it was in April, and that would not have been the case if we’d flown only 20 per cent of our capacity,” he said.

The company posted a $2.1bn net loss on operating revenue that fell 86 per cent to $1.6bn. American now expects third-quarter capacity “to be down approximately 60 per cent year over year”.

“The current environment is more unpredictable and more volatile than anything we ever could have imagined,” Mr Parker and president Robert Isom wrote in a memo to staff. “But we know adversity creates opportunity, and we remain confident we will emerge from this crisis in a strong competitive position.”

The pared-back schedule for the third quarter is “encouraging”, Helane Becker, analyst at Cowen, said in a note, “but we continue to believe there is too much capacity in the market”.

The pandemic triggered a worldwide collapse in demand for air travel as governments imposed stay-at-home orders and border restrictions, and passengers feared contagion. Now, airlines are touting their cleaning policies and, in some cases, their policy of blocking middle seats, to entice passengers back to the skies.

American has warned 25,000 employees they could be furloughed after September 30, an increase over the initial forecast of an “excess” headcount of 20,000.

Like other US carriers, American accepted financial assistance from the US federal government in March. It qualified for $5.8bn in grants and low-interest loans to pay labour costs, with the caveat that it could not furlough workers until the fall. It also plans to accept an additional $4.75bn in loans.

American ended the quarter with $10.2bn in available liquidity. It raised $3.6bn during the quarter through selling a combination of stock, bonds and convertible bonds, part of a sprint among US airlines to shore up their balance sheets. It also refinanced a delayed draw loan set to mature next year, meaning no debt maturities will loom until June 2022.

Southwest Airlines also reported earnings on Thursday. It posted a net loss in the second quarter of $915m, with operating revenue plummeting 83 per cent to $1bn.

Gary Kelly, chief executive, became the second airline boss to say air travel will “remain depressed” until a vaccine or effective treatment for Covid-19 becomes available.

Scott Kirby, United’s chief executive, said on Wednesday that revenue would plateau at 50 per cent of pre-pandemic levels until the disease can be prevented.

Additional reporting by Sarah Provan in London