American Airlines on Friday disclosed that it was granted a $5.5 billion loan by the U.S. government after competitors turned their backs on such loans, helping the carrier boost its financial reserves until travel demand normalizes.
American Airlines could tap up to $2 billion more next month depending on how the U.S. Treasury allots additional funding under its $25 billion loan program for struggling airlines, based on a regulatory filing on Friday.
The agreement makes American Air the first major company to avail of federal stimulus that comprises the $2 trillion Cares Act – mainly as grants to prevent layoffs through the end of the month – from the global health pandemic. The U.S. carrier has also secured funding from investors and said it would raise more.
According to American Airlines, its latest action helps the group shore up its long-term cash reserves. In a note to its staff on Friday, the company said it is working to "secure and conserve as much cash as possible during the pandemic," Bloomberg reported.
The Texas-based carrier said it has already drawn down around half of the loan, which is supported by its loyalty package, bringing its debt to about $42 billion. The carrier's stock was up almost 3 percent in extended sessions after the announcement. It closed at 12.29 on Friday.
American Air's government loan has an interest of roughly 3.5 percent above the London Interbank Offered Rate. Moreover, the U.S. Treasury will get warrants equivalent to almost 44 million shares in the company. American disclosed it has also agreed on a $1.2 billion debt offering with Goldman Sachs.
Among other U.S. carriers, United Airline announced this week that it will avail itself of the government loans, Chief Executive Scott Kirby said, but it wasn't clear whether the company would just seek $4.5 billion or more. Delta Air Lines and Southwest Airlines have opted to withdraw from federal assistance despite low-interest rates.
With passenger traffic still slumping around 70 percent from pre-COVID levels, the industry is asking the Treasury to roll out an additional $25 billion in salary support through March next year. Carriers have also parked their planes, trimmed down flights, and offered early retirement to thousands of workers to further ease operational costs.
