American Airlines repays $ 2.8 billion in loans

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American Airlines, based in Dallas, paid US $ 2.8 billion to reduce three revolving credit facilities to zero. American Airlines borrowed money last April following collapsing demand for travel in the United States and around the world.

American Airlines reduced three credit facilities to zero balances. Photo: Vincenzo Pace / Simple Theft

American Airlines begins to repay its debts

Paying off credit balances reduces American Airlines’ debt by $ 2.8 billion. By 2020, US debt had grown 23% to a total of $ 41 billion by the end of the year. The three credit facilities, taken out by 18 credit institutions, remain open until October 2024. This means American Airlines can draw against them again if necessary.

“Our industry still has a long way to go until we’re fine, but now we have enough extra cash to pay off that debt,””Says the American CFO, Derek Kerr, in a press release.

“We are grateful to our banking partners for their continued support and we remain committed to rewarding their trust in American.”

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Passenger traffic and the number of flights are increasing at American Airlines. Photo: Vincenzo Pace / Simple Theft

Morrison & Foerster represented American Airlines on some of the financing aspects of a $ 10 billion senior secured ticket offer and loan agreement, secured by American Airlines’ AAdvantage loyalty program. In particular, the company advised on the assets of the AAdvantage loyalty program, including AA’s co-branded credit card agreements, which were part of the funding guarantee.

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Business improves at American Airlines

Things certainly look brighter now at American Airlines than a few months ago. Current network seat capacity is now 60% of Q1 2019 levels. This includes American’s significantly reduced international network. But in the US home network of the United States, March 2021 was busier than March 2019.

This week, American Airlines operates an average of 4,032 flights per day. This compares to an average of 3,335 flights per day in the same week in 2019 and just 1,435 flights per day in the same week last year.

American Airlines plans to end the first quarter of 2021 with $ 17 billion in cash on hand. For the first time in 12 months, the airline is no longer trying to raise money. Over the past year, American raised about $ 40 billion in additional cash to weather the travel slowdown.

With the recovery of the critical US domestic market in the United States, the airline is looking to repay its debt at high cost, frequently replacing it with lower cost debt. This is largely what has happened here. Just days ago, American Airlines borrowed billions of dollars secured against its AAdvantage loyalty program. Much of the money raised will be used to pay off higher interest loans. One of the results is that the repayment of $ 2.8 billion does not affect the most important liquidity levels in the United States.

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American Airlines is increasingly confident about its near-term future. Photo: Vincenzo Pace / Simple Theft

Confidence increases at American Airlines

Three months into 2021 and 13 months after the travel slowdown began, American Airlines is increasingly confident about the future. In an SEC filing this week, the airline said;

“While infection and hospitalization rates have declined dramatically and vaccine distribution increased during the first periodr (in 2021), American has seen recent strength in domestic and international short-haul bookings.

“American’s seven-day moving average of its net bookings is about 90% of the level seen in 2019, with a domestic load factor of around 80% over that period.

“American currently expects this strength in reservations to continue through the end of the first quarter and into the second quarter.”

Do you agree with the American confidence? Do you think it’s the right strategy for American Airlines to start paying off its debt? Post a comment and let us know.

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