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enilria
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Updated: US airlines reach CARES Act loan agreements with Govt

Thu Jul 02, 2020 2:28 pm

Interesting to see the LCCs. I wonder if this will be used for expansion at the LCCs? It would seem they are doing the best given the lack of biz traffic.

American Airlines and four smaller carriers have reached agreement with the government for billions more in federal loans, a sign of the industry’s desperate fight to survive a downturn in air travel caused by the virus pandemic.

The Treasury Department said Thursday that it had finalized terms of new loans to American, Spirit Airlines, Frontier Airlines, Hawaiian Airlines and SkyWest Airlines.

All the leading U.S. airlines had previously accepted a combination of grants and loans to help cover payroll costs through Sept. 30. These five are the first carriers to accept loans from a separate $25 billion kitty that Congress set aside under a $2.2 billion measure to help companies hurt by the pandemic.

American Airlines said it signed a term sheet with Treasury for a $4.75 billion loan, which would be in addition to $5.8 billion that Treasury has already agreed to extend to American.
“We have to complete some legal work to reach a definitive credit agreement, but we expect to finalize that loan during the third quarter,” American CEO Doug Parker and President Robert Isom said in a note to employees. They said the additional loan would give American liquidity of about $15 billion.

Isom said in May that the airline was considering using its AAdvantage frequent-flyer program as collateral for a federal loan. Details about terms of the new loans for American and others were not immediately clear. The Treasury Department said it would post documentation within 72 hours.


https://www.nytimes.com/aponline/2020/0 ... tner=IFTTT
 
Miamiairport
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 2:38 pm

I guess AA will get better terms from the government than the open market. The article doesn’t same anything about extending the PPP. Soon Americans will own American.
 
tphuang
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 2:40 pm

Interesting, I wonder why not more airlines are getting this loan if it's going to be pretty low interest rate compared to open market. What kind of stipulations are being given by federal gov't?
 
MIflyer12
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 2:50 pm

Straight from the legislation: the applicant is an eligible business for which credit is not reasonably available at the time of the transaction;

A carrier pretty well has to acknowledge it has run out of market credit.

Term not longer than five years.

No stock buybacks or dividends until a year after the loan is repaid.
 
MIflyer12
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 2:53 pm

Miamiairport wrote:
Soon Americans will own American.


How is that? It's a loan, not an equity interest nor stock warrants. If AA defaults the government can seize collateral, but many on a.net keep denying the possibility of Ch 11.
 
DiamondFlyer
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 3:30 pm

OO could be singling that they're anticipating a significant cut in their flying, which isn't surprising to me, because they're far from the cheapest regional out there.
From my cold, dead hands
 
chonetsao
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 3:46 pm

MIflyer12 wrote:
Miamiairport wrote:
Soon Americans will own American.


How is that? It's a loan, not an equity interest nor stock warrants. If AA defaults the government can seize collateral, but many on a.net keep denying the possibility of Ch 11.


Liquidity of $15 billion and seek Ch-11? With US government lend over $10 billion to AA by Q3 2020, no sane people would bet against AA to declare Ch-11 right now.

AA will not declare Ch-11 in 2020. End of. What about 2021? Maybe, if current situation continues or worsen. But let us wait until Q4 of 2020 first.
 
tphuang
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 4:00 pm

chonetsao wrote:
MIflyer12 wrote:
Miamiairport wrote:
Soon Americans will own American.


How is that? It's a loan, not an equity interest nor stock warrants. If AA defaults the government can seize collateral, but many on a.net keep denying the possibility of Ch 11.


Liquidity of $15 billion and seek Ch-11? With US government lend over $10 billion to AA by Q3 2020, no sane people would bet against AA to declare Ch-11 right now.

AA will not declare Ch-11 in 2020. End of. What about 2021? Maybe, if current situation continues or worsen. But let us wait until Q4 of 2020 first.


that $15 billion includes this loan. It's not hard to see how this could turn out disastrously for AA. $30 to 40 million per day burn for rest of the year is about $7 billion. $20 million a day from Jan-May is another $3 billion. Once an airline size of AA is down to $5 billion in liquidity and have not achieved zero cash burn, it will need to file chapter 11.

Keep in mind that AA will have far more interest payment than any other airline during this time.
 
alasizon
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 4:05 pm

DiamondFlyer wrote:
OO could be singling that they're anticipating a significant cut in their flying, which isn't surprising to me, because they're far from the cheapest regional out there.


The only OO flying that is seemingly at risk is some of the DL CR9 flying; but even then I can't see OO reducing their footprint significantly. While OO is definitely not the cheapest lift out there, particularly right now where every connection matters due to limited rebooking options, reliability is more important than the difference in feed cost.

My understanding as well is that the lease payments from G7 to OO for the CR5s are quite behind which would put a damper on cash flow.
Airport (noun) - A construction site which airplanes tend to frequent
 
DiamondFlyer
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 4:40 pm

alasizon wrote:
DiamondFlyer wrote:
OO could be singling that they're anticipating a significant cut in their flying, which isn't surprising to me, because they're far from the cheapest regional out there.


The only OO flying that is seemingly at risk is some of the DL CR9 flying; but even then I can't see OO reducing their footprint significantly. While OO is definitely not the cheapest lift out there, particularly right now where every connection matters due to limited rebooking options, reliability is more important than the difference in feed cost.

My understanding as well is that the lease payments from G7 to OO for the CR5s are quite behind which would put a damper on cash flow.


You mean on top of the 55 CR2 they already lost for DL?
From my cold, dead hands
 
alasizon
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 4:46 pm

DiamondFlyer wrote:
alasizon wrote:
DiamondFlyer wrote:
OO could be singling that they're anticipating a significant cut in their flying, which isn't surprising to me, because they're far from the cheapest regional out there.


The only OO flying that is seemingly at risk is some of the DL CR9 flying; but even then I can't see OO reducing their footprint significantly. While OO is definitely not the cheapest lift out there, particularly right now where every connection matters due to limited rebooking options, reliability is more important than the difference in feed cost.

My understanding as well is that the lease payments from G7 to OO for the CR5s are quite behind which would put a damper on cash flow.


You mean on top of the 55 CR2 they already lost for DL?


Yes, in terms of remaining large RJ flying.
Airport (noun) - A construction site which airplanes tend to frequent
 
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enilria
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 5:52 pm

MIflyer12 wrote:
Straight from the legislation: the applicant is an eligible business for which credit is not reasonably available at the time of the transaction;

A carrier pretty well has to acknowledge it has run out of market credit.

Term not longer than five years.

No stock buybacks or dividends until a year after the loan is repaid.

I would argue Spirit can definitely raise money on the open market.
 
HII
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 6:09 pm

enilria wrote:
MIflyer12 wrote:
Straight from the legislation: the applicant is an eligible business for which credit is not reasonably available at the time of the transaction;

A carrier pretty well has to acknowledge it has run out of market credit.

Term not longer than five years.

No stock buybacks or dividends until a year after the loan is repaid.

I would argue Spirit can definitely raise money on the open market.


I certainly agree. Of all the LCCs (and all US-Carriers), I'd argue that they have the most outside-investment opportunity on the open market. I've invested quite a bit in them, and I know a few others who have upwards of a thousand shares of Spirit and no regrets.
 
Miamiairport
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Re: AA/NK/F9/HA/OO Reach CARES Act Loan Agreements with Govt

Thu Jul 02, 2020 7:06 pm

Yes I'm surprised by Spirit. Once you invite the government into your living room they are there to stay. If you're an ULCC do you want the threat of someone being critical of your business model you owe money to?
 
JohanTally
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 8:45 pm

tphuang wrote:
chonetsao wrote:
MIflyer12 wrote:

How is that? It's a loan, not an equity interest nor stock warrants. If AA defaults the government can seize collateral, but many on a.net keep denying the possibility of Ch 11.


Liquidity of $15 billion and seek Ch-11? With US government lend over $10 billion to AA by Q3 2020, no sane people would bet against AA to declare Ch-11 right now.

AA will not declare Ch-11 in 2020. End of. What about 2021? Maybe, if current situation continues or worsen. But let us wait until Q4 of 2020 first.


that $15 billion includes this loan. It's not hard to see how this could turn out disastrously for AA. $30 to 40 million per day burn for rest of the year is about $7 billion. $20 million a day from Jan-May is another $3 billion. Once an airline size of AA is down to $5 billion in liquidity and have not achieved zero cash burn, it will need to file chapter 11.

Keep in mind that AA will have far more interest payment than any other airline during this time.


They are still hemorrhaging money but it's below 40 million a day and they will see significant cash savings from Oct 1st on. Changes to the FA staffing as well as cares act protection ends which will result in a sizable reduction in management salaries. For what it's worth DP expects to be cash positive Jan 1.
 
tphuang
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Thu Jul 02, 2020 9:04 pm

JohanTally wrote:
tphuang wrote:

that $15 billion includes this loan. It's not hard to see how this could turn out disastrously for AA. $30 to 40 million per day burn for rest of the year is about $7 billion. $20 million a day from Jan-May is another $3 billion. Once an airline size of AA is down to $5 billion in liquidity and have not achieved zero cash burn, it will need to file chapter 11.

Keep in mind that AA will have far more interest payment than any other airline during this time.


They are still hemorrhaging money but it's below 40 million a day and they will see significant cash savings from Oct 1st on. Changes to the FA staffing as well as cares act protection ends which will result in a sizable reduction in management salaries. For what it's worth DP expects to be cash positive Jan 1.


It got below 40 million a day because they were running 25% schedule in June and early July and but getting cash coming in for a 50+% schedule in July and a full schedule rest of the year. Now by all reports, booking # have plateaued and might be retracting and their cost is going up due to additional flying. So their incoming cash is staying flat or decreasing while this COVID surge is happening in Texas/Florida/Arizona (all AA hubs). Their cash burn is going to be climbing again after their July 4th weekend and unlikely to come down until Oct 1 layoffs.

DP expects a lot of thing, but his optimism is not realistic. Here are some basic numbers to look at. Delta expects their summer season revenue to be 25% of what it was a year ago. it also expects demand to not justify increasing schedule beyond what they have already scheduled in for August. There is a reason for that. A lot of low yielding leisure travel, minimal international LH demand and minimal business travel for rest of 2020 and most of 2021. So running 50% schedule with lower LF and lower yielding leisure traffic means revenue generated will be closer to 25% rather than 50% of 2021. Now even with the staff reduction and other cuts, it's unlikely an airline like AA can reduce their cost to less than 70% of their pre-COVID when they are operating 50 to 60% of their schedule. So unless yield and demand go up dramatically, cash neutral is not a realistic go.

Keep in mind that AA had trouble turning profit in Q1s before COVID. Do you really believe they can do it now with minimal high yielding demand available?

Now, that doesn't mean there won't be an airline that can achieve cash neutral before end of the year. If AS does enough staff cuts and schedule minimally, it probably can. G4 is well on its way to achieving that goal. But these airlines generated much higher margins pre-COVID than AA and are less impacted by the reduced international LH and business travel.
 
azjubilee
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Re: AA/NK/F9/HA/OO Reach CARES Act Loan Agreements with Govt

Thu Jul 02, 2020 10:42 pm

I think it's important to note, that this development doesn't necessarily mean the airline is actively drawing on the funds available. In the case of HAL, they've had great access to capital on the open market and this gives them another option, should they need it.
 
dfwking
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Fri Jul 03, 2020 10:03 am

MIflyer12 wrote:
Miamiairport wrote:
Soon Americans will own American.


How is that? It's a loan, not an equity interest nor stock warrants. If AA defaults the government can seize collateral, but many on a.net keep denying the possibility of Ch 11.


The treasury secretary wanted airlines to give warrants in exchange for CARES Act grants. I highly doubt he will allow CARES Act loans to be disbursed without some sort of warrant / optionality as collateral. The below article sort of confirms this:

https://www.cnbc.com/2020/07/02/five-us-airlines-reach-deals-with-treasury-department-for-billions-in-coronavirus-loans.html

The Treasury Department didn’t disclose the amounts and terms of the loans, for which airlines were required to put up equity, warrants, or senior debt to compensate taxpayers.
 
dmg626
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Fri Jul 03, 2020 5:35 pm

enilria wrote:
MIflyer12 wrote:
Straight from the legislation: the applicant is an eligible business for which credit is not reasonably available at the time of the transaction;

A carrier pretty well has to acknowledge it has run out of market credit.

Term not longer than five years.

No stock buybacks or dividends until a year after the loan is repaid.

I would argue Spirit can definitely raise money on the open market.



The spirit financial experts must disagree with you then, I’m sure none of the listed airlines would take this loan if they were able to get a conventional loan. Lenders must see something with these companies that’s not apparent and to me it would raise some flags on their viability.
 
FlyingElvii
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Fri Jul 03, 2020 9:48 pm

DiamondFlyer wrote:
OO could be singling that they're anticipating a significant cut in their flying, which isn't surprising to me, because they're far from the cheapest regional out there.

Unlikely...
Skywest has been killing it under COVID, operating hundreds of flights daily, at many times the Number of other regionals. They are just more flexible, and can react better to changing situations. The non-union issue is likely a very large factor in their favor right now.
 
TonyClifton
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Fri Jul 03, 2020 10:30 pm

FlyingElvii wrote:
DiamondFlyer wrote:
OO could be singling that they're anticipating a significant cut in their flying, which isn't surprising to me, because they're far from the cheapest regional out there.

Unlikely...
Skywest has been killing it under COVID, operating hundreds of flights daily, at many times the Number of other regionals. They are just more flexible, and can react better to changing situations. The non-union issue is likely a very large factor in their favor right now.

They’ve just lost 55 CRJs under Delta, and won’t receive some of the ERJs on the timeline expected.
 
AZORMP
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Fri Jul 03, 2020 11:09 pm

TonyClifton wrote:
FlyingElvii wrote:
DiamondFlyer wrote:
OO could be singling that they're anticipating a significant cut in their flying, which isn't surprising to me, because they're far from the cheapest regional out there.

Unlikely...
Skywest has been killing it under COVID, operating hundreds of flights daily, at many times the Number of other regionals. They are just more flexible, and can react better to changing situations. The non-union issue is likely a very large factor in their favor right now.

They’ve just lost 55 CRJs under Delta, and won’t receive some of the ERJs on the timeline expected.



Not to mention the fact that 9E hijacked a lot of OO DTW flying for DL in June. For now it looks like it returns in August but that may change.
 
TonyClifton
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Fri Jul 03, 2020 11:46 pm

AZORMP wrote:
TonyClifton wrote:
FlyingElvii wrote:
Unlikely...
Skywest has been killing it under COVID, operating hundreds of flights daily, at many times the Number of other regionals. They are just more flexible, and can react better to changing situations. The non-union issue is likely a very large factor in their favor right now.

They’ve just lost 55 CRJs under Delta, and won’t receive some of the ERJs on the timeline expected.



Not to mention the fact that 9E hijacked a lot of OO DTW flying for DL in June. For now it looks like it returns in August but that may change.

Ah interesting. Wouldn’t be shocked if eventually 9E is home to all DL-owned CRJs.
 
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SuseJ772
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Re: AA/NK/F9/HA/OO Reach CARES Act Loan Agreements with Govt

Fri Jul 03, 2020 11:57 pm

To me, American’s strategy looks more and more like a Hail Mary. Which honestly, may be the best business decision they can make at this point. They struggled to turn a profit when DL and UA were killing it. They might (rightfully) say our only play here is offense and hope it works out. Time will tell of course.
Currently at PIE, requesting FWA >> >>
 
miaami
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Re: AA/NK/F9/HA/OO Reach CARES Act Loan Agreements with Govt

Sat Jul 04, 2020 12:09 am

delete
 
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LAXintl
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Re: AA/NK/F9/HA/OO Reach CARES Act Loan Agreements with Govt

Tue Jul 07, 2020 4:56 pm

Delta, United, JetBlue, Southwest and Alaska have signed letters of intent for the terms of the loans, the Treasury Department said Tuesday.

https://www.cnbc.com/2020/07/07/delta-u ... loans.html
From the desert to the sea, to all of Southern California
 
tphuang
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Re: AA/NK/F9/HA/OO Reach CARES Act Loan Agreements with Govt

Tue Jul 07, 2020 5:11 pm

LAXintl wrote:
Delta, United, JetBlue, Southwest and Alaska have signed letters of intent for the terms of the loans, the Treasury Department said Tuesday.

https://www.cnbc.com/2020/07/07/delta-u ... loans.html


Thanks, this would make a lot of sense given the COVID resurgence we are seeing. If the gov't loans are at lower interest rate than private market, it would be silly not to take it imo.
 
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FiscAutTecGarte
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Re: AA/NK/F9/HA/OO Reach Loan Agreements with Govt

Tue Jul 07, 2020 5:25 pm

MIflyer12 wrote:
Straight from the legislation: the applicant is an eligible business for which credit is not reasonably available at the time of the transaction;
No stock buybacks or dividends until a year after the loan is repaid.


Cool! I really like that stipulation. As a taxpaying citizen who will be funding those loans, I appreciate Executives not being able to use the money to inflate stock prices (through buybacks) and then lining their pockets with bonuses.

If the US Gov aides Boeing in any way they should apply the same criteria.
learning never stops...

FischAutoTechGarten is the full handle and it reflects my interest. It's abbreviated to fit A.net short usernames.
 
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LAXintl
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Re: AA/NK/F9/HA/OO Reach CARES Act Loan Agreements with Govt

Tue Jul 07, 2020 5:29 pm

From the desert to the sea, to all of Southern California
 
MIflyer12
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Re: Updated: US airlines reach CARES Act loan agreements with Govt

Tue Jul 07, 2020 6:11 pm

That covers all of the U.S. 'Big Ten' DOT reporting marketing carriers except for Allegiant.
 
Miamiairport
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Re: Updated: US airlines reach CARES Act loan agreements with Govt

Tue Jul 07, 2020 7:10 pm

I find it interesting that airlines are going to be required to save so many jobs. Are they going to be paying pilots and flight attendants minimum hours to sit home well after 10/1? While I can appreciate the horror of being laid off (I've was there in the last downturn) I'm sure there are workers in other industries that would want that same deal.
 
drdisque
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Re: Updated: US airlines reach CARES Act loan agreements with Govt

Tue Jul 07, 2020 7:39 pm

One thing to remember about OO is their significant amount of EAS and other pro-rate flying they do with UA and DL.

The EAS contracts were negotiated with a much stronger economy and OO is stuck in those contracts and likely losing money on many of them as many are on a subsidy of under $1M/year.

The Pro-Rate markets can be pulled down, but for example, if OO does pull down one of their at risk no-subsidy stations like MBS, then UA could return to it as a Fee-For-Departure market when the economy recovers.
 
MIflyer12
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Re: Updated: US airlines reach CARES Act loan agreements with Govt

Tue Jul 07, 2020 9:31 pm

Miamiairport wrote:
I find it interesting that airlines are going to be required to save so many jobs. Are they going to be paying pilots and flight attendants minimum hours to sit home well after 10/1? While I can appreciate the horror of being laid off (I've was there in the last downturn) I'm sure there are workers in other industries that would want that same deal.


Unlike the earlier grants and loans under the CARES Act Payroll Support Program to the industry I don't believe this round of loans requires carriers to maintain employment. That's why some unions are seeking to extend protections beyond 9/30/20.

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