American Airlines receives $ 5.5 billion taxpayer-funded loan from US Treasury as demand for air travel remains weak

It appears that more government bailouts are underway for struggling airlines, as the coronavirus pandemic continues to decimate demand for air travel around the world. American Airlines, which is the largest US carrier, announced on Friday that it had successfully entered into a loan deal with the US Treasury for $ 5.48 billion in a desperate attempt to prevent tens of thousands of layoffs. in industry.

Once upon a time, long before the start of the pandemic, many American airlines, including American Airlines, were allocating billions of dollars to share buybacks in a clever ploy to artificially inflate their stock prices. All was well in the realm of big American corporations, as no one dared even whisper the potential idea of ​​saving money for a rainy day like a recession, which incidentally plagues the American business cycle generally every day. 4 to 7 years old. .

Indeed, fast forward to 2020, which was due not only to a recession, but also to a global pandemic. When the coronavirus pandemic hit the gates of the United States, it quickly reduced demand for air travel as governments around the world imposed closures and restrictions. Airlines that were once booming with profits quickly found themselves strapped for cash and had no choice but to start putting their employees on leave.

The worst-case scenario was avoided, however, as the federal government quickly intervened with its CARES law, allocating $ 25 billion in grants and an additional $ 25 billion in loans to airlines in sudden trouble. Several major US airlines quickly seized the opportunity to receive part of the taxpayer-funded bailout, promising in return to be good and no longer engage in share buyback programs while keeping the employees on their payroll at least until October 1.

However, as October 1 approaches, the situation has hardly improved since the start of the pandemic. Demand for air travel remains subdued and coronavirus cases around the world have reached a grim figure of 32.3 million. As a result, Prince Charming (i.e. the US taxpayer) came to the rescue again, this time for American Airlines. The US Treasury was able to offer a $ 5.48 billion loan, which American Airlines gladly accepted.

American Airlines proudly announced on Friday that it has entered into a secured term loan facility with the US Treasury, which in turn is backed by the airline’s loyalty program. In addition, the airline was also told that additional funding in the amount of $ 2 billion would be available in October under the CARES Act. In exchange for the generous loan financed by Prince Charming (c.

To put the situation in a clearer context, American Airlines is receiving a loan of nearly $ 5.5 billion, which will likely increase to a total of $ 7.5 billion in October. Meanwhile, the airline’s market cap sits just above the loan amount at $ 6.3 billion, while still being in debt around $ 42 billion. Due to its deteriorating financial situation, American Airlines announced in August that the company had no choice but to cut more than 40,000 jobs, including 19,000 through leave and layoffs in October.

However, American Airlines executives severely noted that in order to cover labor costs for the next six months, the airline industry would need to another $ 25 billion in aid! Well, as the American financial system goes, whatever businesses want, they’ll be on a golden platter. Nonetheless, American Airlines lived happily ever after as American taxpayers came to the rescue once again. Indeed, the bailout echoed all American Airlines shares, which rose more than 3% after-hours trading before finally collapsing into the abyss.

Information for this briefing was found via American Airlines. The author has no title or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author does not hold any license.

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