American Airlines Has Started Paying Down Its Debt

With the crisis subsiding and American Airlines steaming toward profitability, the carrier has started to repair its balance…

American Airlines Has Started Paying Down Its Debt

With the crisis subsiding and American Airlines steaming toward profitability, the carrier has started to repair its balance sheet. One of the big endeavors the airline is taking over the next few years is paying down its debt. Paying off a $950 million term loan just last week, the airline is making plans to pay down approximately $15 billion in debt by the end of 2025.

American Airlines is making strides in paying down its debt. Photo: Vincenzo Pace | Simple Flying

American Airlines has begun to pay down its debt

On Thursday, American Airlines reported its second-quarter 2021 financial results. Reporting a very small net profit, the carrier is also sitting on an enhanced liquidity position of over $21 billion. Expecting to continue generating cash on its own, the airline has looked at ways to use that cash efficiently and smartly.

On Thursday, the airline announced a prepayment of a $950 million spare parts term loan. This was scheduled to mature in April 2023, but American found it beneficial to pay it off ahead of time and start deleveraging its balance sheet.

The $950 million prepayment comes on top of the $985 million of debt amortization and prepayments made during the second quarter.

AA B787
American Airlines prepaid a $950 million loan. Photo: Vincenzo Pace | Simple Flying

Further plans to free up assets and paying down more debt

American Airlines has plans to free up 20 Boeing 777 aircraft in the third quarter. As Chief Financial Officer Derek Kerr stated on the airline’s second-quarter earnings call:

“During the third quarter, we will also free up 20 Boeing 777 aircraft that will be released out of the 2013-2 and 2013-1 EETC transactions, further improving our unencumbered asset base. The deleveraging of American’s balance sheet has begun, and we are committed to significant, steady and continuous debt reduction over the years ahead.”

Enhanced equipment trust certificates (EETCs) are a way for airlines to finance fleet acquisitions. The aircraft serve as collateral, and it is just one way carriers can finance new fleet acquisitions or use the cash for other pressing financial needs.

AA B777
American Airlines is looking to free up more aircraft assets. Photo: Vincenzo Pace | Simple Flying

Heading into the crisis, there was a lot of speculation about what would happen concerning American Airlines’ debt position. The carrier entered 2020 with total long-term debt of over $23 billion or under $21 billion net of current maturities.

At the end of 2020, American Airlines had total long-term debt in the amount of $32.8 billion. It did make a few more debt-related transactions, including a large series of financing backed by the AAdvantage loyalty program to the tune of $10 billion in 2021. This pushed American’s total long-term debt as of June 30th to $39.9 billion. Note that this number includes current maturities and the spare parts term loan that was not paid down until after the second quarter ended. Factoring that, American has around $36 billion worth of long-term debt.

The plan is to continue paying down the debt. Mr. Kerr further discussed the carrier’s plan to pay down the debt:

“We now forecast reducing our debt levels by more than $15 billion by the end of 2025 by using excess cash and free cash flow to pay down prepayable debt, even though most of it is efficiently priced and by not adding to our debt levels by potentially using cash instead of debt for some future aircraft deliveries.”

AA 737 MAX
AA took on some more debt in the last decade to finance new aircraft orders. Photo: Vincenzo Pace | Simple Flying

Previously, American Airlines had planned to pay down $8 to $10 billion worth of debt by the end of 2025. The plan to accelerate the reduction of debt came as a result of American’s need to take on more debt during the crisis, but it still wants to deleverage the balance sheet as much as possible.

Why paying down debt is important

American Airlines spent much of the last decade investing in its future. A large portion of the carrier’s debt was to help pay for new and fuel-efficient aircraft to accelerate the modernization of the fleet. Taking on debt to pay for the aircraft helps reduce the carrier’s cash commitments in the near term, giving more flexibility to the carrier and making it easier to take on new jets.

American Airlines 737-800
The paying down of debt will help free up more of American’s assets. Photo: Getty Images

Paying down debt has a lot of benefits. First and foremost, with more cash available on hand that it will not need to pay off interest or meet loan payment obligations, it can turn to own more aircraft outright, whether it be by paying cash for new aircraft deliveries or buying planes off lease. This increases its available pool of unencumbered assets that it can use later on, say during another crisis, to raise much-needed liquidity.

A deleveraged balance sheet will also help American Airlines improve its credit ratings and financial standing. So, when it does decide to order more jets, or if it needs to make investments in its fleet, or modernize its infrastructure, or whatever other large cash needs it may have, it can be in a better financial position to be able to raise debt to finance those kinds of investments.

Are you glad to see American Airlines start to pay down its debt again? Let us know in the comments!

Source : Simple Flying More   

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Russia’s Azur Air Plots First Class With Former Cathay Pacific Boeing 777s

Russian regional leisure airline Azur Air looks ready to up the stakes by introducing a first class service…

Russia’s Azur Air Plots First Class With Former Cathay Pacific Boeing 777s

Russian regional leisure airline Azur Air looks ready to up the stakes by introducing a first class service after acquiring three Boeing 777-300s from Miami-based commercial aircraft leaser Aviator Capital Aircraft Managers LLC. Founded as Katekavia in 1992, the airline was rebranded as Azur Air in 2014.

Azur Air hopes to offer first class on its new Boeing 777s. Photo: Getty Images

Mainly focused on Russian leisure destinations in sunny climates, Azur Air flies Russian tourists to places like Cuba, Dubai, Mexico, and Thailand. Closer to home, the airline serves summer sun destinations around the Mediterranean, emphasizing the Turkish Riviera.

Azur Air has a fleet of 32 aircraft

With its central hub at Moscow’s Vnukovo International Airport (VKO), Azur Air, according to aviation statistics and data website ch-aviation, operates a fleet of 32 aircraft that comprise the following planes:

  • 3 x Boeing 737-800s
  • 3 x Boeing 737-900ERs
  • 10 x Boeing 757-200s
  • 12 x Boeing 767-300ERs
  • 5 x Boeing 777-300ERs

As air travel starts to pick up following COVID-19 vaccinations, Azur Air is looking to expand its fleet by acquiring three used Boeing 777-300ERs. two of the aircraft used to fly for Hong Kong national flag carrier Cathay Pacific while ch-aviation has new registration VQ-BTK formally operated by Virgin Australia:

  • Registered as B-KPC and now VQ-BXK, Cathay Pacific took delivery of the aircraft in October 2007
  • Registered as B-KPH and now VQ-BXJ Cathay Pacific took delivery of the aircraft in May 2008
  • Registered as VH-VOZ and now VQ-BTK, Virgin Australia took delivery of the aircraft in January 2009

Cathay Pacific 777s only had 275 seats

When breaking the news earlier today, aviation enthusiast website One Mile At A Time pointed out that Cathay Pacific had its planes configured in a four-class layout:

  • Six open suites in first class
  • 53 flatbed seats in business class
  • 34 recliner seats in premium economy
  • 182 standard seats in economy class
Cathay Pacific Boeing 777-300ER
Cathay Pacific triple sevens featured six first class suites. Photo: Cathay Pacific

As for the former Virgin Australia Boeing 777-300ER, it features a four-class layout comprising:

  • 37 flatbed seats in business class
  • 24 recliner seats in premium economy
  • 75 standard seats in economy X
  • 203 standard seats in economy class

This means that the two former Cathay Pacific Boeing 777-300ER will have a total of 275 seats while the former Virgin Australia triple seven will have 339 seats.

All of Azur Air’s other Boeing 777-300s have a high capacity layout of 531 seats, of which only seven are designated as business class. One Mile At A Time claims that Azur Air will not reconfigure the planes for more seats but instead introduce a first class service on the routes that the aircraft are deployed.

Azur Air is busy training cabin crew

According to One Mile At A Time, Azur Air intends to market its new first class service separately from its traditional business model and is busy training cabin crews for the new service. There is even the suggestion that one of the aircraft could enter service as early as tomorrow (July 25), flying passengers from Moscow’s Vnukovo International Airport (VKO) to Milas–Bodrum Airport (BJV) in Turkey. However, when looking at the VKO departure board for July 25, the only direct flight scheduled from VKO to BJV is a Turkish Airlines Boeing 737-800.

Azur Air puts Boeing 777 jet airliner into service
Azur Air’s other Boeing 777-300s have more than 500 seats. Photo: Getty Images

It will be interesting to see if a traditional high-density leisure airline can pull off a first class product on routes to holiday destinations.

What do you think about Azur Air first class? Will it work? Please tell us what you think in the comments.

Source : Simple Flying More   

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