Airlines shun bailout, turn to credit markets
Every major U.S. airline has now shunned the U.S. government’s $25 billion emergency pandemic loans, avoiding the strings attached to that program in favor of the credit market’s warm embrace.
United Airlines announced Monday that it will raise $9 billion from institutional investors through a combination of loans and bonds. Part of that will pay off $520 million the company already borrowed from the federal government program.
The U.S. Treasury Department a year ago offered loans to prop up the industry as COVID-19 froze the business, but with terms viewed as onerous. The companies had to issue warrants to the government, and agree to restrictions on dividends, stock buybacks and executive compensation. Delta Air Lines and Southwest Airlines both opted out last year.
While United and American Airlines borrowed relatively small amounts, they
had until next month to decide whether to fully embrace the program — and its strict terms — by taking several billion dollars of additional liquidity that was available to them. American bowed out by tapping institutional investors to raise $10 billion in March, and United has now also backed away.
The decisions largely reflect just how robust credit markets have been because of the Federal Reserve’s pandemic support — its pledge to buy bonds and policy makers’ signal that rates will stay low for years.
“The market has been open like crazy for airlines,” said Roger King, a
senior analyst at CreditSights. “They have issued debt right and left, and they have less pressure on liquidity.”
In addition to repaying what it’s borrowed from the Treasury, United will use proceeds from its debt sale to refinance a $1.4 billion term loan, a $1 billion revolver and to add cash to its balance sheet given the uncertain outlook for travel.
Data from the Transportation Security Administration this weekend shows that airline travel is rebounding. The country averaged more than 1.5 million travelers on Thursday and Friday, and dropped slightly to nearly 1.4 million travelers on Saturday, similar to the numbers from Easter weekend. There have been similar bursts throughout March and April as travel has steadily increased, most likely in part because of travel by younger Americans during spring break.
The Centers for Disease
Control and Prevention said this month that Americans who are fully vaccinated against COVID can safely travel at home and abroad, as long as they take basic precautions such as wearing masks. Dr. Anthony Fauci, the nation’s leading infectious disease expert, said the risk would get lower only as more travelers got vaccinated.
“It is a risk to fly, but it’s a small risk,” he told CNN last week. “The more infection you get in the community, the greater the risk. So if we get more and more people vaccinated, by the time we get to the summer, the risk of flying will be even less than it is now.”