(Reuters) – American Airlines (AAL.O) on Thursday posted a $2.2 billion net loss, its first quarterly loss since emerging from bankruptcy in 2013, and warned of a roughly $70 million per day cash burn in the second quarter as the coronavirus pandemic halts travel.
FILE PHOTO: American airlines jets made by Embraer and other manufacturers sit at gates at Washington’s Reagan National airport in Washington, U.S. April 29, 2020. REUTERS/Kevin Lamarque
Shares were down 4% at $12.11.
Airlines – among the sectors hardest-hit by the pandemic – have grounded jets, canceled flights and suspended dividends and share buybacks among measures to shore up cash.
“We all expect that recovery will be slow and demand for air travel will be suppressed for quite some time,” Chief Executive Doug Parker told investors.
The U.S. airline swung to a net loss of $2.2 billion in the first quarter to March 31 from a $185 million profit a year earlier.
Excluding items like fleet retirement costs, the net loss was $1.1 billion, or $2.65 per share, below analyst estimates of a $2.33 per share loss, according to IBES data from Refinitiv.
Total operating revenue declined nearly 20% to $8.5 billion.
The pandemic ended one of the longest expansion in U.S. history, with the nation’s economy contracting at its sharpest pace since the Great Recession in the first quarter. Airline executives have warned that demand may not recover to 2019 levels for years.
American has already reduced its passenger flight schedule by about 80% in both April and May and is running some cargo-only flights. Its June capacity will be down 70%, including a much-reduced international schedule.
The carrier has also extended flight cancellations in and out of the New York area, one of the hardest hit by COVID-19 cases, into May, according to a memo to pilots seen by Reuters.
American sees liquidity at $11 billion in the second quarter, up from $6.8 billion in the first, and Parker said on a conference call that the daily cash burn should slow to about $50 million in June.
Its overall cash position will be helped by a $4.75 billion government loan under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, for which it will have to pledge a portion of its assets as collateral.
The U.S. Treasury is negotiating the terms of those loans with each airline based on each company’s credit ratings. For American, the interest rate will be a little over 4%, Parker said.
Following a recent appraisal, American said it believes its unencumbered assets are worth over $10 billion, excluding the value of its AAdvantage loyalty program.
It is also receiving $5.8 billion in payroll aid, which bars airlines from cutting pay or jobs through Sept. 30.
However, Parker warned that in the fall, “we’ll have more team members than we have work for.”
“Hopefully we can manage through that without having to do furloughs.”
Reporting by Sanjana Shivdas and Tracy Rucinski; Editing by Shinjini Ganguli and Nick Zieminski