The industry has enough cash to cover its bills — in other words cash-on-hand minus how much an airline must spend daily — for an average of 7.9 months, the report on April 5 finds. The analysis finds that American Airlines, which has the most debt among U.S. carriers, only has enough cash to cover only about 4.8 months of expenses while regional SkyWest Airlines has cash to cover nearly a year.
The estimates do not include any potential CARES Act grants that at least eight carriers applied for on April 3. Raymond James analysts said the aid could slow airlines' cash burn by about half, theoretically doubling the number of months they would be able to cover.
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U.S. airlines are in the enviable position of being among the best capitalized around the world. The International Air Transport Association (IATA) has estimated that carriers around the globe only have about three months of cash on hand, on average. The organization has warned that around half of airlines could collapse or consolidate without government support.
"At times like this, it’s actually balance sheets that are critical to survival," said IATA chief economist Brian Pearce during a press briefing in March.
Lack of liquidity — another word for cash — has proven a deciding factor in many recent airline collapses. This felled both Thomas Cook and WOW air in 2019, and regional RavnAir Group in Alaska stopped flying and filed for bankruptcy when it could not secure needed operating funds.
This is also why many airlines, to the annoyance of numerous travelers, are issuing certificates for the value of cancelled trips rather than offering refunds. The goal is to hold onto as much as cash as possible.
Related: It may be years until passenger demand returns to 2019 levels for US airlines
Despite being well capitalized and having access to CARES funds, U.S. airlines are not out of the woods. American's decision to pay for the majority of its new aircraft deliveries in recent years with debt resulted in its having $21.5 billion in outstanding long-term debt at the end of December. The airline also maintained a high cash balance, with $3.8 billion on hand at the end of the year.
American had $12.4 billion in debt payments and other obligations due this year for things such as aircraft lease payments, according to its 2019 annual report. This equals just over $1 billion in fixed expenses monthly.
"The margin for error for American management to navigate this crisis outside of the courts is growing uncomfortably thin," wrote J.P. Morgan analyst Jamie Baker in a report on Monday.
Both J.P. Morgan and Raymond James note in their respective reports that airlines, including American, have not tapped every credit source that they can. Many also have additional assets, like aircraft, that they can use as collateral for new loans.
The CARES Act also includes $25 billion for loans to airlines that have exhausted all other options to raise liquidity. The funds are in addition to the grants that carriers have already applied for.
Related: American, Delta, United among first applicants for coronavirus aid
Airlines are still in the process of winding down their operations and adjusting to the current reality of near-zero demand for air travel. The peak of COVID-19 cases in many parts of the U.S. is not expected for weeks — maybe months — to come suggesting demand could stay depressed for some time.
Analysts expect a smaller industry when things come back. Several Wall Street estimates put the number of travelers flying in 2021 at roughly four-fifths the number in 2019 — or back to about 2013 passenger levels.
Airlines will have to shrink everything from their maps to their fleets and their workforces in the face of a 20% smaller industry.
Related: How will airlines rebuild their route maps after the coronavirus?
Raymond James’ “Cash Burn Forecast”
- SkyWest: 11.8 months of implied cash on hand*
- Allegiant: 10.6 months
- Southwest: 9.4 months
- Spirit: 8.8 months
- JetBlue: 8.7 months
- Alaska: 6.6 months
- Mesa: 6.3 months
- Delta: 6.2 months
- United: 5.7 months
- American: 4.8 months
* = Raymond James calculated "implied months of cash on hand” by analyzing each carriers' cash and credit reserves, and estimated cash burn. The calculations do not include any possible government funds from the CARES Act.
