American’s debt repayments and liquidation position in 4Q14
Lower fuel price, merger success lift American Airlines in 2014 (Part 6 of 10)
Sources of liquidity
As of December 31, 2014, American Airlines had $8,077 million in cash and short-term investments and an undrawn revolving credit facility of $1,800 million. Out of the cash balance, $774 million was restricted cash, and $656 million was held in Venezuela bolivars due to problems associated with the repatriation of funds. During the quarter, cash held in Venezuela bolivars decreased by $65 million.
American also incurred foreign currency losses amounting to $30 million during the fourth quarter related to the repatriation of funds from Venezuela. The company has significantly reduced capacity in this market to avoid further loss.
Leverage
American has the highest leverage among its peers, as its debt doubled after merging with US Airways. Please refer to Overview: Does American have funds to pay debts and expansion? for more details on debt increases after the merger. American Airlines’s (AAL) and United Continental Holdings’s (UAL) debt as a percentage of capital was more than 70%. Its peers, including Delta Air Lines (DAL), Southwest Airlines (LUV), JetBlue Airways (JBLU), and Alaska Air Group (ALK) have lower leverage, ranging between ~26%–45%.
In 2014, American prepaid $2.7 billion of its high-cost debt and lease obligations, leading to the significant reduction in interest expense. American’s debt repayments in 2015 are estimated to be $2.1 billion, including $800 million in prepayment of high-cost debt.
Investors can opt to invest in an ETF that holds multiple airline company stocks such as the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN) in order to diversify the company-specific risk associated with holding a single airline company stock.
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