They forecast record losses for airlines 1:11
New York (CNN Business) - America's
airline industry just closed the books in the worst year in its history.
They lost a total of $ 32 billion not including special items.
Yet airlines ended 2020 swimming in an ocean of cash.
The nation's four largest airlines - American, Delta, United and Southwest - together had $ 31.5 billion in cash on their balance sheets at the end of 2020.
That's more than $ 13 billion from a year earlier, before the pandemic hit.
"Liquidity" has become the favorite buzzword of airline executives discussing their financial situation.
Including cash and untapped lines of credit, airlines have access to nearly $ 65 billion.
"Liquidity is at record levels," said Philip Baggaley, chief credit analyst for the airline industry at Standard & Poor's.
"That's good, and it's one of the few strengths they have at the moment."
The airlines received substantial financial help from the federal government, but most of that money was to be spent on keeping staff on temporary payroll.
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Most of the loans and cash, then, comes from the banks and Wall Street.
Like a distressed family awash in credit card offers, airlines have many people eager to give them cash.
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Airlines have sold bonds, borrowed money, mortgaged their planes, frequent flyer programs, and other assets, and even sold additional shares - a highly unusual move for an industry in this position.
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The loans have added roughly $ 40 billion in long-term debt to the balance sheets of the country's airlines.
"I think the general feeling is that they are hurt, but they will make it," Baggaley said.
The low interest rate environment has helped airlines as investors and banks seeking returns have been willing to lend to airlines, he added.
All companies except Southwest have junk bond credit ratings.
Airlines have made staff cuts
The companies have also made large cost cuts, including with government help that prevented them from cutting permanent and involuntary jobs.
Airlines used compensation and early retirements to cut roughly 16% of the staff they had in early 2021. In recent weeks, American and United sent layoff notices to 27,000 employees, saying they could be suspended again unless there is a third round of government assistance before April 1.
Many of those employees had been laid off in October when the first round of federal payroll support ran out, and were called to work in December when the second covid-19 relief package provided an additional $ 17 billion to the industry.
Last week, the airline unions returned to the Capitol asking for another round of help to keep their members employed.
Cost cuts slashed the rate at which airlines consumed cash by about half between Q2 and Q4 of last year, even as air travel and revenue remained a fraction of what they were before the pandemic. .
But even as they slowed down their cash burning, the four airlines combined spent $ 115 million a day over the course of the last nine months of 2020. And they expect to continue burning cash, albeit at a slower pace, in the first Semester 2021. Building a substantial cash reserve is the only sure way to overcome this unprecedented financial crisis, say airline executives.
"Our industry still has a long road to recovery ahead of it," US CEO Doug Parker said in a recent conference call with investors.
He said the accumulation of cash, combined with the reduction in costs, "gives us confidence that we are well positioned for the next year and the long term."
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Aside from Southwest, which just posted its first annual loss since 1973, the nation's other major airlines have at least one bankruptcy on their record.
The current strong cash position of the industry raises hope that this time they can avoid that fate.
But that depends on when the traffic returns, and even the airlines aren't sure when that will be.
“I have 10 consecutive months of data that says people are ready to travel in six months.
He keeps saying the same thing, "Parker of American said in an interview on CNBC recently.
“What I do believe is that once people feel comfortable, they will come back relatively quickly.
There is a great pent-up demand for travel.
We listen to it wherever we go.
But no one will travel until there are things to do when you travel, and until the vaccine is distributed and the pandemic is largely eradicated.
S & P's Baggaley believes airlines "are through the worst," he said.
None of them have filed for bankruptcy, and he believes they most likely won't.
But he cautions that, unlike the series of retail bankruptcies early last year that took place weeks or months after the crisis, historically airline bankruptcies can occur years after a financial crisis.
Delta and Northwest did not apply until 2005, years after 9/11.
American didn't apply until 2011, long after the Great Recession.
"It's a reasonable concern that they come out of this with a lot more debt," he said.
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