American Airlines Jumps 15% on Plan to Stop Burning Cash

The major U.S. carrier is still carrying a cargo full of debt.

Author: Anthony Russo   

The stock in American Airlines Group Inc (Nasdaq: AAL) surged 15% to $16.54 per share by midday Friday on it reporting that it has plans to lower its burn rate to eventually nil.  

The Texas-based company said that in a filing today that it expects its daily cash burning to reduce to $40 million in June, down from the more than $100 million a day it was bleeding daily in April. At the end of the year, American Airlines expects its cash-burning rate at approximately "zero," assuming traveling demand starts to pick back up.

The U.S. major carrier has also implemented several cost measures while improving liquidity. If it receives $4.75 billion in funding from the CARES Act loan this month, American Airlines would have around $11 billion in liquidity, as of June 30.

The news comes as American Airlines announced last week that it will increase its flights in July. It intends to fly 55% of its domestic schedule and roughly 20% of its international schedule that month. However, investors should still express caution considering its an alarming amount of debt. Citi analyst Stephen Trent has estimated that the company will have $40 billion in debt and $6.1 billion in pension liabilities by the end of the year.

Also, David Calhoun, the chief executive officer of the airplane manufacturer The Boeing Company, (NYSE: BA) told NBC last month that there will "most likely" be a bankruptcy to one major U.S. carrier. Will American be the one? The carrier is expecting its revenues to tumble 90% in the second quarter.

In other news today, U.S. benchmarks were back in the green on Friday after an enormous sell-off Thursday. By midday, the Dow Jones added 344 points, the S&P 500 rose 1% to 3,035.81 points and the Nasdaq Composite gained 110 points. Rivals of American Airlines also enjoyed nice gains today, as Delta Air Lines, Inc., (NYSE: DAL) jumped nearly 10% to $29.87 per share and Southwest Airlines Co. (NYSE: LUV) leaped 8% to $35.49 per share. 

I recommended a "buy" in Southwest when it was trading in the $29 to $30 per share range last month.

However, a second Covid-19 wave in autumn would be devastating to airliners which were burning through collectively $10 billion a month during the pandemic, as Reuters reported today. If one thing U.S. airline stocks have taught us over the decades, a nosedive can occur suddenly, even if clear skies seem ahead.