Tag Archives for bankruptcy.
Spirit has been trying to put off bankruptcy by route cuts, getting rid of aircraft and shedding workers.
Frontier was looking to buy them, despite all of their troubles.
Spirit Airlines is in talks with bondholders about a pre-packaged bankruptcy that would allow the airline to reduce debt in exchange for equity. This move would potentially allow the carrier to reject leases on aircraft grounded due to engine problems. Twenty one Airbus narrowbodies are currently in storage (or heavy maintenance) out of 94 with Pratt & Whitney Geared Turbo Fan engines, according to Cirium fleet tracking data.
Out of $3.3 billion in debt, one third of that comes due in under a year, and it must refinance or extend the debt by October 21 under covenants with its credit card processor agreement.
Garuda has now filed for bankruptcy in the U.S.. A Chapter 15 filing prevents any creditor lawsuits here, as well as seizure of assets. Garuda restructured $9.5 billion in debt this year, and has $5.1 billion remaining. Boeing did not participate in the restructuring in Indonesia.
China’s HNA Group began with Hainan Airlines and then acquired brands like Radisson Hotels; airline caterer Gate Gourmet; 25% of Hilton; nearly 10% of Deutsche Bank; and 29% of NH Hotels. They acquired stakes in Red Lion Hotels; Virgin Australia; TAP Air Portugal: South Africa’s Comair; Azul Brazil and much more. The company’s corporate structure sometimes makes it difficult to discern what they own, what they’ve sold off, and what they’ve merely sold to themselves.
Before the pandemic they worked to reduce a debt load that exceeded $100 billion by selling off assets, but continued to face problems paying for fuel, problems paying employees, and problems paying investors. HNA even offered investors airline airline tickets in lieu of interest payments.
Norwegian helped drive low cost transatlantic travel with its Boeing 787s, much to the chagrin of legacy carriers. British Airways even considered buying the airline in order to quash it as a competitor. Now it will focus on domestic and regional flying with its narrowbody aircraft.
None of this is surprising but it’s disappointing for consumers who benefited from the competition, whether they flew Norwegian or not.
American is at a cost disadvantage relative to the industry. Management won’t want to seek a strategic restructuring. Chairman and CEO Doug Parker owns approximately 2.4 million shares of the airline’s stock. However American remains at greater risk of bankruptcy than rivals, that hasn’t ended with the close of 2020 (though vaccines improve the carrier’s prospects), and talk of bankruptcy risk certainly hasn’t been “nonsense” as veteran airline journalist Ted Reed claims at Forbes.
How important are airline frequent flyer programs? United, Delta, and American Airlines have each mortgaged their frequent flyer programs for between $6.5 billion and $9 billion apiece. Stifel analyst Joe DeNardi says that without the ability to attract this cash, both American Airlines and United Airlines would be in bankruptcy.
Speaking on a panel at the Loyalty Summit online conference on Wednesday, DeNardi made this bold claim – but one that’s backed squarely by the numbers around cash burn and how much airlines have raised.
The head of world airline trade group IATA says so far governments have provided subsidies to carriers totaling $160 billion. But that’s not enough and they believe governments need to hand over more.
And what’s the terrible thing that will happen if they don’t? Something that is entirely and completely normal and happens all the time during normal times: some airlines may go out of business. That’s ok.
I’ve written that in the U.S. the major airlines at the most risk are American Airlines (by a wide margin) followed by United. American is likely to end the pandemic with over $45 billion in debt to service, far more than their next-closest competitor. And they underperformed the industry financially to begin with. Unsecured American Airlines debt is a risky bet over the coming years.
Looking at “liquidity, solvency, profitability, leverage and recent financial performance” Bloomberg ranked the 8 biggest airline insolvency risks. After significant subsidies, no U.S. or European airline makes the list.
JP Morgan, in an investor note, says American Airlines would have to file for Chapter 11 bankruptcy protection if they get down to $8 billion in cash. The airline has shared its loan covenants require it to retain $2 billion in liquidity, but that’s not the trigger for a filing.
Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel -- a topic he has covered since 2002.
Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »
