Source: GagliardiPhotography / Shutterstock.com
At the opening price on March 23 of 11 USD per share, American is worth only 4.3 billion USD. It had sales of over $ 45 billion last year and a net income of almost $ 1.7 billion. At the end of the year, it also had about $ 3.8 billion in cash, and it recently secured a $ 1 billion more loan.
Of course, American Airlines is virtually out of service right now. Assuming it costs $ 50 million a day to keep the doors open, cash would run out around June 1st.
This is why the stock is 64% lower than hitherto, and why the credit rating agency Fitch has lowered its debt rating from BB- to B +.
Helicopter money coming?
CEO Doug Parker told listeners at a JPMorgan Chase conference (NYSE: JPM) on March 10 that the US was “ready for this” and predicted that it would emerge stronger from the crisis.
Since then, American Airlines has canceled 55,000 flights in April alone, parked 450 aircraft and canceled almost all international flights until May 6. The company only tries to load flights.
It offered employees early retirement, but flight attendants complain that pilots have gotten a better deal. A baggage handler at DFW Airport has also tested positive for the virus.
Like other airlines, the US wants part of a proposed $ 50 billion industrial rescue. Half would come in loans, half in free money, and it could get back $ 4 billion in previously paid taxes.
However, congressional efforts may be slow as airlines have given away 96% of their cash flow over the past decade, in the form of dividends and share repurchases.
Repurchases are in a particularly bad smell right now because they keep a share price artificially high. They enable huge bonuses for the management. And they waste capital that can be used to improve the service, pay down debts or just stay in the book in times like this.
Critics complain that American Airlines made $ 12 billion in such repurchases when times were good, but now want taxpayers’ money when times are bad.
Buy the bonds?
Some relief is coming. The Federal Reserve on March 23 announced new measures to support corporate debt, including new lending facilities and liquidity for the corporate bond market.
American Airlines managed to sell $ 500 million in new banknotes on February 25, just before the crisis became apparent, at 3.75%. The bonds were sold at the level of paying for pension commitments. Within a week, they sold at 87 cents. The problem is that they do not really trade at that price. If funds that bought the bonds wrote down their value, as they should, they can be shut down when investors try to get out.
These are the types of bonds that the Federal Reserve backs up. If you bought a few for 87 cents before the last announcement, you have a very fat profit, given that the government only pays 1% on 30-year money.
The conclusion on AAL stock
On March 23, the AAL share still had a return of 3.9% on a dividend of 10 cents per quarter.
Forget it. It will not come.
Instead, consider buying AAL shares as a speculation. A save does not give you all the way back to $ 30, the share price a month ago. But it can take you halfway. You can easily double your money if Republicans can force Democrats to swallow a bailout from the airline.
These negotiations are ongoing despite a failed vote to continue in the Senate. The present bill includes $ 500 billion that the Treasury has full room to distribute.
Counting the bill, or something similar, would give you a quick profit. I guess something will happen, and your speculation about the AAL share will pay off.
But that’s just a guess.
Dana Blankenhorn has been a finance and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available in the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he owned shares in JPM.