March 8, 2021

AA LeverAAges AAdvantage to RAAise $7.5 Billion

American Airlines is using its AAdvantage program as collateral to raise funds in order to lower borrowing costs and pay back a $7.5 billion loan from the federal government.

On September 25 of last year the airline entered into an agreement with the Treasury for a $5 billion loan that then grew to $7.5 billion in October. The loan is due and payable back to the government on June 30, 2025 which really isn’t that far away. Some AA passengers currently on the taxiway at JFK might still be awaiting their takeoff slot by the time the loan comes due.

The airline created a subsidiary in the Cayman Islands, American Loyalty, LP, which will refinance the loan using the AAdvantage program as collateral in order to reduce borrowing costs and pay back the government. The newly-formed company will:

  • Offer $2.5 billion in senior secured notes due in 2026                                                                       
  • Offer $2.5 billion in senior secured notes due in 2029
  • Take out a $2.5 billion senior secured term loan credit facility
  • Use the cash raised from the above methods to lend back to AA to pay back us, the taxpayers, and the federal government.
  • Enjoy all the Cayman Islands has to offer including beaches and nightlife
  • Bring some water to those poor people stuck on the JFK taxiway for four years

We thank you for enjoying today’s Cranky Daily MBA minute and now return you to the aviation-themed portion of our program.

GE to Combine Aircraft Leasing Division with AerCap

General Electric is nearing completion on a $30 billion – billion with a b – deal with AerCap Holdings of Ireland to combine their aircraft leasing businesses in one monstrous deal that would rock the leasing industry.

The unit of GE, better known as GE Capital Aviation Services, or GECAS, is the largest remaining part of GE Capital. GE Capital is the former lending division of GE which rivaled many U.S. banks at its peak but nearly ended the company during the 2008 financial crisis.

Despite the downturn in the industry, aircraft leasing companies have been well-received by investors in the last year after raising a combined $14.9 billion in 2020. GECAS has over 1,600 aircraft owned or on-order making it the one of the largest jet-leasing company in the world, along with AerCap and Los Angeles-based Air Lease Corp. Its joining with AerCap will create a dominant position in the market for the combined entity.

After hearing news of the deal, several airlines, led by Spirit in the U.S. and Ryanair in Ireland filed lawsuits and challenges to the new combined entity. Spirit insisted the new leasing company divest of itself of slots at BOS, LGA, and JFK despite insistence from the DOT that this was a leasing company and not an airline. Ryanair joined Spirit in its suit and filed its own in Europe. It gave no reason for the suit other than saying that filing lawsuits is what they do best.

Sun Country Goes Public

Sun Country Airlines announced the launch of its IPO today, offering 9,090,909 shares of public stock priced between $21 and $23 per share. The shares will trade under the airline’s ticket symbol SNCY.

The airline plans to raise between $190 and $210 million from the IPO along with thousands of amateur airline experts who will now feel justified in telling its leadership team what to do.

Barclays, Morgan Stanley, and Deutsche Bank Securities are acting as joint lead bookrunners for the offering, with Goldman Sachs & Co. LLC and Nomura are acting as joint bookrunners.  Apollo Global Securities, AmeriVet Securities, Siebert Williams Shank and Tribal Capital Markets, LLC are acting as co-managers and will receive a BOGO coupon for an on-board cocktail for their efforts.

Southwest Jumps the Shark

Once upon a time, Southwest was a swashbuckling upstart with a Texas accent trying to challenge the big boys with a targeted route network. Today’s announcement of three new cities for the airline shows that it has just about run out of places to add to its network with the bustling metropolises of Bellingham, WA; Eugene, OR; and Myrtle Beach, SC now joining the party.

The airline plans to start Myrtle Beach (MYR) first, in the first half of 2021 in order to cater to summer travelers who for some unknown reason can’t find anything better than to travel to the Grand Strand.

The new northwest destinations being added by the airline will enter service in the second half of 2021. Bellingham (BLI) is often used a low-cost alternative for travelers both in Seattle and Vancouver. The airport is located just 23 miles from the Canadian border and is only 54 miles from downtown Vancouver. The town of Bellingham even boasts more Canadian flags per capita than any other American city. Two-thirds of travelers who use BLI come from Canada, and the airport is banking on those travelers returning once the border is reopened.

Eugene (EUG) is located two hours south of Portland and serves as an alternative airport for those heading to Oregon’s coast or to visit their kids at the University of Oregon. Or something.

The airline has not yet announced exact dates service will begin at any of the three airports or what cities will be connected but presumably will let someone know before it begins flying the new routes.

Lufthansa Announces Expanded Rail Reach

Lufthansa and Deutsche Bahn (DB), Germany’s national rail carrier, announced an expansion of their partnership adding five new cities to their air-rail partnership. The pair also will introduce “Sprinter Trains,” trains that passengers must sprint 100 meters in under 12 seconds to be permitted to board extra-fast high-speed trains that will operate for the first time to Frankfurt Airport, cutting up to 90 minutes off some journeys.

The expanded partnership will strengthen Lufthansa’s domestic operation, adding train service from Frankfurt to Hamburg and Munich (beginning in July) and Frankfurt to Berlin, Bremen, and Münster (beginning in December). Lufthansa currently offers 134 daily trains exclusive for its air passengers to 17 German cities via its DB partnership.

In addition to offering additional connectivity, the airline also needs to appease German environmentalists who are pushing for the airline to end domestic flights and replace them all with rail service. The addition of new cities and trains hopefully helps the airline earn political points while also adding efficient service for its passengers.

Airline Potpourri

  • Advanced Air had its EAS contract extended to serve Silver City, NM (SVC) for another two years.
  • Aeroflot is launching once-weekly service from Moscow to Mahé, Seychelles (SEZ).
  • Air India plans to retire its final B747 later this month.
  • Etihad is extending its offer of COVID insurance for fliers through September 30. The program was originally supposed to end on March 31.
  • Eurowings will add a new base in Berlin this April.
  • Lufthansa plans to launch its new business class – with every seat having direct aisle access – in 2023.
  • JetSMART is adding frequencies from its base in at Buenos Aires/Aeroparque (AEP), launching 10x-weekly service to Córdoba (COR).
  • Neos, the Italian leisure airline filed a request with the DOT to begin flying to the U.S. and now an eager nation awaits to find out what cities plans to operate to.
  • Norwegian continues the dismantling of anything its ever built, as it received court approval to terminate the leases on 25 aircraft it still has in its possession.
  • Singapore operated flight SQ736 from Singapore to Phuket last week on a B737-800, the first narrow body flight for the airline in over 40 years.

Andrew’s Moment of Levity

My neighbor told me I was a bad parent because I feed my kids frozen pizza every night. And I was super offended because I obviously cook it first.