Airlines' debt expands as COVID surge chokes travel
Airlines are piling on more debt as surging coronavirus cases force travelers to cancel plans and stay home.
The industry's outstanding debt has jumped 23% since 2020 to $340 billion, according to data compiled by Bloomberg. So far this year, global air carriers have sold $63 billion in bonds and loans.
It's more evidence that the industry faces a bumpy road ahead, with many border restrictions still in place and the high-season of summer vacations in the U.S. and Europe coming to an end. easyJet PLC and Japan Airlines Co. announced new fundraising plans this month to help them weather the prolonged pandemic.
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"The spread of the delta variant may lead to other countries imposing tougher quarantine rules on visitors," said Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown.
Many carriers are returning to the bond market after last year's dash-for-cash when the pandemic first struck. The big sales show that investors are still ready and willing to give ample funding to the industry.
Here are some recent examples of companies in the market:
- easyJet raised $400 million of new debt along with $1.7 billion (1.2 billion pounds) in stock. The funding will provide a buffer to get through the slow winter season and position the carrier for a tentative rebound in leisure travel.
- Japan Airlines secured almost $2.7 billion (300 billion yen) in fresh funding via subordinated bonds and loans. The funds will also be used to upgrade its fleet by procuring Airbus SE's A350-1000 aircraft as its flagship for international lines, JAL said.
- Australia's Qantas Airways has announced plans for a bond sale.
In the meantime, the Biden administration is offering a financial lifeline to airline industry manufacturers: $482 million to help them avert job or pay cuts in the pandemic.
The taxpayer-funded relief will cover up to half of the payroll costs at 313 companies, according to the Transportation Department, which said it will help save up to 22,500 jobs.
Air travel plummeted due to the spread of COVID-19. The delta variant has led to elevated cancellations and diminished travel in recent months. More than 100,000 aerospace jobs have been lost in an industry that had employed about 2.2 million people, according to the Transportation Department.
The largest recipient of the funds announced Monday is Spirit Aerosystems, a Boeing supplier based in Kansas, which stands to get $75.5 million that the government says will help protect 3,214 jobs. Parker-Hannifin Corp. of Ohio, which makes hydraulic systems for planes, will get $39.7 million. The avionics unit of Japan's Panasonic, based in California, will get $25.8 million, and several U.S. subsidiaries of France's Safran S.A. will get a total of $24.8 million.
Money for the aerospace companies is coming from a $1.9 trillion package approved by Congress and signed by President Joe Biden in March.
The relief is similar to a much larger aid program for U.S. airlines, which have received $54 billion in the past year and a half. The airlines also agreed not to furlough any workers, but they eliminated tens of thousands of jobs anyway by offering incentives for employees to quit or retire early.
Bloomberg and the Associated Press contributed to this report.