AirTran joins the masses and announces liquidity boosting measures

AirTran received an extension on its revolving line of credit and its letter of credit through to the end of 2010, and an extension of its credit card-processing agreement for the same length of time (see table below for more information). As a result, the company is not subject to any cash holdbacks (a key factor in Frontier Airlines' entry into bankruptcy protection in Apr-2008 from which is has now emerged).

American, Delta, US Airways, WestJet and GOL also boost cash reserves, as credit markets loosen slightly

Several other major carriers in the Americas, including Delta Air Lines Inc and American Airlines' parent, AMR, and US Airways, and LCCs, WestJet (Canada) and GOL (Brazil), have also moved to bolster available cash reserves over the past week.

Despite continuing financial turmoil in the aviation industry (and the economy as a whole), equity markets have surged and debt markets have loosened slightly, allowing carriers to refinance existing debt and/or find new sources of cash.

North/South American carrier's cash boosting exercises: Sep-2009

Airline	Date	Details	Amount	Purpose
AirTran	30-Sep-2009	Entered agreement with its principal credit facility lender and its largest credit card processor: USD175 million of credit facilities: Extended expiration date of its combined letter of credit and revolving line of credit (LoC) facilities to 31-Dec-2010. The amount AirTran can borrow under its revolving facility increased from USD90 million to USD125 million. The size of the credit facility was reduced from USD215 million to USD175 million as a result of the carrier's re-optimization of the facility from USD125 million to USD50 million. Credit Card Processing Agreements: Extended the current credit card processing agreement from 31-Dec-2009 to 31-Dec-2010.	USD175 million	To enhance liquidity and improve financial flexibility. Expects to end the current quarter (30-Sep-2009) with more than USD400 million of unrestricted cash and short-term investments (compared to USD390 million as at Jun-2009).
WestJet	30-Sep-2009	Completed its bought-deal financing. As at 30-Sep-2009, an aggregate of 15.4 million Common Voting Shares and Variable Voting Shares were issued at a price of CAD11.20 (USD10.47)/share. This included 2.0 million shares issued pursuant to the exercise by the underwriters of the full amount of the over-allotment option.	CAD172 (USD161) million	To finance capital expenditures, including future aircraft financing activities and pre-delivery payments on new aircraft; for general working capital purposes, including aircraft maintenance, spare parts and support for new systems; to maintain its capital position to enhance flexibility for financing future growth activities
United Airlines	30-Sep-2009	Plans to offer 19 million common stock shares in an underwritten registered public offering. Intends to grant the underwriters an over-allotment option for an additional 2.85 million shares and to offer USD175 million aggregate principal amount of convertible senior notes due 2029 in a concurrent underwritten registered public offering. The company also intends to grant the underwriters an over-allotment option with respect to an additional USD26.25 million aggregate principal amount of convertible senior notes.	USD201.3 million	General corporate purposes.
American Airlines	29-Sep-2009	Completed its offerings of 48.5 million shares of its common stock and USD460 million principal amount of its 6.25% convertible senior notes due 2014, raising approximately USD830 million in aggregate net proceeds. Also repaid in full its USD432 million secured bank term loan facility, which will be refinanced using the proceeds of the private sale of USD450 million principal amount of senior secured notes. This transaction is expected to be completed on 09-Oct-2009. The Sep-2009 financing and liquidity announcements consists of: USD1 billion in cash from the advance sale of AAdvantage frequent flyer miles to Citi; USD281.5 million loan facility from GECAS secured by owned aircraft; USD1.6 billion in sale-leaseback financing commitments from GECAS for B737s previously ordered by the company and to be delivered in 2010 and 2011; USD830 million in cash from the sale of AMR common stock and its 6.25% convertible senior notes; USD450 million principal amount of senior secured notes (private offering expected to be completed on 09-Oct-2009. The notes are expected to be secured by certain of the company's aircraft, and proceeds from the offering of the notes will be used to refinance an existing USD432 million secured bank term loan facility).	USD4.2 billion in additional liquidity and financing in Sep-2009	AMR and American now has approximately USD4.2 billion in additional liquidity and new aircraft financing in Sep-2009 (in addition to the more than USD1.2 billion the company raised earlier this year) through private and public financings of owned aircraft and the financing of new B737s. Proceeds will also be used to refinance bank term loan facility. Expects to end the third quarter with approximately USD4.4 billion in cash and short-term investments, including approximately USD460 million in restricted cash.
US Airways	28-Sep-2009	Closed its common stock offering. Also announced that underwriter, Citi, exercised its over-allotment option to purchase an additional 2.7 million shares. As a result, US Airways issued 29.0 million shares of its common stock.	USD137 million of aggregate combined net proceeds	General corporate purposes
Delta Air Lines	28-Sep-2009	Closed USD2.1 billion of financing transactions, with the transaction to also generate USD600 million in incremental liquidity after refinancing USD1.5 billion from Northwest's bank credit and revolving credit facilities. he financing transactions are secured by liens against Delta's Pacific franchise, which includes route authorities, slots and gate leaseholds.	USD2.1 billion	Step toward addressing the company's 2010 debt maturities and further strengthening its liquidity position (with the transaction, the carrier has address more than 40% of its 2010 maturities). Delta now expects unrestricted liquidity at Sep-2009 to be USD5.6 billion.
GOL	23-Sep-2009	Plans to raise capital through a public share subscription by issuing 17.3 million common shares and the same number of preferred shares, although no timeframe was disclosed. On 25-Aug-2009, GOL filed a registration statement for a proposed global offering of preferred shares, including preferred shares in the form of American depositary shares, by the company and ASAS Investment Fund, GOL's controlling shareholder.	BRL550-650 (USD310-367) million expected from global offering	General corporate purposes and to strengthen its balance sheet, particularly its cash position.

Source: Centre for Asia Pacific Aviation & airline reports

JetBlue raised approximately USD300 million in net proceeds from an equity issuance and convertible debt offering in 2Q2009, while Southwest boosted its liquidity position notably in 1Q2009, through a variety of measures, including revolving credit facilities, the private placement of USD400 million of its Senior Security Notes, and a two tranche sale and leaseback transaction covering some of its B737-700 equipment.

Large cash balances, but high levels of debt and significant cash drain

At the end of 2Q2009, United Airlines, Northwest, Continental and Delta had the largest cash balances of the US carriers, all above USD2 billion.

Select US carriers' cash balance: 2Q2009

Carrier	2Q2009 Cash Balance (USD '000)
United Air Lines	2,628,049
Northwest Airlines	2,570,051
Continental Air Lines	2,505,173
Delta Air Lines	2,010,270
US Airways	1,245,934
Southwest Airlines	946,000
JetBlue Airways	879,896
AirTran Airways	447,099
American Airlines	186,316
Alaska Airlines	163,165
Frontier Airlines	72,049
Spirit Air Lines	54,412
Allegiant Air	28,690
Virgin America	27,531

Source: Centre for Asia Pacific Aviation and BTS and Southwest Airlines

However, the US carriers also have high levels of debt and cash flows for operations are down substantially, according to IATA, which added that many airlines are experiencing a "cash drain by commitments on debt repayments and capital spending, which follows significant cash burn across the industry in 2008".

Capital market cash raising by airlines: 2008 and 2009 (USD, billion)

Source: IATA and Bloomberg

IATA added that US airlines are expected to post net losses of USD2.6 billion in 2009 and 1.9 billion in 2010, following net losses of USD9.5 billion in 2008, resulting in at least USD14 billion in losses over the three-year period.

Tough operating environment + cash = consolidation activity?

According to Fitch Ratings, weak fundamentals in some US airlines could also lead stronger carriers to commit to another round of consolidation.

While AirTran is unlikely to use its funds for such a purpose, the LCC has stated it could be interested in acquiring assets from weaker rivals, should the travel slump continue and airlines are forced into fire sales to raise cash.

Similarly, Allegiant Airlines (the fast growing leisure airline, which has little debt and no liquidity issues) continues to snap up MD-80 aircraft (and parts/engines) from US and international carriers (most recently including Japan Airlines) at "attractive prices". Allegiant has previously stated that it can purchase and refurbish its MD-80 aircraft for as little as USD4 million.

Meanwhile, both American Airlines and Delta Air Lines are currently in talks with Japan Airlines regarding options for a joint business relationship with the struggling Tokyo-based carrier, while both could be bidders for UK's BMI should Lufthansa put it on the market, to gain valuable slots at London Heathrow.

WestJet's unexpected share issue has also fuelled speculation that the Canadian LCC is readying for its first acquisition. WestJet had a healthy cash balance of USD687 million as at Jun-2009. The issue price diluted the carrier's share price, which has fallen approximately 14% since the beginning of the year.

Fitch Ratings warns of need for "emergency sources of capital"

The recent movements to bolster cash balances by the major US airlines is in line with Fitch Ratings' warning that while revenue declines for US carriers are slowing and airline financial health is expected to improve in 2010, carriers are coming to the end of their liquidity reserves and will need "emergency sources of capital" to survive the slower Winter period.

According to Fitch, "following a period of extreme revenue pressure driven by the collapse in premium air travel demand over the past year, US airlines enter the fall with growing expectations that still-tentative signs of stabilisation in revenue trends over the last several weeks may pave the way for modest improvement in credit fundamentals and reduced bankruptcy risks moving into 2010. Fitch believes modest improvements in industry profit margins, cash flow and liquidity are more likely over the next year".

Fitch stated that relative liquidity positions and capital market access remain the primary factors influencing its assessment of US airline credit quality (see table below). Fitch also noted that all of the US legacy carriers have seen their liquidity positions eroded materially as a result of almost two years of sustained operating pressure and constrained access to capital.

Fitch-rated US airlines: Sep-2009

Airline	Rating	Outlook
AMR Corp	'CCC'	-
Continental Airlines	'B-'	Stable Outlook
Delta Air Lines	'B-'	Negative Outlook
JetBlue Airways	'B-'	Negative Outlook
Southwest Airlines	'BBB"	Negative Outlook
UAL Corp	'CCC"
US Airways Group	'CCC'

Source: Centre for Asia Pacific Aviation & Fitch Ratings

Outlook: Further capital raising likely to occur in early 2010

Looking ahead, Fitch expects that, even if revenues continue their "gradual firming trend" through the weak Winter period, some airlines will face "uncomfortably low cash balances" in early 2010, at which point they will seek emergency sources of capital.

Fitch added that it expects "tight credit market conditions and an absence of owned and unencumbered assets to limit the ability of large carriers to reliably raise capital at a time when heavy cash obligations, including debt maturities, pension funding and aircraft capital commitments, will continue to pressure liquidity. In addition, higher borrowing costs, persistently high leverage and chronically weak cash flow highlight the largely unsustainable nature of US airline capital structures".