Mon, Apr 06, 2009
Carrier Attempting To Raise Funds To Remain Solvent In Hard
Times
Although last summer’s high fuel prices have subsided and
capacity cuts have eased air carriers’ financial burdens,
decreased ridership and increasingly hard-to-find financing have
fueled concerns that some airlines may nonetheless be headed toward
bankruptcy protection.
Inside sources told the Financial Times that American Airlines
has begun negotiations with credit card partner Citigroup,
attempting to raise funds through the sale of a block of miles in
advance. The move comes on the heels of a $100 million loan
received by AAL from Germany’s DVB Bank, which used the
airline’s 757s and 777s as collateral.
The talks hinge on frequent-flyer air miles, earned by Citigroup
credit card holders with each purchase made. AAL’s
frequent-flyer plan was the first of its kind in the industry, and
has about 60 million members. Insiders said that since the
negotiations are just beginning, they could end just as quickly if
other means of financing are found or if economic pressures
ease.
The FT reports that AAL is sitting on about $3.1 billion in cash
and has another $3.5 billion in unencumbered assets and possible
sources of funds such as airport slots and frequent-flyer miles,
but also has $1.1 billion in long-term debt yet to be paid this
year.
Although competitors Delta Air Lines, United Airlines and
Continental Airlines have already raised millions of dollars
through similar agreements reached with their credit card partners,
the FT points out the possible irony of AAL turning to Citigroup in
light of substantial losses suffered by the bank as a result of the
global economic downturn.
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