Carriers Take Out Loans Ahead Of Credit Crunch

Most US domestic airlines are losing money, already deep in debt, and facing a dropoff in demand that has come faster than capacity could be cut. But through it all, they're raising money with more apparent ease than many companies in other industries.

The Wall Street Journal reports the airlines have been selling stock, refinancing assets and winning secured loans to build their cash reserves to weather the recession.

Bill Warlick, an airline debt analyst at Fitch Ratings, says part of the secret is the airlines' experience in tapping long-term credit, not the shorter-term debt instruments which have dried up in the current credit squeeze.

The Journal reports Delta this month got a billion dollars in cash through its deal for a co-branded credit card with American Express, and will get another billion from the deal over the next two years.

American Airlines has already raised $2 billion this year through stock sales, refinancing aircraft, and selling off its money management unit. It recently sold 39 turboprops to Danish investors for an estimated $200 million, and will lease them back from the buyer.

Southwest just announced a similar plan to sell 10 of its 737s to an unidentified lessor, raising $175 million in cash. Southwest will lease the planes back, and continue to maintain and operate them.

Even if the recession ends early and fuel prices rebound slowly, airlines will face challenges. Fitch estimates the seven largest US airlines have debts of $4.4 billion maturing in 2009, and another $6 billion in 2010.

And even when they can borrow, the terms are not pretty. Even as 30-year home mortgage rates dip to near the 5 percent level, Southwest, which has maintained an investment-grade credit rating, had to offer a 10.5 percent interest on private notes it recently issued. That's just over double the 5.2 percent it paid back in May for a loan of $600 million over 12 years.

FMI: www.aa.com, www.southwest.com, www.delta.com