The shares of American Airlines (NASDAQ: AAL) have outperformed its peers over the past 10-day and 21-day period. However, the stock significantly underperformed its peers and broader markets in the last five trading days indicating a downside risk and the culmination of last month’s rally. Per the recent earnings release, the company has extended austerity measures to the extent of securing deferral rights with Boeing for some of the 2021 and 2022 MAX deliveries. Notably, the company is expecting a $1.2 billion cash inflow after considering non-aircraft capex and aircraft pre-delivery payments. The company plans to utilize this excess cash to further de-lever its balance sheet. Given the huge debt load of $25 billion, Trefis believes that AAL stock’s more leveraged position may hurt its performance compared to its peers. We compare the historical stock price trends between AAL and its peers DAL, UAL, and LUV in an interactive dashboard analysis, AAL Stock Has 53% Chance Of A Decline Over The Next Month After Rising 1.6% In The Last 5 Days.
AAL stock is fundamentally weaker compared to DAL, UAL, and LUV
For FY2020, American, Delta, United, and Southwest reported a 62%, 64%, 64%, and 60% decline in total revenues, respectively. However, a sizable variance was observed in operating cash outflow due to differences in capital structure and fixed costs (primarily employee expenses). In 2020, Delta, United, and Southwest observed operating cash outflow of $3.8 billion, $4 billion, and $1.1 billion, respectively, but American’s number reached an even larger $6.5 billion. As American funded operating losses, its net debt increased by $5 billion from $20.5 billion in 2019 to $25.7 billion in 2020.
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High cash burn rate is a concern for Airlines in 2021
Currently, the U.S. Treasury has announced a second round of payroll support program (PSP-2) with $15 billion for the battered airline industry. Per recent reports, American, Delta, and Southwest will receive $3.1 billion, $3 billion, and $1.7 billion respectively in government aid during the first quarter of 2021. With no government support (in the form of payroll grants) in Q4 2020, the airline industry observed more furloughs and stricter austerity measures to reduce the daily cash burn rate. Despite these cost-cutting initiatives, when adjusted for definitional differences, and compared on a similar basis, the daily cash burn rate of American Airlines, United, and Delta all fall in the $25 – $30 million range.
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