American Airlines Group Inc. — FY2020 Form 10-K Summary
Business context and reporting period
American Airlines Group Inc. (AAG), together with wholly owned American Airlines, Inc. and regional carriers operating as American Eagle, operates a global network airline serving passengers and cargo. The filing covers the fiscal year ended December 31, 2020; fourth-quarter information is also included. Results were dominated by the COVID-19 pandemic, travel restrictions and the resulting collapse in air-travel demand.
- Approximately 95 million passengers boarded AAG flights in 2020 versus approximately 215 million in 2019.
- At December 31, 2020, the fleet included 855 mainline and 544 regional aircraft.
- 2020 system capacity declined 49.8%; domestic capacity fell 41% and international capacity fell 68%.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total operating revenue | $17.337 billion | $45.768 billion | Down 62.1% |
| Passenger revenue | $14.518 billion | $42.010 billion | Down 65.4% |
| Operating income (loss) | $(10.421) billion | $3.065 billion | Declined $13.486 billion |
| Pre-tax income (loss) | $(11.453) billion | $2.256 billion | Declined $13.709 billion |
| Net income (loss) | $(8.885) billion | $1.686 billion | Declined $10.571 billion |
| Basic and diluted EPS | $(18.36) | $3.80/$3.79 | Turned negative |
| Operating cash flow | $(6.543) billion | $3.815 billion | Declined $10.358 billion |
| Capital expenditures and aircraft deposits | $1.958 billion | $4.268 billion | Down 54.1% |
| Debt and finance leases | $32.593 billion | $24.315 billion | Up $8.278 billion |
| Stockholders’ equity (deficit) | $(6.867) billion | $(118) million | Deficit increased |
- Passenger revenue passenger miles fell 61.9%, the load factor decreased 20.5 percentage points to 64.1%, and total revenue per available seat mile declined 24.6% to 12.11 cents.
- Total operating expenses fell 35.0% to $27.758 billion, substantially less than the revenue decline. Fuel expense fell 63.8% to $3.402 billion, while salaries, wages and benefits declined 13.1% to $10.960 billion.
- Total operating cost per available seat mile increased 29.4% to 19.39 cents. CASM excluding net special items and fuel increased 54.4% to 17.69 cents, reflecting substantially lower capacity.
- AAG recorded a $2.568 billion income tax benefit, substantially non-cash, and had approximately $16.5 billion of federal NOLs and $5.0 billion of state NOLs at year-end.
Liquidity, debt and capital resources
- Total available liquidity was $14.260 billion at December 31, 2020, consisting of $6.864 billion of cash and short-term investments and $7.396 billion of undrawn facilities. Restricted cash and short-term investments totaled $609 million.
- AAG raised substantial liquidity through debt, equity and government-support transactions. Notable actions included $2.5 billion of 11.75% senior secured notes, $1.2 billion of 10.75% senior secured notes, $1.0 billion of convertible notes, $2.8 billion of revolving-credit borrowings, and approximately $3.0 billion of equity proceeds.
- AAG received approximately $6.0 billion under the first Payroll Support Program, including an approximately $1.8 billion promissory note and warrants for approximately 14.1 million shares. It also borrowed $550 million under a Treasury secured term-loan facility with $6.950 billion remaining available at year-end.
- Debt agreements generally require at least $2.0 billion of unrestricted cash and available revolving capacity and include collateral, loan-to-value and debt-service coverage requirements. The company reported compliance with applicable collateral tests at the latest measurement dates.
- Approximately $12.8 billion of borrowings were based on LIBOR, and the company had no interest-rate hedge program. A 100-basis-point increase in rates was estimated to increase annual interest expense by approximately $130 million, partially offset by approximately $70 million of additional interest income.
- 2021 minimum pension contributions were estimated at approximately $697 million, including $130 million deferred from 2020; $241 million was contributed in January 2021.
Material changes versus the prior comparable period
- COVID-19 caused an unprecedented demand shock beginning in March 2020, reducing revenue by 62.1%, capacity by approximately 50% and passenger load factor by 20.5 percentage points.
- The company accelerated retirement of several aircraft types and recorded approximately $1.5 billion of non-cash fleet and spare-parts impairment charges, plus $109 million of cash impairment and lease-return costs.
- Severance expenses increased to $1.408 billion, principally for voluntary early-retirement and partially paid-leave programs. More than 20,000 team members elected early retirement or long-term partially paid leave.
- AAG recognized approximately $4.2 billion of PSP1 financial assistance as a special-item credit. Including other special items, 2020 produced a net special-item credit of $796 million, compared with $644 million of net special-item charges in 2019.
- Operating cash flow shifted from $3.815 billion of cash generation in 2019 to $6.543 billion of cash use in 2020, while debt and finance leases increased by approximately $8.3 billion.
- The company issued 198.1 million shares through public and at-the-market offerings, in addition to Treasury warrants, contributing to significant dilution.
- Share repurchases and dividends were suspended. The company repurchased 6.4 million shares for $145 million, all in the first quarter, and paid $43 million of dividends in 2020.
Guidance, outlook, commentary and risks
Management stated that 2021 results were expected to remain severely affected by COVID-19, with demand, travel restrictions and the pace of recovery highly uncertain. The company expected first-quarter 2021 system capacity to be approximately 45% below first-quarter 2019 levels and intended to adjust capacity to booking trends. Management expected to meet cash obligations and remain in compliance with debt covenants for the following 12 months based on its assumptions, projected operating cash flows, available liquidity and anticipated government assistance; it cautioned that actual conditions could differ materially.
- PSP2 assistance was expected to total at least $3.0 billion; $1.5 billion was received on January 15, 2021. PSP2 restricts furloughs and certain pay reductions through March 31, 2021 and prohibits share repurchases and common-stock dividends through at least March 31, 2022.
- On February 5, 2021, approximately 13,000 U.S.-based employees were notified of potential workforce reductions effective on or after April 1, 2021.
- The company had approximately $9.5 billion of aircraft and engine purchase commitments for 2021–2025 and total aircraft and engine commitments of approximately $11.3 billion as of year-end.
- Key risks include prolonged or renewed travel restrictions, permanent reductions in business travel, continued operating cash burn, high leverage, refinancing and collateral requirements, credit-card processor holdbacks, pension obligations, labor negotiations, fuel-price volatility, aircraft delivery and supplier concentration, regulatory and environmental costs, cybersecurity, foreign-exchange exposure and potential asset impairments.
- As of December 31, 2020, the company had no fuel hedging contracts and remained fully exposed to fuel-price changes. A one-cent-per-gallon fuel-price increase was estimated to increase 2021 fuel expense by approximately $38 million.
- The JetBlue alliance remained subject to ongoing investigations by the Department of Justice and several state and local attorneys general despite the Department of Transportation’s termination of its review.
Most important facts for investors to verify
- Whether passenger demand and operating cash flow recover quickly enough to offset ongoing losses, debt service and fixed commitments.
- The company’s liquidity runway after considering restricted cash, minimum-liquidity covenants, debt maturities, pension contributions, aircraft commitments and possible credit-card holdbacks.
- The full economic cost, dilution and covenant restrictions associated with PSP1, PSP2 and the Treasury secured loan, including warrants and additional borrowing capacity.
- Debt maturity and interest burden, particularly the 2021–2025 maturities, high-coupon secured notes and approximately $12.8 billion of LIBOR-linked borrowings.
- Whether additional fleet impairments, workforce reductions, lease costs or changes in travel-credit and AAdvantage redemption behavior will affect future earnings and liquidity.
- The recoverability of deferred tax assets and approximately $16.5 billion of federal NOLs, including expiration and Section 382 limitations.