Analyst Note| Brian Bernard, CFA, CPA |
No-moat-rated American Airlines reported a difficult first quarter as the COVID-19 pandemic has ground air traffic to a near-halt. We had previously priced in a very difficult 2020 and we are maintaining our $15.70 fair value estimate. Revenue declined by roughly 20% year-over year and the firm generated a net loss of $5.26 per share. Managements’ priorities are raising and conserving cash. On raising cash, the firm received $10.6 billion of funding from the CARES act and the firm is looking at its estimated $10 billion of unencumbered assets for incremental liquidity. We respect the need for the firm to raise capital to survive in an unprecedentedly challenging operating environment, but we expect that additional debt capital from 2020 will leave the firm with a sizable pile of debt for the foreseeable future. On conserving cash, the firm is working to conserve cash by reducing the daily cash burn from an expected average of $70 million a day to roughly $50 million a day.