Every major U.S. airline has now shunned the U.S. government’s $25 billion emergency pandemic loans, avoiding the strings attached to that program in favor of the credit market’s warm embrace.
United Airlines announced Monday that it will raise $9 billion from institutional investors through a combination of loans and bonds. Part of that will pay off $520 million the company already borrowed from the federal government program.
The U.S. Treasury Department a year ago offered loans to prop up the industry as COVID-19 froze the business, but with terms viewed as onerous. The companies had to issue warrants to the government, and agree to restrictions on dividends, stock buybacks and executive compensation. Delta Air Lines and Southwest Airlines both opted out last year.
While United and American Airlines borrowed relatively small amounts, they had until next month to decide whether to fully embrace the program — and its strict terms — by taking several billion dollars of additional liquidity that was available to them. American bowed out by tapping institutional investors to raise $10 billion in March, and United has now also backed away.
The decisions largely reflect just how robust credit markets have been because of the Federal Reserve’s pandemic support — its pledge to buy bonds and policy makers’ signal that rates will stay low for years.
“The market has been open like crazy for airlines,” said Roger King, a senior analyst at CreditSights. “They have issued debt right and left, and they have less pressure on liquidity.”
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In addition to repaying what it’s borrowed from the Treasury, United will use proceeds from its debt sale to refinance a $1.4 billion term loan, a $1 billion revolver and to add cash to its balance sheet given the uncertain outlook for travel.
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