Shares of American Airlines (AAL - Free Report) rose 4.42% on Sep 25 to $12.29 a share following the announcement that it has agreed to borrow up to $5,477 million from the United States Department of the Treasury. The agreement permits the carrier to borrow up to the above limit under a secured term loan facility.
American Airlines decided to borrow the amount under the $25-billion federal loan scheme per the Coronavirus Aid, Relief and Economic Security or CARES Act. This federal loan scheme is in addition to the $25-billion sum received by airlines in April in the form of grants to protect jobs, which is set to expire on Sep 30, 2020.
Even though many carriers had signed letters of intent pertaining to their share in the federal loan package, the likes of Delta Air Lines (DAL - Free Report) and Southwest Airlines (LUV - Free Report) finally decided against availing of the treasury loans.
This increased the amount available for other carriers. For instance, the maximum amount that American Airlines could borrow was initially pegged at $4.75 billion. However, the same climbed to $5.5 billion following the opt-outs. Notably, American Airlines, currently carrying a Zacks Rank #3 (Hold), already borrowed $550 million of the permitted amount, backed by its loyalty program. It can now borrow up to the permissible amount in a maximum of two more installments until Mar 26, 2021.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Per a Reuters report, United Airlines (UAL - Free Report) also chose to avail of treasury loans. However, some other carriers are yet to decide, which they have to within the deadline of Sep 30, 2020. With only a few days remaining for the deadline to expire, the possibility of more carriers declining the loan package is very much there. This might further expand the shares of those industry players who participated in the scheme.
Notably, American Airlines’ share may be hiked by another $2 billion to $7.5 billion next month, subject to the final approval by the Treasury. However, the loan agreement will have to be amended in the event of any such increase.
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