American Airlines issues new EETC; new Saudi airline confirmed

Dino D'Amore
By Dino D'Amore November 22, 2013 10:33

American Airlines issues new EETC; new Saudi airline confirmed

Hoping to ride the wave of positive investor sentiment on its merger approval with US Airways, American Airlines has launched a $512.038 million B tranche enhanced equipment trust certificate (EETC) issuance (2013-2B).

The B notes have a legal final maturity of January 2022 and an expected maturity of July 2020, with an average life of 4.8years and LTV of 74.5%. The expected rating for the B notes is B+ from Standard & Poor’s and B from Fitch.

The notes, which have Section 1110 protection after AMR emerges from bankruptcy but until then investors are able to repossess the aircraft immediately after the event of a default, are secured by 41 737-200s (1999-2010 delivery), 14 757-200s (1999-2001 delivery), one 1999-vintage 767-300ER and 19 777-200ERs (1999-2001 delivery).

Active bookrunners on the deal are Goldman Sachs, Credit Suisse, Deutsche Bank and Morgan Stanley. Citi and JPMorgan are passive bookrunners. The liquidity facility is being provided by Morgan Stanley.

American Airlines will use the proceeds from the deal for general corporate purposes.

Now as most news outlets concentrate on the potential block to the merger from a private individual (see Americas news below), I think it is far more interesting to point you to the traffic figures that American Airlines is churning out – some of them are unbelievable. Look to the Miami hub for a start and you will see passenger growth that has caught everyone by surprise and is now leading Miami Airport to abandon plans to develop its terminal for the time being so it can handle the passenger traffic. The question is this: Are other airlines also seeing growth on Miami routes or is American Airlines doing something others are unable to duplicate or compete against? We will report on this matter next week, but remember that Miami, as an American Airlines hub is a drawback as it has airport fees that are far in excess of all other US major airports.

As mentioned here in July, Saudi Arabia is to get a new domestic airline in Saudi Gulf Airlines. The airline will be based in the east-coast city of Dammam and plans to operate regional and international flights, starting with three to four daily flights between Dammam and Jeddah and Riyadh. The second phase will include additional flights on those routes as well as expanding the network to Medina, Qassim, Abha and Tabuk, before eventually launching an international network covering the Near East, Middle East and Africa.

The Airline is owned by Abdel Hadi Abdullah Al Qahtani & Sons, a consortium of privately-owned companies based in Saudi Arabia, and is being advised by Gulf Air.

In another twist, Qatar Airways will begin Saudi domestic services, operating under the name Al Mahah Airways, with flights to begin in the first half of 2014.

Saudi Arabian Airlines and flynas are presently the only carriers operating domestic services in a country of 29 million people and they will come under significant pressure from these new airlines unless they step-up and lower their cost base(s) at speed.

Also in news mentioned here in July, TransAsia Airways said this week that it will invest around NT$3 billion (US$100 million) to launch Taiwan’s first low-cost carrier. The airline will lease two to three A320/A321 aircraft to start services by mid-2014. The company has launched a contest to name the new airline, with the winner entitled to unlimited free flights for 10 years. TransAsia is an airline on the up and is one to watch but this low-cost venture is being checked by Taiwan’s flag carrier China Airlines, which has also applied to authorities to launch a low-cost carrier and is awaiting approval.

Now one serious point to end the week on is our repeated warnings about SpiceJet over the past 12 months. This week ICICI Securities has stated in a note to clients that the airline’s net worth is negative Rs 603 crore as of September 30 and its loan liability is over Rs 1,700 crore. “Given the negative net worth of Rs 603 crore and loan liability of over Rs 1700 crore, funding the operations, going forward, would remain a very challenging task for the company”. SpiceJet posted its highest ever quarterly loss in September at Rs 559 crore. On top of this we have warned you that investors in the airline have been propping it up but one must wonder when the Marans will give up. But my warning is this: passengers for this period are down to such an extent that an Rs500 crore + loss is being forecast and we know that no more funds can come from current investors before March 2014. All Indian carriers are weak at this time but SpiceJet is the most worrying – Stakeholders be warned (again).

Dino D'Amore
By Dino D'Amore November 22, 2013 10:33
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