American Airlines To Receive $5.8 Billion in Payroll Support From US Treasury

The funds, which are targeted to support team member salaries and benefits, will come in two forms: a direct grant of $4.1 billion, and a low-interest rate loan of $1.7 billion.

What’s more, in addition to the $5.8 billion, American revealed that it is planning to separately apply for a loan from the U.S. Treasury of approximately $4.75 billion.

Following the approval, American Airlines CEO Doug Parker stated “The Payroll Support Program recognizes the extraordinary dedication of our entire team, and importantly, sustains the critical air service being provided by our frontline team members.”

The PSP, which was created through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, protects AAL employees from involuntary furloughs or pay rate reductions through to September 30, 2020, at which point American hopes that demand for air travel will have recovered.

The airline has also agreed to limitations on stock buybacks, dividends and executive compensation.

Analysts are pessimistic about the stock’s prospects right now, according to TipRanks. The stock is currently showing a Moderate Sell analyst consensus, with an average price target of $18.60. Given that American has plunged 58% year-to-date, the target indicates upside potential of 56%. (See AAL’s stock analysis on TipRanks)

JP Morgan’s Jamie Baker double-downgraded AAL from buy to sell on April 6, while removing his price target. The analyst told investors: “We are growing increasingly convinced that industry recovery to 2019 levels of output will be a multiyear affair, resulting in the material shedding of aircraft and head count along the way.”

He added “the margin for error for American management to navigate this crisis outside of the courts is growing uncomfortably thin.”

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