American Airlines (AAL) will begin to furlough 19,000 workers as the Payroll Support Program under the US CARES (Coronavirus Aid, Relief and Economic Security) Act expires today. AAL shares are up 2% in early market trading.
In a letter to employees, America Airlines CEO Doug Parker said that the elected officials were not able to reach an agreement about extending the US relief package and hence the company will have to go ahead with the planned furloughs.
However, Parker stated that if the efforts to extend the $25 billion Payroll Support Program are successful “over the next few days,” the company would recall the impacted workers.
Peer United Airlines is forced to furlough over 13,000 workers. In addition to large carriers, many smaller airlines have sent layoff warnings to employees. Before the job cuts, major airlines offered voluntary buyouts and retirement packages to employees.
The pandemic has caused a huge drop in air traffic and has led to a crisis in the airline industry. American Airlines alone posted an operating loss of $5 billion in the first half of 2020. It has secured a $5.48 billion loan agreement from the US government to maintain financial flexibility amid the current crisis. (See AAL stock analysis on TipRanks)
Recently, Citigroup analyst Stephen Trent reiterated a Sell rating on AAL, citing the carrier’s highly stressed balance sheet and signs of “weak but slowing” revenue improvement.
Trent highlights early data, which indicate that passenger revenue for US airlines will be down 75% to 80% Y/Y in November, though he does see some “marginal improvement” in recent trends.
Overall, the Street has a Hold analyst consensus on AAL based on 3 Buys, 2 Holds and 4 Sells. With the stock down 57% year-to-date, the average analyst price target of $12.25 implies that shares are fully priced at current levels.
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