Omniscient

Not at all. As others have said, cash is king. How much cash do you have to withstand the burn rate. Airlines will be taking on more debt to get through this, some taking out debt on current assets. How much cash do you have and how much can you get, that’s what matters.

5and20

Cash to Debt Ratio measures the financial strength of a company. It is calculated as a company's cash, cash equivalents, and marketable securities divide by its debt. Spirit Airlines's cash to debt ratio for the quarter that ended in Dec. 2019 was 0.31.

If Cash to Debt ratio is greater than 1, the company can pay off its debt using the cash in hand. Here we can see, Spirit Airlines couldn't pay off its debt using the cash in hand for the quarter that ended in Dec. 2019.
NYSE:SAVE' s Cash-to-Debt Range Over the Past 10 Years
Min: 0.08 Med: 1.8 Max: No Debt
Current: 0.31
0.08
No DebtDuring the past 12 years, Spirit Airlines's highest Cash to Debt Ratio was No Debt. The lowest was 0.08. And the median was 1.80.
NYSE:SAVE's Cash-to-Debt is ranked higher than
54% of the 814 Companies
in the Transportation industry.

https://www.gurufocus.com/term/cash2...t-Airlines-Inc

Omniscient

You still here? Its about cash. Cash TTM is the only other number I see that seems to be relevant to help show burn rate.

Spirit isnt trying to pay of debt, nobody is right now. Airlines are trying to survive off cash.

If you get furloughed, you dont care about the amount you owe on the house, you care about how much cash you have to make the payment. You dont care about how much you owe on the car, you care if you can make the payment without having it repo'd

Tom Bradys Cat

Yer, and the figures you are using are ballance sheet stuff..... So thats a snapshot in time..... An irrelavent time I might add.

What matters now is the operating costs and cash etc.

TrojanCMH

You really think they want to pay off debt with the interest rates where they are now. If anything they’re all struggling to take out more debt to weather the storm. The debt doesn’t become due on the day the banks chose. Omni is right. Cash and access to it is king right now. Not some spreadsheet on how much you owe on your tugs and baggage carts.


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5and20

Are airline stocks investible? On a price/earnings basis they appear cheap—Delta trades at 5.6 times earnings, while United and American go for less than four times earnings. But airlines have been cheap for the entire bull market, so those numbers really don’t matter. “With the positive airline story uncertain or even broken, there likely is no supportive valuation metric for investors,” says Helane Becker, a veteran industry analyst with Cowen. She recommends staying on the sidelines until there’s evidence that the virus threat is receding.

So what should investors look at instead? We looked to the bond market for a possible answer. While airline bonds have sold off, as of Friday afternoon, none of their unsecured debt was trading at levels that signal severe trouble ahead. “The debt market is calling them stressed,” says Barry Kupferberg, managing partner at Barkers Point Capital Advisors. “Not distressed.”

Barron’s performed a stress test on the airlines, looking at unencumbered assets (any property like planes or real estate that the airline owns outright), credit facilities, available cash, and profitability. Scores range from below five to 30. You would need an iron constitution to take a flier now, but the results lead to a couple of stocks to consider—especially Southwest and Delta—and a few that could keep investors up at night if the coronavirus, and economic, situation takes a turn for the worse.

Southwest Airlines (LUV)

Financial Flexibility Score: 30, Highest

Southwest’s stock has dropped 24% this year, less than any other U.S. carrier. There’s a reason for that—its industry-leading balance sheet. The low-cost airline has $5.3 billion in cash and short-term investments available, plus a credit line of $1 billion. Its long-term debt/Ebitda (earnings before interest, taxes, depreciation, and amortization) ratio sits at a comfortable 0.7 times. Bernstein analyst David Vernon estimates that Southwest has $23.3 billion in untapped liquidity at its disposal, enough to last quite a while. Southwest has the least amount of debt, just $4 billion compared with $17 billion at Delta.

Still, expect it to take a revenue hit. On March 5, Southwest estimated a $200 million to $300 million drop in sales from the virus, and has provided no update since. The total impact is probably worse. Earnings growth, already challenged, will also take a shot. The good news: Southwest has the industry’s longest record of annual profitability—it was profitable even after 9/11—and it’s a good bet that the carrier will make it through this crisis.

Southwest certainly thinks so. “While it is difficult to estimate the duration and severity of the impact from Covid-19,” Southwest said in a March 5 filing, “the company remains financially strong.”

Delta Air Lines (DAL)

Financial Flexibility Score: 28, Second Highest

Delta is another airline to have an investment-grade balance sheet, and that should serve it well during this health and economic crisis.

The airline has structural advantages in its favor. It dominates its major hubs, which include Atlanta and Salt Lake City, and that has helped it earn the highest profit margin of legacy airlines in recent years. Its credit-card partnership withAmerican Express (AXP) is also highly profitable, and produces recurring cash flows that are largely uncorrelated to its core business—though spending would decline if the economy slows. Delta’s dividend could also be suspended, which would save it about $1 billion annually.

Delta has other options, though. It’s reducing capacity, and using this moment to retire older jets it had been looking to take out of service. It has also initiated a hiring freeze. The company is targeting $4 billion in cost reductions this year, plus over $3 billion in free-cash-flow savings from deferred capital expenditures, voluntary pension funding, and the suspension of share buybacks.

While Delta withdrew guidance for 2020, the airline expects to have at least $5 billion of liquidity by the end of the quarter, with about $20 billion in unencumbered assets that can be tapped later on. It has more debt than Southwest—some $17 billion, giving it a total debt-to-Ebitda ratio of 1.9—but it’s still manageable.

At a recent conference, CEO Ed Bastian said that Delta is seeing as much as a 30% decline in bookings, and he’s prepared for worse. But he expects the company to remain free-cash-flow positive, and plans to maintain its investment-grade credit rating. “We expect demand erosion will continue in the near term,” he said, yet the airline has “built a plan that prioritizes free-cash-flow generation and preserves liquidity.”

United Airlines Holdings (UAL)

Financial Flexibility Score: 20, Third Among Large Carriers

United’s incoming CEO J. Scott Kirby has expressed a credible worst-case scenario, and the company is actively taking aggressive measures to prepare for it. That includes reducing capacity, cutting discretionary operating expenses, slashing its 2020 planned capital expenditures in half, and suspending its share-repurchase program. That’s a lot of savings to go with United’s $8 billion of available liquidity and $20 billion in unencumbered assets to borrow against. It should have enough operating cash to remain above the $3 billion liquidity level that the airline needs to keep operating.

The challenge for United is that much of its revenue and profit comes from international routes, and United’s debt load remains relatively high, at 2.7 times Ebitda, with $20.5 billion in total debt. Its international exposure has hammered the stock, making it one of the worst performers this year, down 53%. Margin-improvement plans and other turnaround initiatives will have to wait until the pandemic recedes. Short of a lengthy recession, United has the balance sheet to withstand the shock.

Spirit Airlines (SAVE)

Financial Flexibility Score: 19

Ultralow-cost carrier Spirit appears most imperiled by the crisis. The stock is down 63% this year, and trades at just 3.4 times earnings. However, its debt/Ebitda is high, at 4.3 times. The airline has always operated with a lean cost structure, which could help it absorb an extended period of lower fares. Profits, of course, are part of any company’s ability to weather storms.

“[Spirit Airlines] is one of the only airlines to cut pricing on flights and still be profitable,” writes J.P. Morgan analyst Jamie Baker in a recent research report. “Management’s view is that [Spirit] will navigate the Covid-19 situation adequately, and that a fundamental change in landscape is not likely at this point.” Baker gives management the benefit of the doubt, rating shares the equivalent of Buy with a $53 price target.

But its pitch of ultralow fares may not resonate in a market where everyone is afraid to fly, no matter the cost. And price-sensitive leisure travelers may not return soon if the economy goes into a tailspin. We’d watch and wait.

American Airlines Group (AAL)

Financial Flexibility Score: 12

Of the big three airlines, American has the least flexibility. It holds $33.4 billion in debt, giving it a long-term debt/Ebitda ratio of 4.8 times, well above its peers’ leverage. Some of its unsecured debt yields close to double digits, higher than the 5% for Delta, and the 8% for United. With a market cap of $6 billion, its equity value is just 17% of enterprise value, putting it closest to the 10% level that would signal “distress.”

That puts the greatest pressure on maintaining cash flow. But American also has $7.3 billion in cash and other liquidity, and it has $10 billion in unencumbered assets that it can borrow against should it need to raise cash. American also has a buffer on that debt load: its closest major maturity of $750 million isn’t due until 2022. Its debt covenants require American to maintain $2.5 billion in liquidity.

Tighter profit margins and a riskier balance sheet already had American shares trading at a discount to other airlines, even before coronavirus appeared. Though perhaps the riskiest play of the group, it could also have the most potential for upside if the coronavirus turns out to be a shorter-term, perhaps six-month, economic interruption.

rickair7777

Also ACCESS to cash... that's very important and the DE ratio will affect that... if you're already mortgaged to the hilt, likely be harder to take on more debt to obtain needed cash.

But there will be bailouts, especially if you're really big.

If I had a lot of cash, and was inclined to invest in airlines, some airline stocks would be a good deal right now because they just got dragged down by the rest of the sector. Others would be risky. I'd go for good DE and credit rating, and heavy on the domestic network (probably take less hit and bounce back faster than international).

Tom Bradys Cat

Rickair..... Yes access to.cash is important. However your causation is wrong re the DE ratio. The DE ratio does not affect cash flow. DE ratio is an indicator of wealth generating assets vs liabilities all things being equal. They are correlated.....up until things change.

As I said in a previous post, the DE ratio from 1 month ago is useless because many of the assets are now liabilities. Accounting allows for this.

With regards to cashflow... Yes cash is king but more i.portantly is getting the cash. You can either generate revenue orr raise debt. Just because the fed rate is now at 0% doesnt mean its cheap.for airlines...... They are now an unhealthy industry so will likely be paying more to sell bonds or get standard finance. Since the cost is higher than their current rates raising debt is out the window.

That leaves revenue......bot much of that coming in.

So what options do they have?
One really, Reduce liabilites.....planes, staff, bad contracts.
Then cross fingers.

And for those saying they wont pay down debt......sort of right, sort of wrong. They will service all debt (pay it down per the sched) and where possible pay down high interest debt.