American plans ‘significant, steady and continuous debt reduction’

By Devika Patel

Knoxville, Tenn., Oct. 21 – American Airlines Inc. will be focused on paying off prepayable debt and reducing leverage over the next five years, with an eye on improving credit metrics, smoothing near-term maturity towers and freeing up collateral.

During the quarter, the company announced its intention to reduce its debt by $15 billion by the end of 2025.

American plans to accomplish this through scheduled amortization and by using excess cash and free cash flow to pay down prepayable debt.

Deleveraging is a top priority and American intends to get to the best credit metrics seen since its merger within four years.

“The deleveraging of American’s balance sheet remains a priority, and we are committed to significant, steady and continuous debt reduction in the years ahead,” executive vice president and chief financial officer Derek Kerr said on the company’s third quarter ended Sept. 30 earnings conference call on Thursday.

“Even with the slower-than-expected recovery observed during the third quarter, we remain on track with our target of reducing overall debt levels by $15 billion by the end of 2025.

“Ten billion dollars of this will be achieved through amortization of debt and is net of new financing.

“As we look ahead, we will continue to focus our efforts on prepayable debt, which currently represents approximately 30% of our total debt obligations,” Kerr said.

There are other benefits to this plan, too.

“In addition to deleveraging our balance sheet, this plan will allow us to smooth our near-term maturity towers and free up high-quality collateral.

“Assuming this level of debt reduction and continued margin improvement, our plan is targeted to result in the best credit metrics in the history of post-merger American by the end of the four-year period,” he said.

American ended the third quarter with approximately $18 billion of total available liquidity and intends to keep that balance high in the short-term.

“As we look ahead, we feel confident we have enough liquidity to allow American to navigate the choppiness of the recovery,” Kerr said.

“Because of this choppiness, we will continue to keep liquidity at elevated levels in the near- to medium-term, but plan to step down our target liquidity to approximately $10 billion to $12 billion at some point next year, when we are confident the recovery has taken hold and we have returned to sustained profitability,” he said.

American Airlines is a Fort Worth-based airline company.

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