Airlines Begin Repaying U.S. Treasury
The U.S. Treasury is beginning to turn a profit from the loans it provided airlines under the CARES Act coronavirus relief package. American Airlines and Sun Country Airlines both repaid their loans at the end of March, with a new report estimating a double-digit return for taxpayers on the former’s debt.
The report by Cowen & Co. estimates the government made a roughly 21 percent annualized return on its loan and warrants to American — beating most major stock indices in returns over the past year. The Fort Worth, Texas-based carrier paid the Treasury Department $10.8 million in interest on its $550 million loan. However, the balance is paper returns that assume the government exercised its warrants in the airline and sold the stock at market prices on March 30 — something it did not do. Selling the equity stake then would have netted the government another $106 million in proceeds.
Sun Country prepaid of its $45 million CARES Act loan with proceeds from its IPO.
Considering the billions of dollars in additional warrants and loans made under the CARES Act and subsequent federal payroll assistance, U.S. taxpayers stand to make out well from these programs. Overall, Congress has allocated $79 billion in relief for airlines to date, though some of this was distributed as grants that do not have to be repaid. In addition, not all of the funds available as loans have been drawn.
This is not the first time the federal government has profited on airline relief. After 9/11, $10 billion in loan guarantees made by the Air Transport Stabilization Board netted the Treasury a roughly $300 million profit.
Alaska Airlines, JetBlue Airways, Mesa Airlines, SkyWest Airlines and United Airlines have not said when they plan to repay the just over $1.02 billion they have borrowed under the CARES Act. Every major U.S. carrier received separate payroll assistance with many giving the government warrants in return.
Frontier’s Shares Make Lackluster Debut
Frontier Airlines first day of trading was not the blockbuster Sun Country’s was last month. The Denver-based carrier’s shares closed on April 1 under its listed price of $19, already at the lower edge of the range Frontier had planned.
At a $19 per share valuation, Frontier had expected to raise as much as $570 million, but shares ended trading on the first day at the Nasdaq exchange at $18.85. (Markets were closed on April 2 for Good Friday.)
By comparison, Minneapolis-based Sun Country, roughly half the size of Frontier, saw its shares rise more than 50 percent on its first day of trading, on March 17, ending the day trading at $36.38. (The company’s share price has fallen slightly since then.)
Both carriers are leisure-focused, a segment of the market that is recovering faster than business traffic. But the key difference is that Sun Country also operates a subfleet of freighters for Amazon, and during the pandemic, cargo has been the most stable source of revenue in the airline industry.