Southwest Air raises US$4bil

  • Aviation
  • Thursday, 30 Apr 2020

Grounded: Southwest Airlines Boeing 737 MAX 8 aircraft are shown parked in California. The company will take delivery of fewer jets this year due to the travel halt caused by Covid-19. — Reuters

TEXAS: Southwest Airlines Co raised about US$4bil by selling shares and convertible notes, stepping up a push to add liquidity as the coronavirus pandemic all but erases demand for flights.

The carrier sold 70 million shares at US$28.50 apiece and US$2bil of convertible notes due in 2025, according to a statement. Southwest increased both the stock and bond portion of the sale from what it had previously targeted.

Southwest is following United Airlines Holdings Inc in offering equity amid the biggest crisis in the industry’s history, as carriers rush to raise funds even after receiving billions of dollars in government aid. Southwest is also cutting the number of Boeing Co 737 Max jets it will take through December 2021 by more than half, and said the travel outlook demand remains bleak.

“While United’s equity offering last week raised investor fears of similar action at other airlines, what has been surprising is the participation by airlines with very strong liquidity positions, ” Savanthi Syth, an analyst at Raymond James, said in a note to clients on Southwest. “This implies no airline is immune to shareholder dilution.”

Southwest rose 2% to US$29.69 at the close in New York. The stock has dropped 45% this year, the best performance on a Standard & Poor’s index of major U.S. carriers.

Southwest already raised US$5.2bil in debt since the start of the year. Chief executive officer Gary Kelly said the company would try to raise more money even after the new offerings.

“This is a doozy, ” he said in an interview on CNBC, referring to the travel collapse. “As a world, we just weren’t prepared for this pandemic. We need to be better prepared next time around and hopefully it won’t be for another century.”

The 1.25% convertible bonds have a conversion price of about US$38.48 per share, representing a 35% premium over the stock offering.

The stock sold plus a 10.5 million share over-allotment option represent about 16% of Southwest’s current outstanding stock. Bloomberg News reported late Monday that the deals were in the works.

“The company is in a strong liquidity position and is in good shape to weather the near-term demand decline, ” Helane Becker, a Cowen & Co analyst, said in a note to clients. The proceeds from the equity and notes sales will “further bolster” that stance.

Morgan Stanley, Bank of America Corp, JPMorgan Chase & Co, BNP Paribas and Citigroup Inc are the joint book-running managers of the offerings.

Southwest is also rushing to cut costs. Deliveries of the 737 Max from Boeing will total no more than 48 through the end of next year. The Dallas-based airline had been scheduled to receive 123 Max jets from Boeing and aircraft lessors through the end of 2021, chief financial officer Tammy Romo said.

Under the reworked delivery schedule, the company this year will take fewer than the 27 jets it had been expecting. Also, the carrier will remove the Max from its schedule until late October of this year.

With fewer customers on planes, operating revenue will fall as much as 95% in April and May and revenue trends are hard to predict after that, Southwest said. — Bloomberg

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